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401(k) Retirement Plan Tax Notices: Federal Actions Can Help Participants Understand Their Distribution Options

GAO-24-107167 Published: May 22, 2024. Publicly Released: May 22, 2024.
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Fast Facts

Many people have trouble tracking their 401(k) accounts when they change jobs.

After separating from an employer, plan participants are sent a 402(f) notice that has some information on distribution options—like rolling over funds—and the tax consequences of cashing out funds from old plans.

But only about a third of participants received this notice before they decided what to do with their retirement savings. About 80% of participants weren't aware of all their distribution options.

Our prior recommendations, including those on the timing of 402(f) notices and on the clarity and completeness of information on distribution options, could help.

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What GAO Found

In the United States, 401(k) participants can face challenges when making decisions about their retirement savings accounts. Federal data show that more than 92 million Americans participate in and have saved more than $7 trillion in 401(k) plans. After 401(k) participants separate from their employer and request a distribution from their plan, they are provided a 402(f) Notice, a document that communicates information about the tax consequences of their distribution options for their plan savings.

In January 2024, GAO reported that based on its nationally representative survey, 401(k) participants encountered challenges understanding their distribution options as they moved from one job to another. According to GAO's survey, about 80 percent of eligible 401(k) participants were not aware of all four of their distribution options. Additionally, GAO found that 401(k) participants do not fully understand the associated tax consequences of their distribution options, even though plans are required to outline them in the 402(f) Notice before participants receive a distribution. According to GAO's survey, about 40 percent of all eligible 401(k) participants did not understand the tax consequences of their distribution options.

GAO's survey also showed that not all 401(k) participants receive information from their old plan when they are making a decision about their retirement savings. Of the eligible participants who received "unsolicited written information" (used as a proxy for the 402(f) Notice) from their old plan after leaving their jobs, about one-third received it before they made a decision about their 401(k) savings, but about 15 percent received it after they made a decision. The remaining participants either received the notice at the time they made a decision or did not know when they received the notice. As a result, not all eligible participants received information from the notice in time to inform their decisions about their retirement savings, according to GAO's survey.

Federal agencies can take steps to facilitate better understanding by participants of their distribution options and corresponding tax consequences, which can also assist spouses when they are informed of their spousal rights. GAO made recommendations in January 2024 to the Department of the Treasury (Treasury) and the Department of Labor (DOL) to improve the information provided to 401(k) participants, including the 402(f) Notice. GAO recommended that Treasury take action to clarify information in the notice. For example, this could include amending the 402(f) Notice requirements and the Model 402(f) Notice (a document from the Internal Revenue Service containing model language which plans can adopt for their 402(f) Notices) or providing clarifying information to the notice. Since surviving spouses of 401(k) participants and former spouses under certain circumstances also receive the 402(f) Notice, improvements made by Treasury to the content of the 402(f) Notice would likely benefit them as well.

DOL can also take action to ensure plan participants receive easily-understandable information about all four distribution options and the associated tax consequences at the time they leave their job. GAO recommended in January 2024 that DOL take steps that would help plans develop clear and concise communications to inform participants.

Why GAO Did This Study

The SECURE 2.0 Act of 2022 includes a provision for GAO to analyze the 402(f) Notices provided by retirement plan administrators to plan participants. This report examined (1) the effectiveness of 402(f) Notices, and (2) federal actions that could facilitate better understanding by recipients of their different distribution options and corresponding tax consequences, including spousal rights.

To address these objectives, GAO relied on work conducted for its January 2024 report (GAO-24-103577). For that report, GAO interviewed officials from DOL, Treasury, and the Internal Revenue Service; reviewed agency documentation, including available guidance and federal regulations, related to the rollover process. GAO also conducted a nationally representative survey of 401(k) participants who, within the last 3 years, completed a rollover of their savings to another 401(k) plan or who were eligible but did not complete a plan-to-plan rollover.

For more information, contact Tranchau (Kris) Nguyen at (202) 512-7215 or

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