Specifically, the GAO report recommended that the DoL:
- provide additional guidance and require all indirect compensation be disclosed on the Schedule C;
- coordinate the implementation of its new Form 5500 requirements with the publication of its 408(b)(2) regulation; and
- require that asset-based fees be explicitly reported.
The office said the DoL has not provided sufficient guidance for sponsors and providers to accurately determine what elements of compensation qualify as eligible indirect compensation (fees or expense reimbursements charged to investment funds and reflected in the value of the investment). Therefore, interpretations have been left up to sponsors and providers and may result in a range of reporting practices, causing the Department to receive inconsistent and incomplete data.
The report noted that in addition to the new Form 5500 requirements, the DoL has proposed another regulation about service provider fee disclosure (its 408(b)(2) regulation), but it has not yet been finalized. According to the report, sponsors and service providers GAO talked with stressed the importance of coordinating this initiative with the new Form 5500 requirements, as doing so may reduce the burden and the cost to service providers of making changes to their data gathering and reporting systems and clarify for plan sponsors the information they need to understand and compare the fees charged by various service providers.
The GAO said that in its discussions with Labor officials, they agreed there was a need to coordinate the two regulations, and said that although they are working to finalize the proposed 408(b)(2) regulation, it is uncertain when it will be published.
In addition, the GAO noted that it previously reported that the information provided to DoL on the Form 5500 has limited use for effectively overseeing fees paid by 401(k) plans because it does not explicitly list all of the fees paid from plan assets. As an example, the report said plan sponsors are not required to explicitly report asset-based fees that are netted from an investment fund’s performance, even though they receive this information for each of the mutual funds they offer in the 401(k) plan. So the GAO concluded that despite the changes to the Form 5500, the new information provided may not be very useful to the DoL, plan sponsors, and others.
According to the report, the DoL generally agreed with the GAO’s recommendations, although it proposes evaluating the data after reporting begins to determine how best to address indirect compensation.