GAO Reports on 401(k) Fee Information
The Government Accountability Office (GAO) has released a report titled “401(K) Retirement Plans – Many Participants Do Not Understand Fee Information, but DOL Could Take Additional Steps to Help Them”. The GAO analyzed survey responses from 1,004 401(k) plan participants and found that nearly 40 percent of respondents do not fully understand the fee information found in fee disclosures required to be provided to participants. Further, the GAO determined that 45 percent of participants cannot use the information provided in disclosures to determine the cost of their investment, and 41 percent of participants falsely believed they had no 401(k) plan fees.
The GAO also reviewed disclosure practices in three countries and the European Union that have participant directed account-based retirement plans. The GAO has outlined several recommendations for the DOL to consider in improving disclosure requirements for participant directed accounts.
- Use consistent terminology to describe and measure asset-based investment fees
- Provide participants with the actual cost of asset-based investment fees paid
- Provide graphic illustrations and explanations that convey the cumulative effects of fees on saving over time
- Require the inclusion of benchmarks to assess the value of in-plan investment options against other investments
- Include ticker information for in-plan investment options when available
The DOL acknowledged that the study reinforces the complexities faced in trying to help plan participants with varying degrees of investment sophistication understand the fees and costs associated with plan investments.
The GAO report was requested by Chairman Robert C. “Bobby” Scott (D-VA), House Education and Labor Committee, and Chair Patty Murray (D-WA), Senate Health, Education, Labor, and Pensions Committee to examine how well participants can understand and use the fee disclosures.