How Academic Research Is Changing Retirement Investing

The gap between what academic research tells us about retirement investing and what the financial services industry actually practices is enormous. As finance professors who have spent our careers studying this gap, we founded Elemental Retirement Solutions to help close it.

Here's what decades of peer-reviewed research reveal — and why it matters for your 401(k) plan.

Fees Are a Strong Negative Predictor of Outcomes

This finding is perhaps one of the most robust in all of investment research: lower-cost funds tend to outperform higher-cost funds over time. It sounds simple, but the implications are profound.

Many 401(k) plans are loaded with actively managed funds carrying expense ratios that are arguably well above what participants should be paying. Academic and industry evidence consistently shows that the majority of actively managed funds fail to outperform their benchmark after fees over meaningful time periods.

This doesn't mean active management never works. It means that when selecting funds for a retirement plan, cost should be a primary consideration — not an afterthought.

Diversification Works — But Most Plans Get It Wrong

Modern portfolio theory, developed by Nobel laureate Harry Markowitz, demonstrated that diversification can reduce risk without sacrificing expected returns. This principle has been validated by decades of subsequent research.

Yet many 401(k) plans offer fund lineups that create the illusion of diversification without the substance. Having 20 fund options means nothing if they're all large-cap US equity funds with different labels. True diversification requires exposure across asset classes, market capitalizations, geographies, and investment styles.

Behavioral Biases Hurt Participants

Our own research has focused extensively on how behavioral biases affect retirement investing. The findings are sobering:

• Inertia: Participants tend to stick with default options, even when those defaults are poorly constructed. This makes plan design critically important.
• Recency bias: Investors chase recent performance, buying high and selling low. This behavior consistently destroys value over time.
• Overconfidence: Participants who actively trade their 401(k) accounts tend to underperform those who maintain a disciplined, long-term strategy.
• Choice overload: When presented with too many options, participants either make poor decisions or avoid deciding altogether.

The solution isn't to hope participants will overcome these biases on their own. It's to design plans that account for them — through thoughtful default options, curated fund menus, and clear education.

Conflicts of Interest Are Pervasive

Our published research has documented conflicts of interest throughout the 401(k) industry. Fund companies, recordkeepers, and advisors often have financial incentives that don't align with participant interests. Revenue sharing, proprietary fund placement, and commission-based compensation structures all introduce conflicts that can erode retirement savings.

The research is clear: plans managed by advisors with fewer conflicts of interest tend to have lower costs and better outcomes for participants. This is precisely why fee-only fiduciary management matters.

What This Means for Your Plan

The academic evidence points to a straightforward set of principles for 401(k) plan management:

1. Minimize fees— every basis point matters over a 30-year accumulation period.
2. Ensure genuine diversification— across asset classes, not just fund names.
3. Design for behavior— use smart defaults and curated menus that help participants succeed.
4. Eliminate conflicts— work with fee-only fiduciaries who have no incentive to favor one fund over another.
5. Educate participants— help them understand the plan and stick to a long-term strategy.

These aren't just opinions. They are conclusions drawn from decades of rigorous, peer-reviewed research. And they are the principles that guide every decision we make at Elemental Retirement Solutions.

Sources: Doellman & Sardarli, “Investment fees, net returns, and conflicts of interest in 401(k) plans,” Journal of Financial Research 39(1) (2016): 5–33; Fama & French (2010), “Luck versus Skill in the Cross-Section of Mutual Fund Returns,” Journal of Finance 65(5): 1915–1947; SPIVA U.S. Scorecard: Year-End 2025 — S&P Dow Jones Indices (data as of Dec. 31, 2025); Doellman et al., “Alphabeticity bias in 401(k) investing,” Financial Review 54(4) (2019): 643–677; Doellman & Sardarli, “An investigation of administrative fees in defined contribution plans,” Financial Analysts Journal 72(2) (2016): 41–51.