@article {Saha1, author = {Atanu Saha and Heather Roberts}, title = {Practical Applications of Are Actively Managed Mutual Funds Per Se Imprudent Choices for 401(k) Plans?}, volume = {7}, number = {4}, pages = {1--6}, year = {2020}, doi = {10.3905/pa.7.4.372}, publisher = {Institutional Investor Journals Umbrella}, abstract = {In Are Actively Managed Mutual Funds Per Se Imprudent Choices for 401(k) Plans? from the Summer 2019 issue of The Journal of Retirement, authors Atanu Saha and Heather Roberts (both of Econ One Research) examine whether plaintiffs suing the fiduciaries of certain 401(k) retirement plans have grounds for their key allegation: that the plan fiduciaries who offer actively managed mutual funds should be liable for damages to plan participants because actively managed funds are inferior to and underperform passive index funds. The authors find that active funds charge higher fees and underperform passive funds{\textemdash}on average. However, when active funds are selected according to specific characteristics like high Sharpe ratios, low turnover, and high fund age, the selected funds significantly outperform passive funds, even after fees.This finding calls into question plaintiffs{\textquoteright} key assertion that active funds are unsuitable investments for 401(k) plans. Indeed, the authors claim that their method of active fund selection results in portfolios that are likely to produce better long-term returns than passive funds and thereby enhance plan participants{\textquoteright} retirement resources. The authors therefore suggest that plan fiduciaries should consider implementing the fund selection method outlined in their article, and they advise fiduciaries to cite their findings as evidence that they are not in breach of their fiduciary duties when they select active funds.TOPICS: Retirement, mutual fund performance, performance measurement}, issn = {2329-0196}, URL = {https://pa.pm-research.com/content/7/4/1.11}, eprint = {https://pa.pm-research.com/content/7/4/1.11.full.pdf}, journal = {Practical Applications} }