GAO: Workers in Other Countries Better Protected from High Retirement Fund Fees
WASHINGTON – The Government Accountability Office (GAO), the investigative arm of Congress, found that other countries with defined contribution (DC) retirement systems better protect workers’ savings from high or excessive fees and require more disclosure on the fees accountholders do pay when compared with the United States. More than 51 million American workers actively participate in a 401(k) defined contribution plan, totaling about $3 trillion of assets.
"U.S. participants typically do not receive the simple, useful, and more targeted information about their DC retirement plans and investment options that is provided to participants in Chile, Sweden, and Australia, which could be why recent research shows that U.S. participants have misconceptions about the fees they pay,” the GAO wrote.
A February 2011 survey conducted by the AARP found that 71 percent of 401(k) plan participants said they paid no fees.
GAO previously found that there are a myriad of hidden fees that American workers pay out of their retirement accounts. And, a seemingly small difference in fees could have a major impact on retirement security over a life time of saving. The Department of Labor found that a one-percentage point difference in fees could decrease retirement savings at the end of a career by as much as 28 percent.
Other countries require service providers or plan sponsors to disclose more information on the costs of various options and the actual fees paid by accountholders. “In Chile, participants not only receive personalized fee disclosures, but they also receive information about what the participant would have been charged if they belonged to the other five plans, including the lowest-cost option. Thus, the participant can see the specific difference in fees they are paying through their plan compared to the lowest-cost option,” the GAO found.
The Department of Labor has been working to increase disclosure of the hidden fees that come out of workers’ retirement savings. However, the GAO suggested that the Department of Labor could go further to ensure that all fees taken out of workers’ 401(k) are disclosed to participants.
“In order to discern their total fee, participants will have to calculate the fund management fees they paid based on their account balance and the information provided in the annual disclosure, and add the fees separately disclosed in their quarterly statements to that calculated amount,” GAO wrote. “Labor’s current efforts to improve participant disclosures are a promising development, but may be strengthened by taking steps to evaluate their effectiveness, costs, and potential effect on coverage, and, as necessary, making further improvements.”
Rep. George Miller (D-CA) introduced legislation that passed the House of Representatives in 2010 that provides workers with clear, understandable information on the fees that come out of workers’ pockets and help workers understand their investment options.
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