related Labor regulations and guidance, responsibilities of plan sponsors  and other fiduciaries may include, but are not limited to,   In accordance with ERISA and  selecting and monitoring any service providers to the plan;  reporting plan information to the federal government and to  participants; adhering to the plan documents, including any investment policy  identifying parties-in-interest to the plan and taking steps to monitor  transactions with them;  selecting and monitoring investment options the plan will offer and  diversifying plan investments; and ensuring that the services provided to their plans are necessary and  that the cost of those services is reasonable. Sponsors and Participants Paid a Range of Fees, though Smaller Plans Paid Higher Fees than Larger Plans

Industry Studies on 401(k) Plan Fees  Pension industry studies and surveys of 401(k) plans focusing on fees  have found that plans pay a range in fees. However, as shown in figure 3, the average amount paid for by sponsors  of small plans (fewer than 50 participants) was 1.33 percent of assets. Larger plans are more likely to pass recordkeeping and administrative  fees along to participants than smaller plans. However, a couple of respondents of small  and medium-sized plans paid more than 1 percent. Further, our survey also shows that the sponsors who had not asked  about these fees were more likely to not know if these fees were paid. Plan Sponsors Were Challenged by Complex Fee Arrangements and Likely Paid More than They Realized

		Some Sponsors Were Not Aware of Revenue Sharing Arrangements, Resulting in Higher Fees

Our review of select plans indicates that some plan sponsors did not  understand the impact of third-party fee arrangements, also known as  revenue sharing, on total plan fees. The sponsor of a medium-size plan with over $4 million in plan  assets reported that participants did not pay for recordkeeping and  administrative services—when in fact the provider estimated that  about 43 percent of the fees collected by fund providers from  participants’ accounts, roughly $13,000, would be used to pay for  recordkeeping and administrative services. Labor Has Taken Actions to Help Sponsors, but Additional Efforts Are Needed to Effectively Oversee Fees Charged by Service Providers

		Labor Has Educational Resources, but Sponsors Reported Not Using Them

Labor has made information, guidance, and tools regarding plan fees  available to plan sponsors on its website, but our survey shows that many  sponsors are not using these resources. As part of this initiative, Labor also distributes a number of  publications and tools for sponsors, including a model fee disclosure  form, to help them review and compare the fees charged by service  providers. Specifically, on the  basis of our survey of plan sponsors, we estimate that sponsors of less  than 6 percent of 401(k) plans used Labor’s publication A Look At 401(k)  Plan Fees, which includes a 401(k) fees checklist, when comparing and  assessing the fees charged by their various providers. Labor Is Reexamining the Definition of a Fiduciary, but Additional Efforts Could Help Sponsors and Others

Labor has also taken steps to broaden its oversight of service providers,  particularly investment advisers, which may help sponsors in their role as  plan fiduciaries, but the impact of its actions remains to be seen. These changes would likely  allow Labor to oversee a broader range of plan providers. Therefore, in  addition to Labor’s ongoing effort to amend the definition of an ERISA  fiduciary, Labor may need to conduct a separate evaluation of  relationships between sponsors and providers, whose fiduciary status is  unclear. However, in several  instances, sponsors of large and small plans did not know or fully  understand the fees charged to their plans, because fee arrangements  have become so complex and may be disclosed differently, adding to  sponsor confusion about plan fees. Recommendations for Executive Action

In order to help plan sponsors better understand how fees are charged to  their plans and to help them make well-informed decisions, we  recommend that the Secretary of Labor develop and implement  alternative approaches to Labor’s plan sponsor outreach and education  initiatives that actively engage sponsors and allow the agency to track  sponsor engagement. To help sponsors better understand and monitor plan fees, including  those paid by participants, Labor should enhance web access to publicly  available fee information it collects on the annual Form 5500 to provide  sponsors with information to compare and assess fees charged by  service providers, such as building in the ability to search for and create  customized reports of plans with similar features or providers for the  purpose of benchmarking. In its written response, Labor generally agreed with our findings and  recommendations. Specifically, our survey results  show that sponsors of more than 90 percent of 401(k) plans either did not  use or did not know about Labor’s resources. Thus, we reaffirm our recommendation to  enhance web access to publicly available Form 5500 data. Appendix I: Objectives, Scope, and Methodology

On the basis of our research objectives, we obtained information on fee  amounts paid by sponsors and participants for services, examined  challenges sponsors faced in understanding how fees are charged, and  identified actions the Department of Labor (Labor) has taken to help  sponsors understand and monitor fees. A copy of the  questionnaire and survey responses for most questions is available in the  e-supplement to this report, GAO-12-550SP. Similarly, when generating our estimates of the amounts paid by  participants for a particular service, we excluded a sponsor’s response if  the value for the amount that participants paid was missing;  the sponsor indicated that it did not know the amount paid by  participants by reporting a value of “1” per survey instructions; or  the value for plan assets or number of plan participants was missing,  since these were needed to estimate fees as a percentage of assets  and on a per participant basis, respectively.
Why GAO Did This Study

Studies have been conducted to better understand the fees 401(k) plan sponsors and their participants pay. However, these studies focus on larger plans. Thus, uncertainty remains about the amounts paid by small and medium-sized plans and the level of knowledge and expertise these sponsors have to assess the fees charged by service providers.
GAO addressed the following related to small, medium-sized, and large plans: (1) amounts plan sponsors and participants pay for services, (2) challenges sponsors face in understanding how fees are charged, and (3) actions Labor has taken to help sponsors better understand and monitor the fees charged by service providers. GAO reviewed relevant federal laws, regulations, and retirement research, and interviewed federal officials and industry experts. GAO also conducted a survey of 1,000 401(k) plans to collect information about fees paid for plan services. The response rate allowed GAO to generalize to the population of 401(k) plans for most of the survey questions. The survey instrument and most results can be viewed at GAO-12-550SP .

What GAO Found

Plan sponsors and participants paid a range of fees for services, though smaller plans typically paid higher fees as a percentage of plan assets. For example, the average amount sponsors of small plans reported paying for recordkeeping and administrative services was 1.33 percent of assets annually, compared with 0.15 percent paid by sponsors of large plans. Larger plans were more likely to pass recordkeeping fees along to participants, but when fees were passed along to participants in small plans, those in large plans paid lower fees than those in small plans. Participants also paid for investment and plan consulting feesthrough fees deducted from their plan assetsin more instances than sponsors.
GAOs survey and review of plan documents showed that some sponsors faced challenges in understanding the fees they and their participants were charged. Some sponsors did not know if their providers used complex fee arrangements, such as revenue sharing, or if their plans paid certain fees under an insurance contract, such as a group annuity contract. In addition, some sponsors reported knowing about arrangements, but did not fully understand how these fees were charged. For example, one relatively large plan underestimated recordkeeping fees by more than $58,000, because the sponsor did not include the fees charged to participants accounts under its revenue sharing arrangement.
The Department of Labor (Labor) has taken several actions to help sponsors understand and monitor fees charged by service providers. For example, Labor disseminates a number of publications and resources, including a 401(k) fees checklist that is available to sponsors on its website to help them better understand plan fees. However, according to GAOs survey results, more than an estimated 90 percent of sponsors either did not know about or have not used Labors resources to compare and assess plan fees. Additionally, sponsors have access to the plan information of others, including some fees paid, through the Form 5500, but GAOs survey also shows that the information is not being used by sponsors. Finally, although Labor has recently taken on regulatory initiatives to enhance fee disclosures to sponsors, their effect remains to be seen. For example, Labor is in the process of revising a proposed change to the definition of the term fiduciary, which may allow Labor to oversee a broader range of plan investment advisers. However, Labors authority over other types of providers, who have considerable influence over sponsors and may charge sponsors and their plan participants excessive fees, is limited.
The Department of Labor (Labor) has taken several actions to help sponsors understand and monitor fees charged by service providers. For example, Labor disseminates a number of publications and resources, including a 401(k) fees checklist that is available to sponsors on its website to help them better understand plan fees. However, according to GAOs survey results, more than an estimated 90 percent of sponsors either did not know about or have not used Labors resources to compare and assess plan fees. Additionally, sponsors have access to the plan information of others, including some fees paid, through the Form 5500, but GAOs survey also shows that the information is not being used by sponsors. Finally, although Labor has recently taken on regulatory initiatives to enhance fee disclosures to sponsors, their effect remains to be seen. For example, Labor is in the process of revising a proposed change to the definition of the term fiduciary, which may allow Labor to oversee a broader range of plan investment advisers. However, Labors authority over other types of providers, who have considerable influence over sponsors and may charge sponsors and their plan participants excessive fees, is limited.

What GAO Recommends

GAO recommends that Labor develop and implement more proactive approaches to sponsor educational outreach, improve public access to annual Form 5500 data, and examine the definition of a fiduciary to determine if it captures the current relationship between sponsors and providers. In response, Labor generally agreed with the findings and will explore ways to implement these recommendations.