If you don’t understand the fees in your 401(k), you are not alone.
About 40 percent of the 87 million plan participants don’t and there are things the Department of Labor can do (but isn’t) to help, the Government Accountability Office, the investigative arm of Congress, said today in a report.
Even seemingly small fees can significantly reduce retirement savings over time, the report noted, which can be particularly troubling now since 41 percent of participants incorrectly believe that they do not pay any 401(k) plan fees.
As evidence of how weak the DOL outreach effort in educating plan participants has been for years, the report pointed out since the agency posted its video about understanding 401(k) fees to YouTube in 2012, it has been viewed, on average, fewer than 2,500 times per year.
Increasing public consumption of the presentation could help, the study said:
“We estimate that 76 percent of participants who see information from the same DOL video are motivated to more thoroughly research their investment fees.”
In showing how the existing framework can sow confusion, the authors of the report said a review of 10 disclosures from among the largest 401(k) plans found 11 different terms were used for the investment fee.
Among the steps GAO urges the Labor Department to do to help 401(k) investors is to require plans to provide a consistent term for investment fees in fee disclosures to aid you in comparing the right figures when looking at investment options outside the plan.
GAO is also calling for a federal mandate for plan disclosures to include fee benchmarks would help participants better gauge if their investments’ costs are competitive.
Additionally, the report’s authors want disclosures to include investment options’ ticker information would help participants more easily research and compare their investments to options outside the plan.
The report said 401(k) participants could find it easier to compare plan investments to alternatives outside their plan and thereby better advocate for their savings with their plan by requiring a consistent term across plans for asset-based investment fees for like-investment types, such as gross expense ratio.
Since investment fees are typically the largest fees paid, requiring provision of that information to participants on investment fees actually charged to their 401(k) accounts is important to help them manage the investment of their savings for retirement, GAO advised.