New Study Shows Skewing of 401(k) Investment Menus to Benefit Mutual Fund Executives, Not Plan Participants

Those involved in managing 401(k) plans are expected
to make decisions for the exclusive benefit of plan
participants and beneficiaries. This study provides evidence
that mutual fund companies involved in plan
management often act in ways that appear to advance
their interests at the expense of plan participants.
Where mutual fund companies serve as plan trustees
– indicating their involvement in the management of
the plan – additions and deletions from the menu of
investment options often favor the company’s family
of funds. More significantly, this bias is especially
pronounced in favor of affiliated funds that delivered
sub-par returns over the preceding three years. And
participants do not shift their savings to undo this
favoritism, especially the favoritism shown to subpar
affiliated funds. The study also found that the
lackluster performance of these sub-par funds usually
persists. These findings thus suggest that, with
respect to setting 401(k) menus, mutual fund companies
tend to influence decisions in ways that appear to
adversely affect employee retirement income security.

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