40% of 401(k) participants say fees a mystery, GAO reports

Almost 40% of 401(k) plan participants do not fully understand the fees they are paying, a Government Accountability Office report released Thursday found.

Moreover, 41% of participants incorrectly believe that they do not pay any 401(k) plan fees, according to the report.

The Department of Labor requires plans to provide participants with fee disclosures, but GAO found that 45% of participants are not able to use the information in disclosures to determine the cost of their investment fee.

"The GAO's findings are a wake-up call for the Department of Labor and for consumers who have 401(k) plans," said Rep. Robert C. "Bobby" Scott, D-Va., chairman of the House Education and Labor Committee, in a news release. "This report is clear evidence that the Department of Labor should require plan providers to make fee disclosures easier to understand and ensure that participants are fully informed about how these fees impact their savings."

Mr. Scott and Sen. Patty Murray, D-Wash., chairwoman of the Senate Health, Education, Labor, and Pensions Committee, requested in 2018 that the GAO examine how well participants understand and use the fee disclosures.

"People making decisions that will affect their financial security for years to come need to have clear, complete, information," Ms. Murray said in the news release. "This report is a clear warning this simply isn't happening with respect to fees for 401(k) plans, which millions of people are relying on for their financial futures. I look forward to working with my colleagues and the Biden administration to improve transparency, increase retirement security and help people across the county make the best financial decisions for their families."

The GAO made several recommendations for how the Labor Department can improve 401(k) plan participants' understanding and use of fee information. The recommendations include adding information to disclosure requirements, like individualized quarterly statements to show the actual cost of the investment fees; fee benchmarks to help participants better gauge if their investment costs are competitive; and investment options' ticker information, to help participants more easily research and compare their investments.

The Labor Department neither agreed nor disagreed with the GAO's recommendations, according to the report. A Labor Department spokesman could not immediately be reached for further comment.