Many Retirement Savers Don't Understand 401(k) Fees: GAO

These countries also help participants understand fee information in other ways. In Italy, the government provides a supplemental online tool so participants can compare and calculate fees across plans and investment options, according to stakeholders. 

This tool also includes a fee benchmark — generally an average fee among comparable funds — that helps participants judge the value of an individual investment option.

The report said Labor could take additional steps to help 401(k) plan participants improve their understanding and use of fee information, based on GAO survey responses and analysis. 

The department's regulations require that disclosures present fee information in a format that helps participants compare investment options. GAO noted, however, that disclosures are not required to include certain information, such as fee benchmarks and ticker information, the unique identifying symbols used for many popular types of investments that could be helpful for participants. 

GAO said fee benchmarks can help participants assess an investment option's value, not only relative to other in-plan options but also to options outside the plan. Ticker information can help participants identify many plan investments online to evaluate and compare them to options outside the plan. 

Recommendations

GAO made five recommendations to Labor, including to require, in a manner deemed effective, that participants have investment options. It said the assistant secretary of the Employee Benefits Security Administration should require or take these actions:

1. That fee disclosures for participant-directed individual retirement accounts use a consistent term for asset-based investment fees, e.g., gross expense ratio. 
2. That quarterly fee disclosures for participant-directed individual retirement accounts provide participants the actual cost of asset-based investment fees paid. 
3. Take steps to provide participants important information concerning the cumulative effect of fees on savings over time. These could include ensuring that disclosures cite a working, specific Labor Department web address where such information is shown and requiring that fee disclosures include the agency's graphic illustration on the cumulative effect of fees.
4. Require that participant fee disclosures for participant-directed individual retirement accounts include fee benchmarks for in-plan investment options. 
5. Require that participant fee disclosures for participant-directed individual retirement accounts include ticker information for in-plan investment options, when available.