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I can see clearly now: The impact of disclosure requirements on 401(k) fees

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  • Badoer, Dominique C.
  • Costello, Charles P.
  • James, Christopher M.

Abstract

In 2012, the US Department of Labor imposed new disclosure requirements for indirect fees that 401(k) retirement plan service providers earn through revenue sharing agreements with mutual funds. This paper examines the impact of these fee disclosure requirements on the level and structure of fees paid by retirement plans, as well as service providers’ ability to price discriminate between plan sponsors of different sophistication. We document that the new disclosure requirements are associated with a substitution of direct fees for indirect fees and a reduction in total fees paid by smaller plans, and that mutual fund providers responded by introducing retirement fund share classes with lower 12b-1 fees.

Suggested Citation

  • Badoer, Dominique C. & Costello, Charles P. & James, Christopher M., 2020. "I can see clearly now: The impact of disclosure requirements on 401(k) fees," Journal of Financial Economics, Elsevier, vol. 136(2), pages 471-489.
    • Handle: RePEc:eee:jfinec:v:136:y:2020:i:2:p:471-489
    DOI: 10.1016/j.jfineco.2019.10.001
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    References listed on IDEAS

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    Cited by:

    1. de Bruin, Boudewijn & Cherednychenko, Olha & Hermes, Niels & Kramer, Marc & Meyer, Marco, 2024. "Demand for financial advice: Evidence from a randomized choice experiment," Journal of Banking & Finance, Elsevier, vol. 163(C).
    2. Chaudhry, Neeru & Kattamuri, Rohit, 2024. "Do defined contribution plans create value for shareholders?," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 616-633.

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    More about this item

    Keywords

    Pension plans; Fees; Disclosure; Mutual funds; Salience;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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