Flicking the Switch: How Fee and Return Disclosures Drive Retirement Plan Choice

Short, standardized financial product disclosures should make comparisons easier, support better choices and reduce welfare losses. Using incentivized experiments, we investigate how and when prescribed fee and return information in standardized disclosures prompt efficient switches between retirement plans. Our choice data suggests members rely accurately on fee information but are reluctant to use returns information as a basis for switching plans, even when a switch is warranted. This reluctance persists even when returns have very low volatility. In addition, many of the prescribed information items are poorly understood by members. A simplified disclosure format can lead to more efficient comparisons of returns and significantly higher final account balances.