Friday, December 01, 2006

GAO Concludes 401(K) Fee Disclosures Inadequate

The Government Accountability Office (GAO) completed an examination of fee levels and disclosures for 401(k) plans and concluded that current disclosure practices are inadequate for investors, plan sponsors and regulators. The GAO recommends that ERISA be amended to require that; service providers disclose all revenue sharing compensation, participants receive information on all fees related to each investment in the plan and that plan sponsors provide summaries of all fees paid by either the Plan or its participants. According to the study:

"fees that 401(k) plan sponsors are required by law to disclose is limited and does not provide for an easy comparison among investment options. The Employee Retirement Income Security Act of 1974 (ERISA) requires that plan sponsors provide participants with certain disclosure documents, but these documents are not required to contain information on fees borne by individual participants. Additional fee disclosures are required for certain—but not all—plans in which participants direct their investments. These disclosures are provided to participants in a piecemeal fashion and do not provide a simple way for participants to compare plan investment options and their fees. Labor has authority under ERISA to oversee 401(k) plan fees and certain types of business arrangements that could affect fees, but lacks the information it needs to provide effective oversight. Labor collects information on fees from plan sponsors, investigates participants’ complaints or referrals from other agencies on questionable 401(k) plan practices, and conducts outreach to educate plan sponsors about their responsibilities. However, the information reported to Labor does not include all fees charged to 401(k) plans and therefore has limited use for effective oversight and for identifying undisclosed business arrangements among service providers. Without disclosing these arrangements, service providers may steer plan sponsors toward investment products or services that may not be in the best interest of participants and may cause them to pay higher fees."

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