Abstract: The Mutual Fund Industry and the Rise of the 401(k) Plan

Emily Martz


Over the course of the 1980s and 1990s, a major change occurred in the private pension plan marketplace. Specifically, the responsibility for a worker's retirement plan shifted from the shoulders of the employer to those of the employee, because most private, for-profit employers went from sponsoring defined benefit pension plans to sponsoring defined contribution plans, specifically 401(k) plans. The mutual fund industry benefited greatly from this shift; banks, insurance companies, and investment advisory firms managed the vast majority of defined benefit assets, while mutual funds quickly dominated defined contribution plans. This paper explores how the mutual fund industry gained this lead by analyzing the industry as a whole and the particular activities of two mutual fund complexes, Fidelity Investments and the Vanguard Group.