Written in the format of a letter to Representative George Miller, Ranking Minority Member of the House Committee on Education and the Workforce, the report said Congress should consider amending ERISA to require all sponsors of participant-directed plans to disclose fee information of 401(k) investment options to participants in a way that facilitates comparison among the options. The GAO suggested information could be provided via expense ratios and be communicated annually in a single document alongside other key information about the investment options such as historical performance and risk.
To better enable oversight of 401(k) plan fees, the GAO said the Secretary of Labor should require plan sponsors to report a summary of all fees that are paid out of plan assets or by participants which includes a list of fees by type, particularly investment fees that are being indirectly incurred by participants. The Office points out this would ensure participants have another important tool to make informed comparisons and investment decisions among their plan’s options.
In addition, the GAO said Congress should consider amending ERISA to explicitly require that 401(k) service providers disclose to plan sponsors the compensation that providers receive from other service providers, to allow plan sponsors and the Labor Department to provide better oversight of fees and certain business arrangements among service providers.
The report points out even small fees can have a large impact on participants’ retirement savings. Investment fees and recordkeeping fees make up almost all of plan fees paid by participants. According to the report, research has found 80% of 401(k)-style plan participants do not know how much they are paying out of their plan accounts in fees.
Additionally, the report said, conflicts of interest arise when pension consultants recommend investments without disclosing to the plan sponsor and participants that funds pay them for their referrals.
In response to the GAO report, Miller said in a statement, “Workers need complete, accurate, and clear information about the total cost of different investment options so they can choose the ones that are best for them. They need to know exactly what fees they are paying so they can get the best deal.”
Miller said the House Committee on Education and the Workforce should hold hearings next year to consider the GAO’s recommendations.
The GAO report is here.