How Do Employers’ 401(k) Mutual Fund Selections Affect Performance?

Edwin J. EltonMartin J. Gruber Christopher R. Blake

IB#13-1

The brief’s key findings are:

  • 401(k) performance is affected by the decisions of plan administrators as well as participant choices.
  • Administrators choose mutual funds that perform worse than comparable indexes but better than comparable, randomly selected funds.
  • When making changes to a plan’s fund offerings, administrators chase returns and do not improve performance.
  • Participants also tend to chase returns through contribution changes and asset transfers, and their investment strategies add no value.