Participants in 401(k) plans left mostly in dark about fees
Savers may be losing thousands of dollars and not know it, the report says. It suggests Congress require plans to give clear details on fees.
The Associated Press
WASHINGTON — Participants in 401(k) plans may be losing thousands of dollars in retirement savings because of sponsor fees, a government report said Thursday in urging investors be given a clearer picture of what they pay.
Current retirement-savings law, passed in 1974, does not explicitly require 401(k) plan sponsors to disclose comprehensive information on fees, the Government Accountability Office said. "Yet even small fees can significantly affect retirement savings over the course of a career," the GAO said.
The report gave as an example a 45-year-old person who leaves $20,000 in a 401(k) account until retirement. If the average net return is 6.5 percent — a 7 percent investment return minus a 0.5 percent charge for fees — the account will grow to $70,500 at retirement. But if the fee is 1.5 percent, the person will have $58,400 when he retires.
The report said Congress should consider amending current law to require sponsors to disclose fee information in a way that investors can compare options.
The Department of Labor, it said, should require plan sponsors to report a summary of all fees paid out of plan assets or by participants.
Investment fees make up the bulk of charges in 401(k) plans, but some plans also charge for record-keeping and other administrative or legal costs.
The report also urged a closer look at conflicts of interest that arise because pension consultants aren't required to disclose they are being paid by investment companies that they are recommending to plan sponsors.
U.S. Rep. George Miller, D-Calif., said the House Education and the Workforce Committee that he is line to chair in the new Congress should hold hearings next year to examine the fee issue.
Millions of Americans now rely on 401(k) style plans to help finance their retirements, said Miller, who commissioned the report. But the GAO cited research showing that 80 percent of plan participants are unaware of how much they are paying in fees, he said.
The report noted that in the past 20 years, with fewer employers offering traditional defined-benefit pension plans, 401(k) plan participants have gone from 8 million to 47 million.
Assets in these plans have grown from less than $100 billion to more than $2 trillion.
Lynn Dudley, vice president for retirement policy at the American Benefits Council, said her group, which represents the private employee-benefits community, was "very supportive of disclosure" as long as it is useful to participants, easy to understand and relevant to making investment decisions.
She noted that many fees are picked up by companies and don't affect the bottom line for investors.
Any rules changes should be designed so that they don't "work to undermine confidence in the retirement system," Dudley said.
Bradford Campbell, acting Labor Department assistant secretary, said in a response to the report that the agency is already pursuing ways to make fee charges more obvious.
Campbell said the Labor Department would give careful consideration to GAO recommendations that plans be required to provide a summary of fees paid out of plan assets or directly by participants.