Forty-one percent of 401(k) plan participants incorrectly believe that they do not pay any 401(k) fees, according to a new U.S. Government Accountability Office (GAO) analysis.
The study also found that plan participants do not fully understand and have difficulty using the fee information the Department of Labor (DOL) requires plans to provide to participants in fee disclosures.
The findings have put the GAO, which is the research arm of Congress, and the DOL at loggerheads, with the GAO holding firm that more meaningful disclosure in the form of fee tables and comparative fee information is necessary to help investors make informed decisions regarding their retirement investing. In contrast, the DOL told GAO researchers that the regulatory red tape would make the changes difficult and said more disclosure, in and of itself, may not create meaningful investor understanding.
The two lawmakers who requested the report, House Education and Labor Committee Chairman Bobby Scott (D-Va.) and Senate Health, Education, Labor and Pensions Committee Chairwoman Patty Murray (D-Wash.), called the findings a “wake-up call for the Department of Labor and for consumers who have 401(k) plans” in a press release yesterday.
“This report is clear evidence that the Department of Labor should require plan providers to make fee disclosures easier to understand and ensure that participants are fully informed about how these fees impact their savings," Scott said. "Americans are already struggling to stretch their paychecks and save for retirement. Making fee disclosures more accessible is a common sense change that will help more people retire with dignity."
The GAO said that fee disclosure reforms are “necessary to help ensure participants have the information they need to make informed decisions.”
The GAO added, “disclosures are the primary way in which 401(k) participants receive investment fee information.” The agency found that “until another format or delivery option for disclosing fee information to participants is put forth by DOL, participants will continue to depend on the required participant fee disclosures.”
The DOL, in contrast, said in a statement that the study’s recommendations “pose significant technical and feasibility challenges.”
DOL also pointed out that implementing new fee-disclosure recommendations would require lengthy and resource-intensive notice and comment rule making that would require the agency to let other regulatory initiatives languish.
The GAO maintained, however, that “until another format or delivery option for disclosing fee information to participants is put forth by DOL, participants will continue to depend on the required participant fee disclosures.”
By requiring information in disclosures that includes the actual impact of fees, meaningful fee benchmarks and ticker information, participants would be better able to identify and compare popular types of investments, and find it easier to evaluate their options inside and outside of their plan, the GAO said.