The Labor Department is one of the federal agencies that provides oversight and guidance for the $1 trillion 403(b) plan market. ERISA-covered 403(b) plans — the only such plans that the department oversees — had more than $600 billion in assets as of 2019, according to the GAO report.
But the Labor Department does not provide the same level of detailed information regarding 403(b) plans as it does for 401(k) plans, particularly when it comes to helping participants understand plan fees, the GAO found.
"DOL could better ensure that 403(b) plan sponsors and participants have the information they need to make better management and investment decisions regarding their plans by providing materials comparable to those posted on its 401(k) website," the GAO said. "Updating DOL's educational materials with information relevant to 403(b) plans would help ERISA 403(b) plan sponsors and participants understand and evaluate fees and expenses in those plans, and select a 403(b) investment option that meets their financial goals."
The Labor Department neither agreed nor disagreed with the GAO's recommendation, but noted it has a webpage dedicated to 403(b) plan issues and that the information in its 401(k) publications could be helpful to ERISA-covered 403(b) plan sponsors, participants and other interested parties evaluating fees and expenses in those plans, according to the GAO.
Moreover, the department stated that its rule applicable to participant-directed individual account plans, which requires disclosure of certain plan and investment-related information including a comparative chart or similar format designed to facilitate a comparison of each investment option available under the plan, applies to ERISA-covered 403(b) plans as well as 401(k) plans, the GAO said. The agency stated that in accordance with GAO's recommendation, it would review the relevant publications with an eye toward whether the agency should be more specific about referencing 403(b) plans, the GAO added in its report.
In conducting its research, GAO spoke with officials from five states — California, Connecticut, Delaware, Kansas and Texas — on improving 403(b) plan participant outcomes. Officials in four of the selected states said they enhanced transparency by providing participants with additional information on plans' investment options and fees or by making it available elsewhere, GAO said. Connecticut officials told GAO about their consolidation of service providers roughly 20 years ago that resulted in lower annual fees for participants.
GAO also interviewed retirement experts and some suggested establishing fiduciary duties for non-ERISA plans in states that are not subject to such protections. Also, experts said requiring distribution of standardized information on investment options' returns and fees for participants in non-ERISA plans would promote transparency, according to GAO.
"Today's GAO report underscores the need for the Department of Labor to effectively monitor the 403(b) plans within their purview and highlights innovative ideas and state efforts to improve 403(b) plans," said Rep. Bobby Scott, D-Va., ranking member on the House Education and the Workforce Committee, who requested the report in 2019. "Unfortunately, House Republicans are advancing a bill that slashes the budget of the Labor Department's Employee Benefits Security Administration, which is responsible for conducting critical oversight of 403(b) plans. We must reject these cuts, carefully consider ideas to improve 403(b) plans, and work together to protect Americans' hard-earned retirement savings."
Lawmakers in Congress are currently negotiating fiscal year 2024 spending bills. House Republicans earlier this month floated a bill that would provide a discretionary total of $9.8 billion to the Labor Department, which is $4 billion, or 29%, below the current level and $5.7 billion below President Joe Biden's budget request.