Private Pensions:
401(k) Plan Participants and Sponsors Need Better Information on Fees
GAO-08-95T: Published: Oct 24, 2007. Publicly Released: Oct 24, 2007.
Additional Materials:
- Highlights Page:
- Full Report:
- Accessible Text:
Contact:
(202) 512-5491
contact@gao.gov
Office of Public Affairs
(202) 512-4800
youngc1@gao.gov
According to Labor's most recent data, there are an estimated 44 million active participants in 401(k) plans. As participants accrue earnings on their investments, they also pay a number of fees, associated with 401(k) plans. Over the course of the employee's career, fees may significantly decrease retirement account balances. For plan sponsors, understanding the fees they are being charged helps fulfill their fiduciary responsibility to act in the best interest of plan participants. GAO's prior work on 401(k) fees found that fee disclosures are limited and do not allow an easy comparison of investment options. GAO previously made recommendations to both Congress and Labor on ways to improve the disclosure of fee information to both plan participants and sponsors. Both Labor and Congress now have efforts under way to ensure that both participants and sponsors receive the necessary fee information to make informed decisions. These efforts on the subject have generated significant debate. This testimony provides information about the way fee information could be disclosed to benefit 401(k) participants and sponsors, focusing on 1) the information on fees that could be most useful for plan participants and plan sponsors and 2) how such information could be effectively presented. To complete this statement, GAO relied on previous work and also utilized information from Labor and from industry experts on the subject of fee disclosure to participants.
Fee disclosure serves different functions for plan participants and sponsors. Studies have shown that 401(k) participants often lack basic knowledge about the fees associated with their plan. Participants need information about the direct expenses that could be charged to their accounts. As we previously recommended and most experts agree, the expense ratio--a fund's operating fees as a percentage of its assets--is a fundamental piece of information for participants. Plan sponsors, in contrast, need a range of fee information to fulfill their fiduciary responsibilities. Sponsors need additional information on service providers, investment options, and revenue sharing arrangements to assist them in monitoring plan fees and determining whether they continue to be reasonable in light of the services provided. Labor has ongoing efforts designed to help participants and plan sponsors understand the importance of plan fees and the effect of those fees on retirement savings. Whether participants receive only basic expense ratio information or more detailed information on fees, presenting the information in a clear, easily comparable format can help participants understand the content of the disclosure. GAO's prior reports found that certain practices help people understand complicated information. For example, using clear language and a straightforward layout in a brief document can enhance the accessibility of financial information. Also, providing graphics and less text can both attract recipient attention and make detailed information more quickly and easily understandable.
Feb 24, 2021
-
Financial Services:
Fair Lending, Access, and Retirement SecurityGAO-21-399T: Published: Feb 24, 2021. Publicly Released: Feb 24, 2021.
Jan 19, 2021
-
Elder Justice:
HHS Could Do More to Encourage State Reporting on the Costs of Financial ExploitationGAO-21-90: Published: Dec 18, 2020. Publicly Released: Jan 19, 2021.
Oct 30, 2020
-
Retirement Security:
Other Countries' Experiences with Caregiver PoliciesGAO-20-623: Published: Sep 30, 2020. Publicly Released: Oct 30, 2020.
Sep 24, 2020
-
Retirement Security:
Older Women Report Facing a Financially Uncertain FutureGAO-20-718T: Published: Sep 24, 2020. Publicly Released: Sep 24, 2020.
Aug 28, 2020
-
Retirement Security:
DOL Could Better Inform Divorcing Parties About Dividing SavingsGAO-20-541: Published: Jul 31, 2020. Publicly Released: Aug 28, 2020.
Aug 13, 2020
-
Retirement Security:
Older Women Report Facing a Financially Uncertain FutureGAO-20-435: Published: Jul 14, 2020. Publicly Released: Aug 13, 2020.
Jun 16, 2020
-
Retirement Security:
BLS Should Explore Ways to Improve the Accuracy, Timeliness, and Relevance of Its Cost-of-Living MeasurementsGAO-20-422: Published: Jun 16, 2020. Publicly Released: Jun 16, 2020.
Feb 27, 2020
-
Private Pensions:
IRS and DOL Should Strengthen Oversight of Executive Retirement PlansGAO-20-70: Published: Jan 28, 2020. Publicly Released: Feb 27, 2020.
Jan 9, 2020
-
Social Security Disability:
Action Needed to Help Agency Staff Understand and Follow Policies Related to Prescription Opioid MisuseGAO-20-120: Published: Jan 9, 2020. Publicly Released: Jan 9, 2020.
Dec 18, 2019
-
Capitol Police:
Potential Effects of Raising the Mandatory Retirement AgeGAO-20-137R: Published: Dec 18, 2019. Publicly Released: Dec 18, 2019.
Looking for more? Browse all our products here