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New research indicates that mutual funds that offer revenue-sharing compensation to the recordkeepers of 401(k) plans are more likely to be added to the investment menu of those plans and are less likely to be deleted. Meanwhile, participants in the plans are more likely to pay higher fees without the benefit of higher performance.
|Effects on menu design
The research, which was published in January, analyzes the practice in 401(k) plans of revenue sharing, which is a common form of indirect compensation for intermediaries in the mutual fund industry. Through revenue sharing, indirect payments or rebates are made to the recordkeepers of 401(k) plans by third-party mutual funds. Recordkeepers, which are the primary intermediary in retirement plans, help establish and administer the set of investment options offered to 401(k) plan participants, according to the paper. According to the paper, revenue sharing affects the menu design of the retirement plans.
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