Report: Workers Should Have More 401(k) Information

Over the past two decades there has been a shift in the types of retirement plans employers are offering employees. Employers are increasingly moving away from traditional defined benefit plans to what has become the most dominant and fastest growing type of defined contribution plan, the 401(k).

But as workers come to more heavily rely on 401(k) plans for their retirements, they to have more information, as well, a government audit finds.

Now, 401(k) plans represent the majority of all private pension plans; they also service the most participants and hold the most assets, according to the Government Accountability Office (GAO). GAO is the nonpartisan investigative arm of Congress. These plans offer a range of investment options, but equity funds—those that invest primarily in stocks—accounted for nearly half of 401(k) assets at the close of 2005. Most 401(k) plans are participant-directed, meaning that a participant is responsible for making the investment decisions about his or her own retirement plan contributions, GAO notes.

"Inadequate disclosure and reporting requirements may leave participants without a simple way to compare fees among plan investment options, and [the U.S.] Labor [Department] without the information it needs to oversee fees and identify questionable 401(k) business practices," the report says.

The Employee Retirement Income Security Act (ERISA) of 1974 requires 401(k) plan sponsors to disclose only limited information on fees, GAO notes.

"Participants must collect various documents over time and may be required to seek out some documents in order to get a clear picture of the total fees that they pay. Furthermore, the documents that participants receive do not provide a simple way to compare fees—along with risk and historical performance—among the investment options in their 401(k) plan," GAO adds. "The information reported to Labor does not identify all fees charged to 401(k) plans and therefore has limited use for effectively overseeing fees and identifying undisclosed business arrangements among consultants or service providers. As a result, participants may have more limited investment options and pay higher fees for these options than they otherwise would."

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