About 67 percent of 401(k) plans included proprietarymutual funds in 2013, accounting for almost 28 percent of all planassets, according to the Investment Company Institute andBrightScope’s most recent research on the definedcontribution industry.

The percentage of the smallest plans that offer proprietaryfunds is virtually the same as with the biggest plans—61.3 percentof plans with $1 million to $10 million in assets offer proprietaryfunds, compared to 63.1 percent of plans with more than $1 billionin assets.

Proprietary funds’ largest footprint is in plans with $250million to $500 million, which have the highest percentage: 79percent of those plans offer proprietary funds, accounting for 38.6percent of plan assets.

The Department of Labor’s proposed fiduciaryrule, which is expected to be finalized in the comingmonths, in part addresses the role of proprietary mutual funds in401(k) plans.

Plan providers and plan advisors will be required to disclosewhen they are selling proprietary mutual funds to sponsors and planparticipants, as well as disclose any third-party payments for thefunds they suggest.

In December, the Securities and Exchange Commission said J.P.Morgan Chase settled $307 million in penalties for not disclosingconflicts of interest to retail investors relating to the marketingof proprietary funds the firm managed.

The SEC called the harm to investors “significant” and said theconflicts of interest from the use of J.P. Morgan Chase’s own fundswere “pervasive,” according to a statement from the agency.

A J.P. Morgan spokesperson said the lack of disclosures was notintentional, according to reporting in the Washington Post.

Last year, research from the Pension Research Council concludedthat service providers favor their own proprietary funds, even whenthey underperform benchmarks.

Among all plan sizes, underperforming non-affiliated funds weremore likely to be removed from investment menus than wereproprietary funds.

Of the non-affiliated funds that ranked in the bottom10^th percentile of performance over a three-year period,25 percent were removed.

But only 13.7 percent of the lowest-performing proprietary fundswere removed, the research found. The study examined nearly 2,500plans and their performance between 1998 and 2009.

“Overall, our baseline results indicate that affiliated fundsare significantly less likely to be deleted from 401(k) plans thanunaffiliated funds and that this bias is particularly pronouncedfor poorly-performing funds,” wrote the authors of the report.

“While service providers of 401(k) plans are expected to act inthe best interest of participants, they also have a competingincentive to attract and retain retirement contributions in theirown proprietary funds,” they said.