The Fed – Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations

September 2020

Out of Sight No More? The Effect of Fee Disclosures on 401(k) Investment Allocations

Mathias Kronlund, Veronika K. Pool, Clemens Sialm, & Irina Stefanescu

Abstract:

We examine the effects of a 2012 regulatory reform that mandated fee & performance disclosures for the investment options in 401(k) plans. We show that participants became significantly more attentive to expense ratios & short-term performance after the reform. The disclosure effects are stronger among plans with large average contributions per participant & weaker for plans with many investment options. Additionally, these results are not driven by secular changes in investor behavior or sponsor-initiated changes to the investment menus. Our findings suggest that providing salient fee & performance information can mitigate participants’ inertia in retirement plans.

DOI: https://doi.org/10.17016/FEDS.2020.078

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