401(k) Plans: Reported Impacts of Fee Disclosure Regulations, and DOL Efforts to Support Implementation of Regulations
Fast Facts
Millions of workers save for retirement via employer-sponsored 401(k) plans. Employers work with service providers that charge fees to manage these plans.
The Department of Labor requires the disclosure of fees to employers and workers. We asked relevant organizations about the requirement.
They told us that disclosures increased employers' awareness of fees. Some said disclosures may increase workers' knowledge of and involvement in their 401(k) plans.
But some had concerns about whether workers understand the disclosures, and suggested ways to help—such as employers or service providers offering financial literacy education.
Highlights
What GAO Found
Fees for 401(k) plans have generally decreased since 2012, and selected stakeholder groups GAO interviewed reported that multiple factors, including 401(k) fee disclosures, may have contributed to changes in 401(k) fees and investments. Recognizing the importance of plan sponsors (employers) and participants (employees) having greater awareness of fees and investment performance, the Department of Labor (DOL) issued two 401(k) fee disclosure regulations in 2010 and 2012.
Literature GAO reviewed showed the disclosures might have influenced service providers that helped operate retirement plans to charge more transparent fees and participants to invest in funds with lower fees.
Stakeholder groups said fee disclosures have led to positive benefits. Specifically:
- Fee disclosures provided to plan sponsors. The fee disclosures provided to plan sponsors increased their awareness and ability to manage their plans, according to five stakeholder groups. In addition, five stakeholder groups indicated that the fee disclosures benefited smaller plans more than larger plans. For example, sponsors of smaller plans may not have the resources to otherwise access fee information, according to two stakeholder groups.
- Fee disclosures provided to participants. Fee disclosures given to participants can increase participants' knowledge of and involvement in their 401(k) plans, according to six stakeholder groups. For example, one stakeholder group shared that the disclosures might give participants more confidence to participate in 401(k) plans.
While stakeholder groups did not identify any ongoing challenges with the fee disclosures for plan sponsors, six stakeholder groups raised concerns about whether participants understand the provided information. To address this issue, plan sponsors and service providers can modify their fee disclosures or provide education to increase participant financial literacy, according to these stakeholder groups. In addition, two stakeholder groups noted that even if not all participants read or understand the disclosure, the participants who do could still create positive change in the plan for all participants.
DOL assists plan sponsors and service providers with following the regulations by providing a variety of resources and monitoring implementation. For example, DOL maintains a phone help line to answer questions about employment benefits, including 401(k) plan administration and compliance. In addition, DOL continues to assess implementation of fee disclosures through the preparation of two statutorily required reports on disclosures, due December 2025.
Why GAO Did This Study
Millions of workers save for retirement through employer-sponsored 401(k) plans. Plan sponsors hire service providers to help operate their retirement plans. Service providers charge fees for activities such as tracking participants' investment contributions and providing investment guidance. These fees are paid by the plan sponsor or by plan participants. When paid by participants, such fees can significantly impact retirement savings growth, according to DOL.
One DOL regulation requires service providers to share information about the fees they receive for providing plan-related services. Service providers must furnish this information to plan fiduciaries, which include plan sponsors, so that they can make informed decisions in selecting and monitoring service providers. A second DOL regulation requires plan administrators, which could be the plan sponsor, to provide plan and investment fee information to participants and beneficiaries so that they have information about the cost of the plan's investment options.
GAO was asked to review plan sponsor and service provider perspectives on these fee disclosure regulations. This report addresses:
- literature and selected stakeholder groups' views on how fee disclosure regulations affected 401(k) fees and investments;
- selected stakeholder groups' views on the benefits and challenges plan sponsors and service providers experienced as a result of the fee disclosure regulations; and
- how DOL assisted plan sponsors and service providers with following the disclosure regulations.
GAO reviewed relevant literature and interviewed representatives from a nongeneralizable selection of 13 stakeholder groups. GAO selected groups that represent service providers or plan sponsors, research organizations, and consultants who are knowledgeable about the aspects of 401(k) investments, fees, or regulations included in GAO's review. GAO also reviewed relevant portions of DOL's website and the agency's documents related to the 401(k) fee disclosures and interviewed DOL officials. GAO also interviewed stakeholders to understand their perspectives on DOL's efforts.
For more information, contact Tranchau (Kris) Nguyen at (202) 512-7215 or nguyentt@gao.gov.