What You Need to Know
- Some 40% of 401(k) plan participants don't understand the fee disclosures provided by their employers, according to GAO.
- The Labor Department oversees retirement plan fee disclosures.
- The GAO makes several recommendations for disclosing fee information more clearly.
Some 40% of 401(k) plan participants do not fully understand and find it hard to use the fee information that the U.S. Department of Labor requires plans to provide to participants in fee disclosures, according to a report from the Government Accountability Office.
The report is based on GAO’s analysis of a survey administered by NORC at the University of Chicago in July and August to a nationally representative sample of 1,004 plan participants drawn from its pre-recruited AmeriSpeak web survey panel.
GAO assessed participants’ understanding of samples from 10 large plans’ fee disclosures and other information about fees, and asked general knowledge questions about fees.
It found, for example, that 45% of participants were unable to use the information given in disclosures to determine the cost of their investment fee. Moreover, 41% incorrectly believed that they do not pay any 401(k) plan fees.
GAO said its previous work has shown that even seemingly small fees can significantly reduce participants’ retirement savings over time.
A Better Way
GAO reviewed fee disclosure documents from Australia, Italy, New Zealand and the European Union, and found that they have implemented practices to help retirement plan participants understand and use fee information from plan disclosures.
For example, stakeholders interviewed in those locations said layering data — a technique whereby information is presented hierarchically — can help participants understand disclosures by providing them key plan information first.