Mutual Fund Revenue Sharing in 401(k) Plans

Recordkeepers in defined contribution (DC) pension plans are often paid indirectly in the form of revenue sharing from third-party funds on the menu. We show that these arrangements affect the investment menu of 401(k) plans. Revenue-sharing funds are more likely to be added to the menu and are less likely to be deleted. Overall, revenue-sharing plans are more expensive, as higher expense ratios are not offset by lower direct fees or by superior performance. Rebates increase with the market power of the recordkeeper, suggesting that third-party funds may share revenues to gain access to retirement assets. This paper was accepted by Camelia Kuhnen, finance. Funding: The research reported herein was performed pursuant to a grant from the TIAA-CREF Institute through the Pension Research Council/Boettner Center (PRC) of the Wharton School of the University of Pennsylvania. Supplemental Material: The internet appendix and data files are available at https://doi.org/10.1287/mnsc.2023.01560 .