Choice Architecture and the Locus of Fiduciary Obligation in Defined Contribution Plans

Muir, Dana M.

doi:10.2139/ssrn.2188932

Cited by 6 publications

(6 citation statements)

References 33 publications

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“…In the USA, 'a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries' (paragraph 404(a)(1) (B) of the Employee Retirement Income Security Act (ERISA)). 18 Muir (2012) points out that the obligation of an Australian plan sponsor with respect to the default fund is limited to the choice of a MySuper product. The financial supervisor bears responsibility for approving the MySuper product while its provider serves as a responsible fiduciary in monitoring the MySuper product.…”

Section: Datamentioning

confidence: 99%

“…The financial supervisor bears responsibility for approving the MySuper product while its provider serves as a responsible fiduciary in monitoring the MySuper product. Muir (2012) differentiates this Australian 'financial services-based model' of fiduciary obligation from the US 'employer-based model' in which the plan sponsor ultimately remains responsible as a fiduciary for the selection and monitoring of investment options including QDIAs, even if these tasks are delegated to investment advisors. 19 Along these lines, Madrian and Shea (2001) find that a plan design change from opt-in to opt-out (autoenrollment) substantially increased the participation in a 401(k) plan, but the savings outcome was compromised by a low default contribution rate of 3% and a money market default fund.…”

Section: Datamentioning

confidence: 99%

“… 18 Muir (2012) points out that the obligation of an Australian plan sponsor with respect to the default fund is limited to the choice of a MySuper product. The financial supervisor bears responsibility for approving the MySuper product while its provider serves as a responsible fiduciary in monitoring the MySuper product.…”

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confidence: 99%

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Life-cycle patterns in the design and adoption of default funds in DC pension plans

Inkmann¹,

Shi²

2015

Journal of Pension Economics and Finance

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We argue that we should see a negative relationship between the share of risky assets in the default fund of a defined contribution (DC) pension plan and the average plan member age if trustees design the default fund in line with predictions from the life-cycle portfolio choice theory. Adoption of the default fund should be low in DC plans with high member age dispersion if default funds are indeed designed for the average plan member and members become aware of this. From analyzing a panel dataset of Australian DC pension plans, we obtain results that are consistent with both hypotheses.JEL CODES: G11, G23, G28

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Section: Datamentioning

confidence: 99%

Section: Datamentioning

confidence: 99%

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Life-cycle patterns in the design and adoption of default funds in DC pension plans

Inkmann¹,

Shi²

2015

Journal of Pension Economics and Finance

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“…In the rest of the paper, we use an identification strategy that takes advantage of the 9 See, www.ici.org/pdf /rpt 11 dc 401k f ee study.pdf . 10 http://www.law.cornell.edu/uscode/text/29/chapter-18/subchapter-I/subtitle-B/part-4 details ERISA rules, which we cite following Muir (2013).…”

Section: Introductionmentioning

confidence: 99%

It Pays to Set the Menu: Mutual Fund Investment Options in 401(K) Plans

2014

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This paper investigates whether mutual fund families acting as service providers in 401(k) plans display favoritism toward their own affiliated funds. Using a hand-collected dataset on retirement investment options, we show that affiliated mutual funds are less likely to be removed from and more likely to be added to a 401(k) menu. In addition, fund deletions and additions are less sensitive to prior performance for affiliated than for unaffiliated funds. We find no evidence that plan participants undo this affiliation bias through their investment choices. Finally, the subsequent performance of poorly-performing affiliated funds indicates that this favoritism is not information driven.

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“…ERISA rules are given in http://www.law.cornell.edu/uscode, which we cite following Muir (). The U.S. Department of Labor's Employee Benefits Services Administration website includes additional information on fiduciary obligations in DC plans (http://www.dol.gov).…”

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confidence: 99%

It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) Plans

Pool¹,

Sialm²,

Stefanescu

2016

The Journal of Finance

100

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This paper investigates whether mutual fund families acting as service providers in 401(k) plans display favoritism toward their own affiliated funds. Using a hand-collected data set on the menu of investment options offered to plan participants, we show that fund deletions and additions are less sensitive to prior performance for affiliated than unaffiliated funds. We find no evidence that plan participants undo this affiliation bias through their investment choices. Finally, we find that the subsequent performance of poorly performing affiliated funds indicates that this favoritism is not information driven.Employer-sponsored defined contribution (DC) accounts have gained significant importance around the world. In the U.S., the value of 401(k) assets reached $4.6 trillion in 2014. 1 Such growth represents important business opportunities for mutual funds as they manage approximately half of the 401(k) investment pool. In addition to asset management, many fund families also provide administrative services to the plans and hence may play an active role in creating the menu of investment options for plans' participants.Fund families involved in a plan's design can face conflicting incentives. While they work with plan sponsors to create menus that serve the interests of plan participants, they also have an incentive to promote their own proprietary funds, even when more suitable options are available from other fund families. 2 Surprisingly, however, little is known about whether and how these conflicting incentives affect 401(k) menus. This is concerning given that DC accounts are the main source of retirement income for many of the plan beneficiaries.In this paper, we examine the conflicting incentives of mutual fund companies in the 401(k) industry. Focusing on menu changes, we argue that service providers may influence the 401(k) sponsor to include and subsequently keep their own affiliated funds on the investment menu.We further hypothesize that due to this provider influence, fund addition and deletion decisions may be less sensitive to the prior performance of affiliated funds as mutual fund families have an incentive to smooth money flows across their funds with differential past performance.To investigate this favoritism hypothesis, we hand collect information on the menu of mutual fund options offered in a large sample of 401(k) plans for the period 1998 to 2009 from annual filings of Form 11-K with the U.S. Securities and Exchange Commission (SEC). 1 Accepted ArticleThis article is protected by copyright. All rights reserved. (2009), we collect information on the identity of the trustee of employer-sponsored 401(k) plans. Our sample includes plans that are trusteed by a mutual fund family as well as plans with nonmutual fund trustees. Most 401(k) plans in our sample adopt an open architecture whereby investment options include not only funds from the trustee's family ("affiliated funds") but also those from other mutual fund families ("unaffiliated funds"). An interesting feature of our data set is th...

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Choice Architecture and the Locus of Fiduciary Obligation in Defined Contribution Plans

Cited by 6 publications

References 33 publications

Life-cycle patterns in the design and adoption of default funds in DC pension plans

Life-cycle patterns in the design and adoption of default funds in DC pension plans

It Pays to Set the Menu: Mutual Fund Investment Options in 401(K) Plans

It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) Plans

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