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Highlights

The Department of Labor (Labor) collects information on fees charged to 401(k) plans primarily through its Form 5500. Labor issued final regulations in November 2007, making changes to, among other things, Schedule C of the Form 5500. Labor put emphasis on reporting the indirect compensation paid to service providers and between service providers, in an effort to capture all of the costs that plan sponsors incur. Congress and others are concerned that Labor's rules could result in duplicative and confusing reporting. Given these concerns, Government Accountability Office (GAO) was asked to examine the new requirements and determine whether Labor's new requirements will provide (1) clear and understandable guidance to plan sponsors and (2) useful information to Labor and others. GAO analyzed Labor's regulations and interviewed Labor and other officials about disclosure and reporting practices.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Labor 1. To minimize the possibility that inconsistent and incomparable information will be reported on the Schedule C and to ensure that the data collected results in meaningful information for Labor, sponsors, and participants, the Secretary of Labor should provide additional guidance regarding the reporting of indirect compensation and require that all indirect compensation be disclosed on the Schedule C.
Closed - Implemented
In June 2014, Labor reported that possible improvements to reporting of service provider information on the Schedule C is being considered as part of the joint DOL, IRS, PBGC "21st Century Form 5500 project" that is exploring changes to the Form 5500 as part of the planning for EFAST3. In Dec. 2013, EBSA reported that given the great variety of compensation and fee arrangements used by service providers to pension plans and group health and other welfare plans, it would be difficult to establish a single annual reporting scheme for both large and small plans that collect all forms and types of indirect compensation. Moreover, expanding the Schedule C indirect compensation reporting requirements to small plans and small employers may require legislative change given the Pension Protection Act (PPA) mandate in 2006 to develop and implement a new, even more simplified report for small plans. The Department responded to that PPA mandate at the same time it established expanded Schedule C fee reporting for large plans by establishing a new simplified Form 5500-SF for small plans. The Department also completed separate, but related, fee transparency regulations intended to help plan sponsors and participants identify and understand indirect compensation received by plan service providers. Although these rulemakings have largely implemented this recommendation, the Department will, as part of its ongoing review of the Form 5500 and annual reporting requirements, continue to consider improvements to the reporting of plan service provider information.
Department of Labor 2. Furthermore, consistent with our previous recommendation, to ensure comparable disclosure among all types of service providers and ensure that all investment products' fees are fairly disclosed, the Secretary of Labor should require asset-based fees that are netted from an investment fund's performance (and, as such, are not paid with plan assets) be explicitly reported on the Form 5500.
Closed - Not Implemented
In June 2014, Labor reported that possible improvements to reporting of service provider information on the Schedule C is being considered as part of the joint DOL, IRS, PBGC "21st Century Form 5500" project that is exploring changes to the Form 5500 as part of the planning for EFAST3. In Dec. 2013, Labor reported that when issuing its final rule expanding Schedule C reporting of indirect compensation received by plan service providers, the Department attempted to strike a balance between the costs and benefits of improved annual reporting and disclosure of investment-related fees and expenses, particularly with regard to plans in which much, if not all, of annual reporting administrative expenses may be borne by the plan's participants and beneficiaries. Public comments on the proposal expressed concerns that the diverse nature and complexity of the business and investment environment in which plans operate would make a requirement to report asset-based fees on the Form 5500 costly and burdensome to employers, plans, and service providers. Commenters also observed that some asset-based fee information, such as asset-based charges in mutual funds, is already required to be disclosed to the Securities and Exchange Commission. Now that EBSA's related fee transparency regulations are complete that require improved disclosure of service provider fees to plan fiduciaries, we will review the Schedule C reporting requirements to determine if there are areas where we could improve the reporting of service provider indirect compensation on the Schedule C. Notice and comment rulemaking would be required to make such changes to the Schedule C. EBSA has other higher priority regulatory projects ongoing at this time and is not prepared to commit to a time when such a Schedule C regulation project could be added to its regulatory agenda.
Department of Labor 3. To reduce the potential for additional costs and burden being placed on service providers, the Secretary of Labor should coordinate the implementation of the Form 5500 revisions with the publication of its final 408(b)(2) regulations, since the two initiatives are closely related.
Closed - Not Implemented
In June 2014, Labor reported that possible improvements to reporting of service provider information on the Schedule C is being considered as part of the joint DOL, IRS, PBGC "21st Century Form 5500" project that is exploring changes to the Form 5500 as part of the planning for EFAST3. In Dec. 2013, Labor reported that now that the 408(b)(2) rule is published in final form, the Department will be able to review the Schedule C reporting requirements to determine if there are areas, taking into account the differences in underlying purposes and scope, where we could improve the harmonization of the final 408(b)(2) service provider disclosures to plan fiduciaries and the plan fiduciary Schedule C annual Form 5500 reporting requirements. Substantive changes in the Schedule C requirements would require appropriate notice and comment rulemaking. EBSA has other higher priority regulatory projects ongoing at this time and is not prepared to commit to a time when such a Schedule C regulation project could be added to its regulatory agenda.

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