401(k) Retirement Plan Participants Need Help Understanding Fee Information
Department of Labor regulations require 401(k) plans to provide plan participants with a comprehensive disclosure of the fees they pay. However, a recent report suggests that about 40% of participants don’t fully understand fee information and 41% don’t know they pay fees.
2021 GAO Study
The Government Accountability Office (GAO) undertook a study to examine how well participants can understand and use 401(k) fee disclosures. In addition, GAO examined any additional steps the Department of Labor (DOL) could take to advance participant understanding and use of fee information.
GAO conducted a nationally representative survey of 401(k) plan participants to assess their understanding of fee disclosure samples from among 10 large plans and of other fee information. To identify and describe disclosure practices used abroad, GAO interviewed stakeholders and reviewed fee disclosure documents from Australia, Italy, New Zealand, and the European Union, chosen because of their documented practices to improve participants’ understanding of fee disclosures.
GAO Summary Findings
According to GAO’s analysis of its generalizable survey, almost 40 percent of 401(k) plan participants do not fully understand and have difficulty using the fee information the DOL requires plans to provide to participants in fee disclosures.
GAO assessed participants’ understanding of samples from several large plans’ fee disclosures and other information about fees, and asked general knowledge questions about fees. For example, GAO found that 45 percent of participants are not able to use the information given in disclosures to determine the cost of their investment fee.
Additionally, 41 percent of participants incorrectly believe that they do not pay any 401(k) plan fees. Prior GAO work has shown that even seemingly small fees can significantly reduce participants’ retirement savings over time.
GAO made five recommendations to DOL, including to require that participants have investment options’ fee benchmarks and available ticker information.
- Fee disclosures for participant-directed individual retirement accounts should use a consistent term for asset-based investment fees (e.g., gross expense ratio).
- Quarterly fee disclosures for participant-directed individual retirement accounts should provide participants the actual cost of asset-based investment fees paid.
- Provide participants important information concerning the cumulative effect of fees on savings over time. For example, steps could include ensuring disclosures cite a working, specific DOL web address for where such information is shown.
- Participant fee disclosures for participant-directed individual retirement accounts should include fee benchmarks for in-plan investment options.
- Participant fee disclosures for participant-directed individual retirement accounts should include ticker information for in-plan investment options, when available
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