Many 401(k) Participants Do Not Understand Fees, GAO Reports
The Department of Labor requires 401(k) retirement plans to provide participants information on plan and investment fees. The Government Accountability Office (“GAO”) released a report examining how well participants understand and use these fee disclosures. The report found that 45% of participants are unable to use the disclosures to determine the costs of their investment fees, and 41% of participants mistakenly believe that they do not pay any 401(k) plan fees at all.
The GAO made several recommendations on how the DOL can improve understanding of fees. One recommendation is to include fee benchmarks in order to help participants understand the value of an investment option, both compared to other options offered by the plan and options offered outside the plan. A second recommendation is to include ticker information (the unique identifying symbols used for many types of investments) in order to easily allow participants to search for investments online and compare them to other options. Other recommendations include using a consistent term for asset-based investment fees, providing the actual cost of asset-based investment fees paid, and providing information regarding the cumulative effect of fees.
While the GAO’s recommendations are not binding on the DOL, they provide valuable insight into potential future requirements regarding fee disclosures.