GAO Review Finds Fee Disclosure Helpful, but Still Tricky

The Government Accountability Office on Monday published findings that indicate more than a decade of fee disclosure regulation has led to “positive benefits” for plan sponsors and participants, though concern remains about their eligibility for the target audience.

The GAO, the nonpartisan investigative arm of Congress, undertook the study to consider the effects of two 401(k) fee disclosure regulations implemented by the Department of Labor in 2010 and 2012. The first requires service providers to share the fees they receive for providing plan-related services to plan fiduciaries; the second requires plan administrators to provide plan and investment fee information to participants and their beneficiaries.

To follow up on the effect of those regulations, the GAO conducted a review of literature, relevant regular documentation and interviews with 13 stakeholder groups from the retirement industry, including service providers, plan sponsors, researchers and 401(k) advisers. The study was performed from October 2023 through September 2024 and drew conclusions about:

• Plan Sponsor Benefits: Fee disclosures provided to plan sponsors helped increase their “awareness and ability to manage their plans,” in particular for smaller plans that would otherwise not have had access to fee information;
• Participant Benefits: Fee disclosures also gave participants more knowledge of and involvement in their 401(k) plans—potentially giving people more confidence to contribute to the plan; and
• Legibility Concerns: Some stakeholders raised concerns about whether participants understand the information provided to them.

To address that concern about comprehension, the GAO wrote, “plan sponsors and service providers can modify their fee disclosures or provide education to increase participant financial literacy, according to these stakeholder groups.”

According to the GAO, it conducted the study in part because employer-sponsored retirement plan fees affect millions of workers saving for retirement.

It conducted a separate report in July 2021 evaluating participants’ understanding of fee disclosures. In that report, the GAO found that 40% of participants did not fully understand fee information, and 41% did not know they paid fees. Congress than asked the watchdog to get retirement industry stakeholder opinion, which resulted in the report released Monday.

Regulations have not stymied litigation against plan fiduciaries focused on allegations of overcharging for plan administration costs and fees for plan investment options.

The GAO, in noting that plan fees have been lowered since 2012, found most stakeholders did not see that decline as the result of the disclosures. Instead, they cited the threat of litigation, innovations in technology and competition among service providers as leading factors in fee compression.

The GAO also found that regulations may have contributed to plan sponsors providing more investment menu options to participants. Citing data from PLANSPONSOR DC plan benchmark surveying, the GAO noted that plan sponsors reported an average of 26 investment options in 2023, up from 21 in 2013. PLANSPONSOR is a sister publication of PLANADVISER.

The DOL provides free resources to assist plan sponsors and service providers in monitoring and implementing fee disclosures and transparency. The department will report on the implementation of its regulations in two required reports due in December 2025, according to the GAO report.

The GAO team that produced the report was led by Tranchau (Kris) Nguyen, its director of education, workforce and income security, and is posted in full at this link.