401(K) PLANS

Increased Educational 

Outreach and Broader 

Oversight May Help 

Reduce Plan Fees

Report to Congressional Requesters

April 2012

GAO-12-325

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-325, a report to 

congressional requesters 

April 2012 

401(K) PLANS

Increased Educational Outreach and Broader 

Oversight May Help Reduce Plan Fees 

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 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.

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 fees—

through fees deducted from their plan assets—in more instances than sponsors. 

GAO’s 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 GAO’s survey results, more than an 

estimated 90 percent of sponsors either did not know about or have not used 

Labor’s 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 GAO’s 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, Labor’s authority over other types of providers, 

who have considerable influence over sponsors and may charge sponsors and 

their plan participants excessive fees, is limited.

View GAO-12-325. To view the e-supplement 

online, click on GAO-12-550SP. For more 

information, contact Charlie Jeszeck at (202) 

512-7215 or jeszeckc@gao.gov. 

Revenue Sharing Example: Sponsor Awareness of Third-Party 

Payments to Their Providers for Services

Revenue sharing generally refers to indirect payments made from one service 

provider to another service provider in connection with services provided to the 

plan, rather than payments made directly by the plan sponsor for plan services. 

If sponsors do not understand these arrangements, it could result in the plan 

sponsor and participants paying more for services as assets grow, although 

the level of service provided tends to remain the same. A short video 

illustrating a hypothetical example of how revenue sharing arrangements can

work is available at http://www.gao.gov/multimedia/video/#video_id=590296 .
Page i GAO-12-325 Survey of 401(k) Plan Sponsors

Letter 1 

Background 5

Sponsors and Participants Paid a Range of Fees, though Smaller 

Plans Paid Higher Fees than Larger Plans 13

Plan Sponsors Were Challenged by Complex Fee Arrangements 

and Likely Paid More than They Realized 24

Labor Has Taken Actions to Help Sponsors, but Additional Efforts 

Are Needed to Effectively Oversee Fees Charged by Service 

Providers 37

Conclusions 48

Recommendations for Executive Action 49

Agency Comments and Our Evaluation 50

Appendix I Objectives, Scope, and Methodology 54

Appendix II Identification of 401(k) Universe and Assessment of Form 5500 Data 61

Appendix III Comments from the Department of Labor 64

Appendix IV GAO Contacts and Staff Acknowledgments 69

Tables

Table 1: Summary of Labor’s Disclosure Initiatives 12

Table 2: Estimated Percentage of 401(k) Plan Sponsors Who Asked 

Their Providers about Certain Fees 19

Table 3: Description of Key Publications Related to 401(k) Plan 

Fees on the Department of Labor’s Website 38

Table 4: Key Obstacles to Using Form 5500 Data to Assess 401(k) 

Plan Fees 43

Table 5: 401(k) Plan Survey Sample and Response Rates 57

Table 6: 401(k) Plan Characteristics, 2009 63

Contents
Page ii GAO-12-325 Survey of 401(k) Plan Sponsors

Figures

Figure 1: Structure of Service Provider Arrangements in 401(k) 

Plans 8

Figure 2: Responses Regarding whether Recordkeeping and 

Administrative Fees Were Paid for Calendar Year 2010 14

Figure 3: Among Respondents Who Provided Fee Information, the 

Average Fee Amounts as a Percentage of Assets Paid by 

Sponsors for Recordkeeping and Administrative Services, 

by Plan Size, 2010 16

Figure 4: Percentage of Respondents Who Reported Asking Their 

Providers about 12b-1 and Wrap Fees and Paid These 

Fees 20

Figure 5: Among Respondents Who Provided Amounts, the 

Percentage of Investment Management Fees by 

Participants, Sponsors, or Both, 2010 23

Figure 6: Estimated Percentage of 401(k) Plans with Revenue 

Sharing Arrangements as Reported by Plan Sponsors 25

Figure 7: Difference between Actual Recordkeeping Fees Paid by 

One Plan in 2010 and Those Reported by the Plan Sponsor 

under a Revenue Sharing Arrangement 28

Figure 8: A Hypothetical Example of Two Different 401(k) 

Investment Options with Similar Names 30

Figure 9: A Hypothetical Comparison of 401(k) Plans with and 

without Group Annuity Contracts 32

Figure 10: Percentage of Sponsors Who Reported That Transaction 

Costs Were Charged in 2010 35

Figure 11: Estimated 401(k) Plan Sponsors’ Use of Labor’s 

Educational Resources to Compare and Assess Fees 40

Figure 12: Estimated 401(k) Plan Sponsors’ Use of Form 5500 Data 

to Compare and Assess Fees for Select Services 42

Figure 13: Examples of Activities Performed by Some Service 

Providers That May or May Not Be Considered ERISA 

Fiduciaries and Labor’s Role with Respect to These 

Service Providers 47
Page iii GAO-12-325 Survey of 401(k) Plan Sponsors 

Abbreviations 

EBSA Employee Benefits Security Administration 

EFAST2 ERISA Filing Acceptance System 2 

EIN Employer Identification Number 

ERISA Employee Retirement Income Security Act of 1974 

IRS Internal Revenue Service 

SEC Securities and Exchange Commission 

Sub-TA Sub-transfer agent 

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-12-325 Survey of 401(k) Plan Sponsors

United States Government Accountability Office 

Washington, DC 20548

April 24, 2012

The Honorable George Miller

Ranking Member

Committee on Education and the

Workforce

House of Representatives

The Honorable Robert E. Andrews

Ranking Member

Subcommittee on Health, Employment,

Labor, and Pensions

Committee on Education and the

Workforce

House of Representatives

As American workers have increasingly come to rely on their 401(k) plans 

for retirement income, policymakers have focused their attention on the 

fees charged to the plan sponsor—typically the employer offering the 

plan—and plan participants.1 Our past work has shown that the amount of 

plan fees paid by participants can significantly reduce retirement savings 

and is dependent on several factors, including the decisions made by the 

plan sponsor to hire service providers—outside entities to help administer 

their plans.2

 

1

For the purposes of this report, we refer to plan sponsors as the employers sponsoring 

401(k) plans, who are typically plan fiduciaries.

Studies have also been conducted by industry organizations 

to better understand the decisions plan sponsors make in managing their 

401(k) plans. However, these studies are generally based on surveys of

larger plans—those with more than 500 participants—and most have not 

specifically focused on the fees charged by plan service providers. As a 

result, uncertainty remains about the fees paid by small and medium-size 

plans, which account for the majority of all 401(k) plans, and about the 

2

A plan sponsor may hire outside companies to provide a number of key services to the 

plan. Services provided by these outside companies typically include recordkeeping (i.e., 

tracking individual account contributions), investment management (i.e., selecting and 

managing the securities included in a mutual fund), consulting and investment advice (i.e., 

selecting vendors for investment options), custodial or trustee services for plan assets 

(i.e., holding other plan assets in a bank), and telephone or web-based customer services 

for participants.

 
 

Page 2 GAO-12-325 Survey of 401(k) Plan Sponsors

level of knowledge and expertise sponsors of these plans have to 

determine the fees charged by service providers. Consequently, you 

asked us to survey sponsors of small, medium-size, and large plans with 

different characteristics, such as total plan assets, geographic distribution, 

and nature of business, to collect information on the following:

1. How much do plan sponsors and participants pay for services 

performed by service providers?

2. What, if any, challenges do sponsors face in understanding how fees 

are charged to their plan?

3. What actions has the Department of Labor (Labor) taken to help plan 

sponsors understand and monitor fees charged by service providers?

To answer these questions, we reviewed relevant federal laws and 

regulations pertaining to 401(k) fees and fee disclosure. We also 

reviewed research and available guidance provided to plan sponsors by 

Labor and the Securities and Exchange Commission (SEC), and industry 

research related to understanding and disclosing fee information. We 

interviewed Labor, SEC, and Internal Revenue Service (IRS) officials; 

industry experts; plan sponsors; and service providers about factors that 

affect the amount of 401(k) fees that can be charged to sponsors and 

participants as well as current and proposed regulations and the 

requirements governing the disclosure of fee information.

To obtain information about the fees sponsors pay for services performed 

by providers, the factors they considered in selecting service providers, 

and Labor resources they may have used during calendar year 2010, we 

conducted a representative survey of 401(k) plan sponsors.3 We drew a 

stratified random sample of 1,000 plan sponsors from a population of 

468,194 unique 401(k) plans from 2009 Form 5500 Annual Return/Report 

filings (Form 5500).4

 

3

This report does not attempt to report on all plan fees for all plans in our sample, because 

some fees associated with operating 401(k) plans may be less apparent to plan sponsors.

The sample was stratified by the number of 

4

The Form 5500 Annual Return/Report of Employee Benefit Plan is the primary source of 

information for the federal agencies administering Employee Retirement Income Security 

Act of 1974 (ERISA) and the private sector regarding the operation, funding, assets, and 

investments of private pension plans and other employee benefit plans. Labor, IRS, and 

the Pension Benefit Guaranty Corporation jointly developed the Form 5500 so employee 

benefit plans could satisfy annual financial reporting requirements under ERISA and the 

Internal Revenue Code.
 

Page 3 GAO-12-325 Survey of 401(k) Plan Sponsors

participants reported at the beginning of plan year 2009 into five groups: 

fewer than 10 participants, 10-49 participants, 50-99 participants, 100-499 

participants, or 500-plus participants. This stratification emphasized 

smaller plans because the vast majority of plans in the 401(k) plans 

universe have fewer than 500 participants. Although our sample was 

grouped into five strata, for the purposes of comparison and to help 

increase the statistical power of our estimates, we analyzed survey 

results by three groups: fewer than 50 participants, 50 to 499, and more 

than 500. Our survey yielded a weighted response rate of about 39 

percent. We conducted a nonresponse bias analysis to see if the 

characteristics of survey respondents generally reflected population 

characteristics, such as plan size (i.e., the total number of participants), 

total plan assets, geographic distribution, and nature of business. The 

results of our nonresponse bias analysis enable us to generalize our 

results to the total population of 401(k) plan sponsors for most survey 

questions.5

GAO-12-550SP

We make note of instances in which survey responses are not 

generalizable. To encourage survey participation, we obtained permission 

from our congressional requesters to remove links in our paperwork 

between individuals’ identities and their responses. We informed 

sponsors of this agreement in the introductory letter transmitted with the 

survey. A detailed description of our sampling methodology can be found 

in appendix I. The survey instrument and a more complete tabulation of 

the results can be viewed at . 

As part of our analysis of fees for recordkeeping and administrative

services; investment management; retirement plan consulting; and other 

fees, such as legal or trustee fees, we generated estimates of the 

amounts paid by sponsors and participants. Although all of our fee 

estimates are not generalizable to the population of 401(k) plan sponsors, 

we feel they are illustrative of the amounts paid by sponsors and 

participants. We calculated our estimates as a percentage of plan assets 

and on a per participant basis using the annual amounts reported by 

sponsors for each service, plan assets, and number of plan participants 

for calendar year 2010. To supplement our analysis of the fee amounts 

sponsors reported paying and their understanding of how fees are 

charged to plans, we also analyzed documents, such as investment 

reports, that sponsors submitted with their survey responses. We also 

 

5

All percentage estimates from the survey have margins of error at the 95 percent 

confidence level of plus or minus 8 percentage points or less, unless otherwise noted. 
 

Page 4 GAO-12-325 Survey of 401(k) Plan Sponsors

reviewed investment fund prospectuses associated with the investment 

options included in the documents sponsors submitted6 to determine 

whether plans paid certain fees.7 Finally, for respondents for whom data 

were available, we reviewed fee reports generated by a third party, 

BrightScope, to determine the estimated fees associated with transaction 

costs for individual investment options. BrightScope estimates fee 

amounts of 401(k) plan fees by drawing on publicly available data, 

primarily Form 5500 filings, which include independently audited 

information.8

We conducted this performance audit from October 2010 through April 

2012 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

We took actions to determine whether the BrightScope data 

were sufficiently reliable for our purpose of describing the range of 

transaction costs incurred by 401(k) plan participants by interviewing 

company representatives and reviewing the methodology used to develop 

estimates.

 

6

Presently, funds must provide investors with written disclosures about the fund in a 

prospectus that must be provided to investors when they purchase shares. According to 

SEC, under federal securities laws, a fund can satisfy its prospectus delivery obligation by 

providing its prospectus to the plan (without having to provide the prospectus to 

participants). SEC rules require that the prospectus include a fee table containing 

information about the sales charges, operating expenses, and other fees that investors 

pay as part of investing in the fund.

7

In conducting a review of fees and analysis of supplemental documents, it was not the 

purpose, nor does GAO purport, to identify situations or circumstances in this report where 

plan sponsors or fiduciaries may have breached their fiduciary duties. Determining 

whether a fiduciary breach has occurred is based upon the facts and circumstances of 

each case. Our follow-up with plan sponsors was not aimed at reaching this 

determination. Therefore, our findings should not be read as indicating a breach of 

fiduciary or other obligation.

8

BrightScope is a financial information company that services U.S. plan sponsors, 

advisers, providers, and participants. BrightScope maintains a database of information on 

401(k) plans, which it uses to quantitatively rate plans across a number of metrics, 

including total plan fees, quality of investment menu options, and plan participation. 

BrightScope used publicly available data from various sources, including Form 5500 

filings, the SEC, the U.S. Census Bureau, and the Bureau of Labor Statistics, to help 

develop and maintain its database. 
 

Page 5 GAO-12-325 Survey of 401(k) Plan Sponsors

Under Title I of the Employee Retirement Income Security Act of 1974 

(ERISA), employers are permitted to sponsor two broad types of 

retirement plans, defined benefit—plans that promise to provide a benefit 

that is generally based on an employee’s years of service and frequently 

salary, regardless of the investment portfolio’s performance—or defined 

contribution—plans in which retirement savings are based on 

contributions and the performance of the investments in individual 

accounts. Over the last three decades, employers have shifted away from 

sponsoring defined benefit plans and toward defined contribution plans. 

The 401(k) plan is the predominant type of defined contribution plan in the 

United States. In 2009, employers sponsored over 460,000 401(k) plans 

with participation from over 60 million workers.9

Typically, 401(k) plans allow participants to specify the size of their 

contributions and direct their assets to one or more investments among 

the options offered within the plan. Investment choices within the plan 

generally include options such as mutual funds, target date funds, stable

value funds, company stock, money market funds, and self-directed 

brokerage accounts. Industry research shows that as of the end of 2009, 

participants had allocated about 41 percent of 401(k) plan assets to 

equity funds, a type of mutual fund that mainly invests in stocks, followed 

by a mix of other investments, including company stock and stable value 

funds—funds that are designed to preserve the total amount of 

participants’ contributions, or their principal, while also providing steady 

positive returns.

The assets held in these 

plans totaled more than $2.4 trillion.

10 When deciding how to allocate assets among the 

various investment options, participants are generally advised to consider 

a number of factors, such as historical performance, investment risk, and 

fees associated with each option. As we previously reported, even a 

seemingly small fee, such as a 1 percent annual charge, can significantly 

reduce retirement savings over the course of a career.11

 

9

These estimates are based on GAO analysis of plan year 2009 Form 5500 filings. For 

details about our estimates, see appendix II.

10Employee Benefit Research Institute, 401(k) Plan Asset Allocation, Account Balances, 

and Loan Activity in 2009 (Washington, D.C.: November 2010).

11GAO, Private Pensions: Changes Needed to Provide 401(k) Plan Participants and the 

Department of Labor Better Information on Fees, GAO-07-21 (Washington, D.C.: Nov. 16, 

2006).

Background
 

Page 6 GAO-12-325 Survey of 401(k) Plan Sponsors

Under ERISA, a fiduciary is anyone who has discretionary control or 

authority over the management or administration of an ERISA-covered 

plan, such as a 401(k) plan, including the plan’s assets.12

Plan sponsors and other plan fiduciaries have specific responsibilities 

under ERISA. For example, ERISA stipulates that plan fiduciaries carry 

out their responsibilities prudently and do so solely in the interest of the 

plan’s participants and beneficiaries.

Plan sponsors 

are typically the named fiduciaries, but others, such as trustees, 

investment advisers, or other service providers, may also be fiduciaries 

depending on the functions they perform for the plan.

13

• selecting and monitoring any service providers to the plan;

In accordance with ERISA and 

related Labor regulations and guidance, responsibilities of plan sponsors 

and other fiduciaries may include, but are not limited to,

• reporting plan information to the federal government and to 

participants;

• adhering to the plan documents, including any investment policy 

statements;

• 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.

On October 22, 2010, Labor proposed regulations that would amend the 

definition of an ERISA fiduciary with respect to providing investment 

 

12Under section 3(21)(A), a fiduciary is anyone who exercises any discretionary authority 

or discretionary control respecting management of such plan or exercises any authority or 

control respecting management or disposition of its assets or renders investment advice 

for a fee or compensation, direct or indirect, with respect to any moneys or other property 

of such plan, or has authority to do so, or has any discretionary authority or discretionary 

responsibility in the administration of the plan.

1329 U.S.C §1104(a)(2). 

Fiduciary Obligations 

under ERISA
 

Page 7 GAO-12-325 Survey of 401(k) Plan Sponsors

advice for a fee.14 After obtaining written comments from the public and 

holding two public hearings on the proposed regulation, Labor announced 

it will repropose its rule on the definition of a fiduciary in early 2012.15

Labor’s Employee Benefits Security Administration (EBSA) is the primary 

agency responsible for protecting private pension plan participants from 

the misuse or theft of their pension assets by enforcing ERISA. To carry 

out its responsibilities, EBSA issues regulations and guidance, conducts 

investigations of plan fiduciaries and service providers, seeks appropriate 

remedies to correct violations of the law, and pursues litigation when it 

deems that necessary.

Plan sponsors may hire companies that will provide the services 

necessary to operate their 401(k) plans. Service providers are outside 

entities, such as investment companies, banks, or insurance companies 

that a plan sponsor hires to provide some of the services necessary to 

operate the plan. These services include

• investment management (e.g., selecting and managing the securities 

included in a mutual fund),

• consulting and providing financial advice (e.g., selecting vendors for 

investment options or other services),

• recordkeeping (e.g., tracking individual account contributions),

• custodial or trustee services for plan assets (e.g., holding the plan 

assets in a bank), and

• telephone or web-based customer services for participants.

As shown in figure 1, services can be provided by a single “bundled” plan 

service provider or through contracts with a combination of several 

different entities—also known as an “unbundled” arrangement. In a 

bundled arrangement, the sponsor hires one company that provides the 

 

14Definition of the Term “Fiduciary,” 75 Fed. Reg. 65,263 (Oct. 22, 2010)(to be codified at 

29 C.F.R. pt. 2510).

15EBSA News Release No. 11-1382-NAT, Sept. 19, 2011.

Key 401(k) Plan Services 

and Fees
 

Page 8 GAO-12-325 Survey of 401(k) Plan Sponsors

full range of services directly or through subcontracts with other providers. 

Using a bundled provider, the sponsor might also delegate the oversight 

for the selection and monitoring of plan services, except with respect to 

the bundled provider itself. In contrast, in an unbundled arrangement, the 

sponsor, acting in a fiduciary capacity, selects each service provider and 

retains an ongoing duty to monitor service providers.

Figure 1: Structure of Service Provider Arrangements in 401(k) Plans

Service providers can be compensated for their services either directly 

from the plan sponsor or indirectly—payments from sources other than 

the plan or plan sponsor. Typically, service provider compensation comes 

in the form of fees charged as a percentage of total plan assets, per 
 

Page 9 GAO-12-325 Survey of 401(k) Plan Sponsors

participant, an itemized fixed rate, or a combination of all three. How fees 

are assessed largely depends on the type of service provided and the 

plan sponsor. For example, fees for investment management services, 

which can vary by investment option, are generally charged as a 

percentage of assets and indirectly charged against participants’ 

accounts, because they are deducted directly from investment returns. 

Administrative fees, on the other hand, can be assessed as an overall 

percentage of total plan assets regardless of participants’ investment 

choices, in addition to a flat rate for some fixed services, such as the 

printing of plan documents. In the latter, the sponsor has the option of 

passing along some or all of the administrative fees to participants. We 

previously reported that recordkeeping and administrative fees are often 

paid by the plan sponsors, but participants bear them in a growing 

number of plans.16

Service providers charge an array of fees depending on the type of 

product and arrangement the provider may have with other entities that 

provide plan services. Some common investment-related fees are the 

following:

• Management fees: These fees are paid out of fund assets to the 

fund’s investment adviser for investment portfolio management, other 

management fees payable to the fund’s investment adviser or its 

affiliates, and administrative fees payable to the investment adviser 

that may not be included in some of the fees identified below.

• Marketing and distribution fees, also known as 12b-1 fees: These 

fees may be used to pay commissions to brokers and other 

salespersons, to pay for advertising and other costs of promoting the 

fund to investors, and to pay various service providers of a 401(k) 

plan pursuant to a bundled services arrangement. They are usually 

between 0.25 percent and 1.00 percent of assets annually.

• Sub-transfer agent (sub-TA) fees: These fees are typically used to 

reimburse a plan’s record keeper for shareholder services that the 

fund would have otherwise provided, such as maintaining participantlevel accounts and distributing the fund’s prospectus.

 

16GAO-07-21. 
 

Page 10 GAO-12-325 Survey of 401(k) Plan Sponsors

• Trading or transaction costs: These fees are associated with an 

investment manager’s buying and selling of securities within a 

particular investment vehicle, such as a mutual fund, which can 

include commissions. These also include costs associated with 

portfolio turnover.

• Wrap fees: These fees are usually associated with insurance 

products, such as group variable annuities.17 They are aggregate fees 

that encompass multiple components, such as investment 

management fees, mortality risk and administrative expense charges, 

and surrender and transfer charges.18

Some of these fees may be paid by third parties in connection with 

investment-related services, also known as revenue sharing, which are 

ultimately indirectly paid for by the plan or its participants.

Description of Revenue Sharing Arrangements

Revenue sharing, in the 401(k) plan industry, generally refers to indirect 

payments made from one service provider, such as the investment 

fund provider, to another service provider in connection with services 

provided to the plan, rather than payments made directly by the plan 

sponsor for plan services. For example, a plan’s record keeper and 

investment fund manager may have an arrangement where the 

investment fund company collects sub-TA fees from plan assets 

invested in a particular fund that may then be used as a credit to offset 

the record keeper’s fees.

 

17Group variable annuities are insurance products that place a wrapper of benefits, 

namely a guaranteed lifetime annuity income or a minimum death benefit, around a 

bundle of investments that are similar to mutual funds.

18Mortality risk and administrative expense fees are charged by insurance companies to 

cover the cost of the insurance features of an annuity contract, including the guarantee of 

a lifetime income payment interest and expense guarantees, and any death benefit 

provided during the accumulation period. Surrender and transfer charges are fees an 

insurance company may charge when an employer terminates a contract before the term 

of the contract expires or when a participant withdraws an amount from the contract. 

These charges may be imposed if these events occur before the expiration of a stated 

period and commonly decrease and disappear over time.
 

Page 11 GAO-12-325 Survey of 401(k) Plan Sponsors

The Form 5500 Annual Return/Report is the primary source of information 

for the federal agencies administering ERISA and the private sector 

regarding the operation, funding, assets, and investments of private 

pension plans and other employee benefit plans.19

The Form 5500 includes information on the plan’s sponsor, the number of 

participants, plan service providers, and more specific financial 

information, such as plan assets, liabilities, insurance, and financial 

transactions. According to Labor officials, the form is made publicly 

available to serve as a deterrent to noncompliance with the statutory 

duties imposed on plan fiduciaries. A research file is also available in 

electronic format to individuals and groups for research purposes.

Labor, IRS, and the 

Pension Benefit Guaranty Corporation jointly developed the Form 5500 

so employee benefit plans could satisfy annual financial reporting 

requirements under ERISA and the Internal Revenue Code. Specifically,

Labor uses the Form 5500, among other mechanisms, as a tool to 

monitor and enforce plan sponsors’ responsibilities under ERISA.

20

In November 2007, Labor implemented new regulations to expand fee 

and compensation disclosures on the Form 5500.21 Specifically, for the 

2009 plan year, Labor revised the annual reporting requirements 

concerning service providers and to facilitate electronic filing. Labor 

required larger plan sponsors—mainly those with more than 100 plan 

participants—to classify the fees they pay service providers as either 

“direct” or “indirect” compensation in an updated Form 5500 Schedule C–

Service Provider Information.

 

19For the purposes of this report, we will be discussing Form 5500 reports as they relate to 

private pension plans.

20The Form 5500 Private Pension Plan Research Files are created each year to support 

creation of Labor’s Private Pension Plan Bulletins. They include Form 5500 filings from all 

private pension plans having 100 or more participants and a 5 percent sample of smaller 

private pension plans. The private pension plan research files correct many statistically 

important logical and arithmetic data inconsistencies that remain after completion of 

processing. For the research file, a user’s guide with information on the construction of, 

structure of, and variables included in the file is made available. In addition, separate from 

the research file, an electronic database of unedited filings for each plan year is publicly 

available on Labor’s website and in response to Freedom of Information Act requests.

21Annual Reporting and Disclosure, 72 Fed. Reg. 64,710 (Nov. 16, 2007)(to codified at 29 

C.F.R. pt. 2520).

Form 5500 Annual 

Return/Report
 

Page 12 GAO-12-325 Survey of 401(k) Plan Sponsors

Labor’s more recent regulatory initiatives focus on enhanced disclosure to 

plan fiduciaries and plan participants; see table 1 for a description of 

these initiatives. These regulations, as well as changes to the Form 5500 

and its instructions, enhance the disclosure of plan financial information 

related to fees and other arrangements involving plan fiduciaries and 

participants.

Table 1: Summary of Labor’s Disclosure Initiatives

Final rule

Reasonable Contract or 

Arrangement Under Section 

408(b)(2)–Fee Disclosure,

77 Fed. Reg. 5632 (Feb. 3, 

2012)(to be codified at 29 

C.F.R. pt. 2550)

On February 3, 2012, Labor finalized a rule concerning 

the disclosures that must be furnished to plan fiduciaries, 

including plan sponsors, in order for a contract or 

arrangement for plan services to be “reasonable,” as 

required by ERISA section 408(b)(2). Specifically, the 

final rule requires that disclosures be provided to a 

responsible plan fiduciary in writing to assist plan 

fiduciaries in assessing the reasonableness of the 

compensation paid for services and the conflicts of 

interests that may affect a service provider’s performance.

Final rule

Fiduciary Requirements for 

Disclosure in ParticipantDirected Individual Account 

Plans,

75 Fed. Reg. 64,910 (Oct. 

20, 2010)(to be codified at 

29 C.F.R. pt. 2550)

Labor finalized a regulation that requires the disclosure of

certain plan and investment-related information, including 

fee and expense information, to participants and 

beneficiaries in participant-directed individual account 

plans.

Proposed rule

Definition of the Term 

“Fiduciary,” 

75 Fed. Reg. 65,263 (Oct. 

22, 2010)(to be codified at 

29 C.F.R. pt. 2510)

On October 22, 2010, Labor proposed a regulation, which 

more broadly defines the circumstances under which a 

person is considered to be a fiduciary by reason of giving 

investment advice to a plan or a plan’s participants. Labor 

has indicated that it intends to repropose this definition in 

early 2012, see EBSA News Release No. 11-1382-NAT, 

Sept. 19, 2011.

Source: GAO analysis of Labor regulations.

Labor’s Recent Regulatory 

Actions Regarding Fee 

Disclosure
 

Page 13 GAO-12-325 Survey of 401(k) Plan Sponsors

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. For example, BrightScope 

recently estimated that the average fees paid by plans with less than 

$10 million in assets for all recordkeeping, advice, and investment 

management services was 1.90 percent and 1.08 percent for plans with 

over $100 million in assets. However, BrightScope’s estimates do not 

include plans with fewer than 100 participants, which account for about 

88 percent of all 401(k) plans. Another study conducted in 2011, which 

included plans of all sizes, estimated that the average total amount paid 

in defined contribution plans for recordkeeping, administrative, and 

investment fees was approximately 1.30 percent.

Eighty-five percent of sponsors reported that they or their participants 

paid recordkeeping and administrative fees, as shown in figure 2.22 Of the 

respondents who reported paying fees, over three-quarters were small 

plans, close to 20 percent were medium-sized plans, and the remainder 

were large plans.23

 

22We use the word “reported” in this document to make clear that this is information given 

or gathered from survey responses and follow-up. Because these data were collected by a 

survey methodology, they are subject to nonsampling error and are based on respondent 

interpretation of survey question wording. We took actions to reduce nonsampling error. 

For example, we conducted integrity checks of answers across questions and enforced 

skip patterns, when appropriate.

In addition to sponsors who said their plans paid 

23Given there is no industry wide definition of “small,” “medium,” and “large” plans, for the 

purposes of this report, we defined small plans as those with fewer than 50 participants; 

medium-sized plans as those with 50 to 499 participants; and large as those with 500 or 

more participants. While we analyzed and report fees as a percentage of assets, we did 

not use plan assets as a proxy for plan size.

Sponsors and 

Participants Paid a 

Range of Fees, though 

Smaller Plans Paid 

Higher Fees than 

Larger Plans

Sponsors Paid 

Recordkeeping and 

Administrative and Other 

Fees, but Small Plans 

Typically Paid Higher 

Amounts and More of the 

Fees

Recordkeeping and 

Administrative Fees Paid by 

Sponsors
 

Page 14 GAO-12-325 Survey of 401(k) Plan Sponsors

recordkeeping and administrative fees, sponsors of 9 percent of plans did 

not know if they or their participants paid for these services, and 7 percent 

reported fees were waived by their service providers.24

Figure 2: Responses Regarding whether Recordkeeping and Administrative Fees 

Were Paid for Calendar Year 2010

Note: Percentages may not total to 100 because of rounding. 

Of the sponsors who said either they or their participants paid fees and 

provided fee amounts, the range in fees reported as paid by plan 

sponsors for recordkeeping and administrative services was between 

0.01 percent and 37.26 percent of plan assets annually.25

 

24Recordkeeping and administrative fees for plans reporting that these fees were waived 

may in fact have been paid by participants without the sponsor’s knowledge. In a previous 

report, we noted that some funds are marketed to sponsors as having no fees, when in 

fact the record keepers are compensated out of the investment funds’ operating expenses 

for their services, which is ultimately deducted from participants’ accounts. See 

We calculated 

GAO-07-21 for additional details.

25Sponsors reported fees paid during calendar year 2010 in absolute dollar amounts. 

Throughout this report, we report our fee estimates, which converted the absolute dollar 

amounts plan sponsors reported paying for each service, to amounts paid as a 

percentage of plan assets. For additional information on our methods, see appendix I. 
 

Page 15 GAO-12-325 Survey of 401(k) Plan Sponsors

that sponsors paid an average of less than 1.77 percent of assets.26

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.27

In contrast, sponsors of larger plans—those with more than 500 

participants—paid an average of 0.15 percent of assets.28 According to 

industry experts and research, plans with fewer participants generally 

have lower plan assets, and therefore pay higher fees as a percentage of 

assets than plans with more assets or older plans that have grown their 

assets over the years. For example, the respondent in our survey that 

paid the highest amount, 37.26 percent of plan assets, for recordkeeping 

and administrative service fees started the plan in 2009 and had less than 

$1,350 in plan assets at the end of calendar year 2010. Service providers 

and an industry expert we met with noted that administrative fees to start 

a 401(k) plan can be significant for small plans.29

 

26Fee ranges for recordkeeping and administrative fees are generalizable to the 

population of 401(k) plans. Of the plans sampled, we obtained fee information from 243 

respondents. We determined the response rate for this question was large enough for us 

to provide reliable estimates that could be generalized to the population of 401(k) plans.

Additionally, 

representatives of a retirement industry organization said that it may be 

difficult for sponsors of small plans to negotiate for lower fees, because 

assets in these plans are modest.

27The 95 percent confidence interval for this estimate is between 0.55 and 2.11.

28The 95 percent confidence interval for this estimate, 0.15, is between 0.08 and 0.22.

29We also recently reported that sponsors of small plans found the startup and 

administrative requirements for retirement plans were burdensome. GAO, Private 

Pensions: Better Agency Coordination Could Help Small Employers Address Challenges 

to Plan Sponsorship, GAO-12-326 (Washington, D.C.: Mar. 5, 2012).
 

Page 16 GAO-12-325 Survey of 401(k) Plan Sponsors

Figure 3: Among Respondents Who Provided Fee Information, the Average Fee 

Amounts as a Percentage of Assets Paid by Sponsors for Recordkeeping and 

Administrative Services, by Plan Size, 2010

Note: Our response rate for subgroups regarding recordkeeping and administrative fees was 

sufficient for us to make statements generalizable to the population of 401(k) plans. The 95 percent 

confidence intervals for the averages reported in the figure are 0.49 to 1.77 for all plans; 0.55 to 2.11 

for plans with fewer than 50 participants; 0.17 to 0.31 for plans with 50 to 499 participants; and 0.08 

to 0.22 for plans with more than 500 participants. 

Larger plans are more likely to pass recordkeeping and administrative 

fees along to participants than smaller plans. Of the sponsors that 

provided fees, sponsors of 80 percent of plans reported paying for all the 

fees associated with recordkeeping and administrative services. 

However, sponsors of only 47 percent of large plans paid for 

recordkeeping and administrative services, while at least 82 percent of 

smaller plans paid these fees.30

 

30Estimates in this statement have margins of error that are less than plus or minus 20 

percentage points.

Thirty-two percent of the larger plans also 
 

Page 17 GAO-12-325 Survey of 401(k) Plan Sponsors

reported passing along all of these fees to participants, and 22 percent 

shared these fees with participants.31

Twenty-one percent of sponsors reported that either they or their 

participants paid for other services such as trustee, legal, or audit 

services covering plans of all sizes. In addition, sponsors of about 22

percent of plans reported that their service providers waived these fees or 

that they did not pay anything for these types of services, while 29 

percent of plan sponsors did not know if their plans paid these fees. The 

vast majority of respondents who did not know if fees were paid for these 

other services sponsored small plans, those with fewer than 50 

participants.

Representatives from one industry 

organization we interviewed said that as plans get larger, they tend to 

pass more of the fees on to participants. However, the reason small plans 

paid these fees varied. For example, one sponsor of a small plan told us 

that it feels responsible for its employees and, as a result, chooses to pay 

the fees. And since sponsors of small plans could also be the business 

owners, consultants from one company pointed out these sponsors may 

be more personally interested in the plan.

32

Of sponsors who reported they paid for other fees, a majority, 85 percent, 

reported they paid all of the fees for other services.33 Most of the 

respondents reported paying less than 0.24 percent of plan assets 

annually for these services.34

Even though investment management fees account for the majority of 

401(k) plan fees, sponsors of about 50 percent of plans did not know if 

they or their participants paid investment management fees or believed 

However, a couple of respondents of small 

and medium-sized plans paid more than 1 percent.

 

31Estimates in this statement have margins of error that are less than plus or minus 18 

percentage points.

32The margin of error for this estimate is less than plus or minus 9 percentage points.

33The margin of error for this estimate is less than plus or minus 13 percentage points.

34Fee ranges for other services are not generalizable to the population of 401(k) plans. Of 

the plans sampled, we obtained other service fee information from 101 sponsors. We 

determined the response rate for this fee question was not large enough for us to provide 

reliable estimates that could be generalized to the population of 401(k) plans. Of sponsors 

who paid these fees, 75 percent of respondents said they paid less than 0.24 percent of 

plan assets annually. 

Other Administrative Fees Paid 

by Sponsors

Investment Management Fees 

Paid by Sponsors
 

Page 18 GAO-12-325 Survey of 401(k) Plan Sponsors

these fees were waived. While sponsors of plans of all sizes did not know 

about these fees, this was more prevalent among respondents who 

sponsor smaller plans than those sponsoring larger plans. For example, 

respondents of 57 percent of small plans (fewer than 50 participants) 

either did not know or claimed fees were waived, compared with 31 

percent of large plans.35

Many plans have also not asked their providers about fees for 

investment-related services, such as 12b-1, sub-TA, or wrap fees, as 

shown in table 2. For example, sponsors of 82 percent of plans had not 

asked their service providers about sub-TA fees, which are typically used 

to reimburse a plan’s record keeper for shareholder services, such as 

maintaining participant-level accounts and 70 percent had not asked 

about 12b-1 fees, which may be used to market and distribute the fund. 

According to our survey, over half of sponsors have not asked their 

service providers about any of the fees listed in table 2.

Most of the sponsors who said these fees were 

not paid or believed these fees were waived offered mutual funds, in 

which companies that manage these funds charge investment 

management fees regardless of whether a fund is in a 401(k) plan or sold 

to individual investors. Sponsors may not know if their plans paid 

investment management fees or believed fees are waived, because these 

fees are usually borne by participants and are typically charged against 

participants’ assets, as opposed to invoiced to the plan sponsor.

 

35Estimates in this statement have margins of error that are less than plus or minus 15 

percentage points.
 

Page 19 GAO-12-325 Survey of 401(k) Plan Sponsors

Table 2: Estimated Percentage of 401(k) Plan Sponsors Who Asked Their Providers about Certain Fees 

Estimated percentage 

of total plans

Survey question: Have you asked your provider for information on these fees? Yes No

a. Marketing and distribution fees, also known as 12b-1 fees, may be used to pay commissions to 

brokers and other salespersons, for expenses such as advertising and other costs of promoting the 

fund to investors.

30 70

b. Sub-TA fees, which are typically fees used to reimburse a plan’s record keeper for shareholder 

services that the fund would have otherwise provided, such as maintaining participant-level 

accounts and distributing the fund’s prospectus.

19 82

c. Excess commission, also known as SEC rule 28(e) soft dollars, which are extra commissions 

charged by brokerage firms and paid to investment advisers and others—in the form of services 

other than execution of securities transactions, such as research products—for directing business to 

brokerage firms.

15 85

d. Trading/transaction costs, which include commissions associated with an investment manager’s 

buying and selling of securities within a particular investment vehicle, such as a mutual fund. These 

are the costs associated with portfolio turnover. 

20 80

e. Wrap fees, which are generally associated with annuities, are aggregate fees that encompass 

multiple components, such as investment management fees, surrender charges, mortality and 

expense risk charges, and administrative fees.

21 79

Source: GAO analysis of Survey of 401(k) Plan Sponsors.

Note: Percentages may not total to 100 because of rounding. 

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. For 

example, as shown in figure 4, of the sponsors who reported that they 

had not asked their providers about 12b-1 fees, 64 percent did not know if 

their plans paid these fees.36 Additionally, of the sponsors who had not 

requested information about wrap fees, which are typically associated 

with insurance accounts and annuities, about 50 percent of those 

sponsors did not know if these fees were paid.37

 

36The margin of error for this estimate is less than approximately plus or minus 9 

percentage points.

Moreover, 17 percent of 

plans offered insurance company accounts, such as stable value funds, 

and 8 percent offered annuities, which typically charge a wrap fee, but 

over a quarter of those sponsors that offered insurance company 

accounts and annuities reported not paying wrap fees.

37The margin of error for this estimate is less than approximately plus or minus 9 

percentage points.
 

Page 20 GAO-12-325 Survey of 401(k) Plan Sponsors

Figure 4: Percentage of Respondents Who Reported Asking Their Providers about 

12b-1 and Wrap Fees and Paid These Fees

Note: Estimates in this figure have margins of error that are less than plus or minus 9 percentage points.

Last, of the sponsors that provided fee amounts, sponsors of about 24 

percent of plans reported that they paid all investment management fees 
 

Page 21 GAO-12-325 Survey of 401(k) Plan Sponsors

and participants paid nothing.38 Among respondents who provided 

amounts, the range in fees these respondents paid was very minimal to 

1.17 percent of plan assets.39 However, as noted above, these fees are 

typically borne by participants and paid out of assets. While the amounts 

reported may reflect fees charged by service providers for investmentrelated services, it is unclear what these sponsors paid for.

Participants generally paid part or all of the fees charged for key 401(k) 

plan services. For example, even though in many plans the sponsor paid 

recordkeeping and administrative fees, our survey shows that participants 

also paid these fees. About 10 percent reported recordkeeping and 

administrative fees were paid for out of plan assets—from participants’ 

accounts. For respondents who reported this information and provided 

amounts, participants paid between 0.02 percent and 1.59 percent 

annually, with an average of about 0.39 percent.40 Respondents who 

sponsored smaller plans were more likely to pay these fees, and their 

participants tend to pay higher fees than participants in larger plans. 

Participants in small plans (fewer than 50 participants) paid an average of 

0.43 percent annually.41 Meanwhile, participants in larger plans—those 

with more than 500 participants—paid 0.22 percent.42

 

38The margin of error for this estimate is less than plus or minus 12 percentage points.

We also found that 

in a few plans participants paid more than 1 percent in plan assets. Two 

of these plans used an insurance provider and offered insurance 

company accounts. Plans administered by insurance companies may 

have higher fees and expenses because wrap fees, which include 

components such as mortality and expense risk fees, are imposed on 

these products, according to Labor research.

39Fee ranges for investment management services are not generalizable to the population of 

401(k) plans. Of plans sampled, we obtained investment management fee information from 

114 respondents. We determined the response rate for this fee question was not large enough 

for us to provide estimates that could be generalized to the population of 401(k) plans.

40The 95 percent confidence interval for this estimate is between 0.24 and 0.53.

41The 95 percent confidence interval for the estimated average of about 0.39 percent is 

between 0.24 and 0.62.

42The 95 percent confidence interval for this estimate is between 0.14 and 0.30.

Participants Ultimately 

Paid for 401(k) Plan Fees

Recordkeeping and 

Administrative Fees Paid by 

Participants
 

Page 22 GAO-12-325 Survey of 401(k) Plan Sponsors

Participants were more likely to pay for their plans’ consulting or advisory 

services than plan sponsors. Plans may opt to hire a consultant or adviser 

to help the plan sponsor with various plan responsibilities, such as 

monitoring investments, selecting vendors, and negotiating fees or 

services with other providers. Our survey shows that 85 percent of plans 

hired a retirement plan consultant or investment adviser during 2010 to 

assist the sponsor with these services.43 Overall, in 77 percent of plans, 

participants paid for the services rendered to the plan by these providers, 

while only 17 percent of plan sponsors paid these fees.44 Among 

respondents who reported fee amounts, participants paid between 0.01 

percent and 1.40 percent annually for these plan services.45

Finally, as shown in figure 5, in about 73 percent of the plans, 

respondents said that participants paid 100 percent of investment fees, 

which are the largest share of 401(k) plan fees.

In addition, 

on the basis of survey results, participants in smaller plans paid higher 

fees as a percentage of assets than participants in larger plans. For 

example, while the median amount participants in larger plans (500 or 

more participants) paid was 0.07 percent of assets, participants in smaller 

plans paid approximately 0.29 percent annually.

46 Among respondents 

who reported fee amounts, participants paid between less than 0.01 

percent and 3.24 percent of assets.47

 

43We did not directly ask survey respondents if they hired a retirement plan consultant or 

investment adviser during calendar year 2010, but obtained information on plan sponsors’ 

use of retirement plan consultants or investment advisers through two survey questions. 

First, we asked sponsors whether their plan’s retirement consultant or investment adviser 

was a fiduciary, and 22 percent reported “fiduciary,” 53 percent reported “not a fiduciary,” 

10 percent reported “do not know,” and 16 percent reported “not applicable.” For sponsors 

who responded “fiduciary,” “not a fiduciary,” or “do not know,” we inferred that they used a 

retirement plan consultant or investment adviser. We determined this was a better gauge 

of use than a different question that asked sponsors whether their company or plan paid 

retirement plan consultant or investment adviser fees, because the response rate for this 

question was higher. See 

The sponsor who said participants 

GAO-12-550SP for a copy of the full questionnaire.

44The margin of error for this estimate is less than plus or minus 17 percentage points.

45Of the plans sampled, we obtained retirement plan consultant or investment adviser fee 

information from 64 sponsors. We determined the response rate for this fee question was 

not large enough for us to provide reliable population estimates. Of sponsors who paid 

fees, 50 percent reported participants paid between 0.03 percent and 0.12 percent of 

assets annually. 

46The margin of error for this estimate is less than plus or minus 13 percentage points.

47As noted earlier, our estimates of investment management fees are not generalizable to 

the population of 401(k) plans. 

Consulting and Advisory Fees 

Paid by Participants

Investment Management Fees 

Paid by Participants
 

Page 23 GAO-12-325 Survey of 401(k) Plan Sponsors

paid approximately 3.24 percent in plan assets reported using an 

insurance company for investment options and did not know if different 

types of investment vehicles, such as mutual funds, were offered to 

participants. However, most respondents reported their plans paid less 

than 1 percent of plan assets. These tended to be older plans, in 

existence for at least 10 years, and those having more than $1 million in 

plan assets. Among plans that paid more than 1 percent of assets, about 

half of these respondents told us that other factors such as the historical 

performance of a fund were more important than low investment fees 

when considering which options to offer within the plan.

Figure 5: Among Respondents Who Provided Amounts, the Percentage of 

Investment Management Fees by Participants, Sponsors, or Both, 2010

Note: Percentages may not total to 100 because of rounding. Estimates in this figure have margins of 

error that are less than plus or minus 24 percentage points. 
 

Page 24 GAO-12-325 Survey of 401(k) Plan Sponsors

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.48 Revenue sharing arrangements, in 

which fees for plan services are indirectly charged to the plan through an 

outside entity, can benefit plans if sponsors clearly understand how much 

they are paying for these types of arrangements and the services they can 

help provide. For example, according to a 2007 report by the ERISA 

Advisory Council’s Working Group on Fiduciary Responsibilities and 

Revenue Sharing Practices, many of these arrangements may help reduce 

overall plan costs and provide plans with services and benefits that may not 

otherwise be affordable to them.49 In addition, as we have previously 

reported, revenue sharing arrangements can be used to offset expenses the 

plan has agreed to pay, and can either be cost-neutral to the plan or may 

instead result in increased compensation to the service providers.50

 

48We reviewed 91 large and small plans based on the availability of sponsor-provided or 

third-party plan documents. Some sponsors did not provide additional documentation, and 

others provided documentation from which the presence of revenue sharing arrangements 

could not be accurately determined. Thus, the results of our review of these documents 

cannot be generalized to the population of all 401(k) plans. In addition, it was not the 

purpose, nor does GAO purport, to identify situations or circumstances in this report where 

plan sponsors or fiduciaries may have breached their fiduciary duties. Determining 

whether a fiduciary breach has occurred is based upon the facts and circumstances of 

each case. Our follow-up with plan sponsors was not aimed at reaching this 

determination. Therefore, our findings should not be read as indicating a breach of 

fiduciary or other obligation.

Our 

review found examples in which revenue sharing arrangements for 

49The ERISA Advisory Council was created by ERISA to provide advice to the U.S. 

Secretary of Labor.

50GAO, 401(k) Plans: Improved Regulations Could Better Protect Participants from 

Conflicts of Interest, GAO-11-119 (Washington, D.C.: Jan. 28, 2011).

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
 

Page 25 GAO-12-325 Survey of 401(k) Plan Sponsors

recordkeeping and administrative services did not offset other fees, namely 

investment fees. In these cases, an additional asset-based fee for 

recordkeeping under a revenue sharing arrangement was charged on top of 

each fund’s reported expense ratio, as opposed to a lower rate.

Service providers and consultants we spoke with noted that plan sponsors 

typically do not fully understand revenue sharing arrangements. One industry 

expert explained that plan sponsors are commonly not aware of fees or fee 

arrangements disclosed outside of the expense ratio. Representatives from a 

consulting firm told us that some of their clients possess a good 

understanding of revenue sharing, but most have no understanding of 

revenue sharing and the potential impact on plan fees. As shown in figure 6, 

sponsors of an estimated 48 percent of plans did not know if their service 

providers had revenue sharing arrangements with other providers. 

Furthermore, 51 respondents that reported being aware of revenue sharing 

also reported that they did not consider the revenue sharing arrangements 

when selecting service providers, or that they did not have enough 

information to do so.

Figure 6: Estimated Percentage of 401(k) Plans with Revenue Sharing 

Arrangements as Reported by Plan Sponsors

Plan sponsors who reported not having or not knowing if their providers 

had revenue sharing arrangements may, in fact, have had these 

arrangements and were not aware of it. Our review found that at least 45 

of the 91 plan sponsors who provided investment reports had revenue 

sharing arrangements, despite reporting not having or not knowing of 
 

Page 26 GAO-12-325 Survey of 401(k) Plan Sponsors

such arrangements.51 Some of the documents provided by these plan 

sponsors specifically identified revenue collected from or paid to third 

parties for plan services, such as recordkeeping and investment adviser 

fees. Evidence of revenue sharing was also found through our review of 

some of the funds these plans invested in, which showed that 12b-1 fees 

were charged.52 Similarly, plans paid sub-TA fees, but about 50 percent 

of sponsors reported not knowing if these fees were paid during calendar 

year 2010. For example, one provider discloses that it receives revenue 

sharing fees, including sub-TA fees, but 7 of the 24 survey respondents 

that contracted with this provider reported that they did not know if their 

plans paid these fees. According to examples we found, in which the plan 

sponsor may not have been aware of revenue sharing arrangements, 

fees paid under such arrangements varied.

 

51Of the 262 respondents who said they did not have, or did not know if their plan had, 

revenue sharing arrangements, 91 provided additional investment documentation. Of 

these 91 respondents who provided additional documentation, we were able to determine 

that 45 plans had some sort of revenue sharing arrangement. We determined this both by 

noting provided documents that explicitly identified such arrangements and by reviewing 

fund prospectuses of investment options and finding at least one option that charged 12b1 fees. Of the remaining 46 respondents, some had provided documents with inadequate 

or insufficient information with which to determine specific fund names or share class 

information.

52SEC Rule 12b-1 allows mutual funds to pay for marketing and distribution expenses

directly from fund assets. Known as 12b-1 fees, these can range from 0.25 to 1 percent of 

plan assets. Not all funds pay 12b-1 fees and, within a fund, some share classes may pay 

12b-1 fees while other share classes do not. While 12b-1 fees are included in a fund’s 

expense ratio, SEC has noted that many investors do not understand these fees nor are 

they aware the fees are being deducted from their investments. See SEC 17 C.F.R. Parts 

210, 239, 240, 249, 270 and 274. SEC has proposed new rules to replace Rule 12b-1 with 

a new framework that would separately regulate service fees and asset-based sales 

charges. See Mutual Fund Distribution Fees; Confirmations, 75 Fed. Reg. 47,064 (Aug. 4, 

2010)(to be codified at 17 C.F.R. pts. 210, 239, 240, 249, 270 and 274). As of March 

2012, SEC’s proposal has not yet been finalized.
 

Page 27 GAO-12-325 Survey of 401(k) Plan Sponsors

Examples in Which Sponsors Unknowingly Paid Certain Fees 

under a Revenue Sharing Arrangement

• The sponsor of a plan that had about $6 million in assets reported 

not knowing if its plan paid 12b-1 fees, even though a review of its 

investment documents indicated that the plan paid about $5,000 in 

12b-1 and other revenue sharing 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.

Moreover, even plan sponsors that were aware of revenue sharing 

arrangements may not fully understand the impact of these arrangements 

on plan services and plan fees, and therefore likely paid higher fees than 

they reported. For example, our review of the fee report of a 401(k) plan 

that used revenue sharing and had over 500 participants and 

approximately $13.5 million in plan assets found that the plan sponsor 

and participant paid 16 times more in recordkeeping and administrative 

fees during calendar year 2010 than the sponsor reported on our survey, 

when we included revenue sharing fees, as shown in figure 7. Similarly, 

the plan sponsor of a small plan that had about 65 participants and about 

$5.8 million in plan assets reported that the company did not pay anything 

for recordkeeping and administrative fees, though the fee report the 

sponsor provided indicated that these fees in total were about $10,700—

about $5,900 was invoiced to the company and roughly $4,800 was paid 

to the provider from revenue sharing fees collected from participants’ 

asset accounts.
 

Page 28 GAO-12-325 Survey of 401(k) Plan Sponsors

Figure 7: Difference between Actual Recordkeeping Fees Paid by One Plan in 2010 

and Those Reported by the Plan Sponsor under a Revenue Sharing Arrangement

Note: In this example, while the plan sponsor reported that it paid $1,400 and participants paid 

approximately $2,400 out of plan assets for recordkeeping and administrative services, a review of 

the plan’s calendar year 2010 investment revenue report shows that more than $62,000 was paid for 

these services. In addition, the sponsor reported that the companies that service the plan had 

revenue sharing arrangements with other service providers, which was disclosed in a written contract 

and discussed between the sponsor and provider. 

A failure to understand these arrangements can have adverse effects on 

the plan sponsor and participants. For example, because recordkeeping 

fees under a revenue sharing arrangement can be based on the amount 

of plan assets under management, the amount paid to the provider for 

recordkeeping services could increase as the fund grows and may get 

quite large if the sponsor is unaware of these asset-based fees. This 

could result in the plan—the sponsor and participants—continuing to pay 

more for recordkeeping services as assets grow, although the level of 

recordkeeping services provided tends to remain the same. A short video 

illustrating a hypothetical example of how revenue sharing arrangements 

can work and how the fees for services change over time under such an 

arrangement is available at 

http://www.gao.gov/multimedia/video/#video_id=590296 . 
 

Page 29 GAO-12-325 Survey of 401(k) Plan Sponsors

Fees associated with certain 401(k) insurance products—where 

participants pay for some benefits but which otherwise appear similar to 

noninsurance 401(k) products—can be difficult for sponsors to identify 

and therefore evaluate. Some service providers we met with said that 

plan sponsors do not often know they are invested in insurance products 

such as group variable annuities, which are products that place a 

“wrapper” of benefits, namely a guaranteed lifetime annuity income or a 

minimum death benefit, around a bundle of investments that are similar to 

mutual funds—called separate accounts or subaccounts—and are 

unaware of the associated fees. They suggested that it is difficult for 

sponsors to distinguish between group variable annuity contracts and 

mutual funds, because the insurance company’s separate or subaccounts 

often use the same name as the mutual funds, as depicted in figure 8. 

However, representatives from one insurance provider said its separate 

accounts are invested in the mutual fund for which it is named, but 

acknowledged that other providers may mimic the fund rather than 

investing in the fund.

Insurance Product Fees 

Can Be Difficult for Plan 

Sponsors to Identify and 

Evaluate
 

Page 30 GAO-12-325 Survey of 401(k) Plan Sponsors

Figure 8: A Hypothetical Example of Two Different 401(k) Investment Options with Similar Names

Note: In the example above, although the two investments from each plan look the same and appear 

to both be the mutual fund, Mutual Fund A, in fact there are important differences between the two. 

For example, the top statement is a plan without an annuity contract; thus the investment, Mutual 

Fund A, is the publicly traded mutual fund, as signified with a ticker symbol. In contrast, the 

investment from the bottom statement is in a plan with a group annuity contract; thus the investment 

is a subaccount of the insurance provider, which is potentially designed to mimic Mutual Fund A’s 

investment strategy. As a result of their similarities, a plan sponsor may believe these are the same 

investment option. However, because these are different investments, they may have different fees, 

which may not be known to the plan sponsor. 
 

Page 31 GAO-12-325 Survey of 401(k) Plan Sponsors

In addition, our survey shows that about 17 percent of sponsors did not 

know if their plans had group variable annuity contracts. Furthermore, 

although sponsors of 72 percent of plans reported not having a group 

variable annuity contract, our analysis of their submitted investment 

statements indicates that some do currently have these contracts and are 

unaware of them. According to our review, it appears that at least 15 of 

the plans that provided investment documents and reported not being in a 

group variable annuity contract may actually be under such a contract.

The various ways that information about these contracts is disclosed can 

make it difficult to determine with certainty whether or not sponsors have 

these contracts. As shown in figure 9, a 401(k) group annuity contract and 

a 401(k) plan without such a contract may look very similar. For example, 

the sponsor of a small plan with about 12 plan participants did not know if 

the plan had a group variable annuity contract. However, the statement 

provided by the sponsor noted that the plan was a group variable 

contract, and included a mortality, expense, and administrative charge—

charges by an insurance company to cover the cost of insurance features 

in an annuity contract. Similarly, another plan sponsor we met with told us 

its plan did not use group annuity contracts; its advisers, however, later 

clarified that the sponsor’s plan is, in fact, a group variable annuity 

contract and charges wrap fees at 0.1 percent of plan assets. The 

advisers explained that these contracts are not often identified as group 

variable annuity contracts and suggested that a lot of sponsors would not 

know if their plans had such contracts. Another sponsor told us that its 

third-party administrator told it that its plan was not under a group annuity 

contract, even though it was stated on the plan’s investment report, 

because the provider, which is an insurance company, was required to 

disclose its group annuity contract terms on all plan documents, 

regardless of the actual terms.
 

Page 32 GAO-12-325 Survey of 401(k) Plan Sponsors

Figure 9: A Hypothetical Comparison of 401(k) Plans with and without Group 

Annuity Contracts

a

The insurance company contracts with fund managers and pays fees to create separate accounts 

that look like the publicly available named funds, but which are available only as investments to 

participants in plans that contract with that insurance company. 

Fees associated with group annuities can add significant costs to a plan. 

The additional fees for group annuity contracts—known as wrap fees—

include administrative fees and a mortality and expense risk charge, 

which is typically in the range of 1.25 percent of assets per year. We also 
 

Page 33 GAO-12-325 Survey of 401(k) Plan Sponsors

found that in addition to each fund’s expense ratio, an insurance 

provider’s administrative service fees were up to 2.00 percent of plan 

assets for a few plans that responded to our survey. Furthermore, two 

service providers we met with said that they will often discourage their 

clients from using group annuities, and one noted that it was able to 

reduce one plan sponsor’s fees by about $90,000 off a total of $300,000 

by switching the plan away from group annuities to mutual funds. 

However, another provider told us that it packages a range of services 

into its group annuity contracts and spread fees out over a number of 

years, making it more affordable for smaller plans to offer their employees 

a retirement plan. In addition to ongoing fees, these contracts also 

typically charge a surrender fee for terminating the contract, which may 

begin in excess of 4 or 5 percent, according to one service provider, but 

typically decline over a period of about 5 or 7 years after a purchase 

payment. As these fees can be significant, plan sponsors are likely 

contracting with providers that charge higher fee rates without knowing 

the benefits for which they and their participants are paying. Moreover, 

without being aware of whether or not their plan is a group annuity 

contract, for example, plan sponsors cannot adequately assess whether 

or not the benefits tied to that product are worth the fees associated with 

them.53

 

53The potential benefits for plan participants arising from a group annuity contract can 

include the option of converting the account balance into a guaranteed lifetime income 

(though participants could also purchase annuity contracts outside the plan). An 

assessment of the benefits to plan participants of group annuity contracts, in comparison 

with the fees, is beyond the scope of this report.
 

Page 34 GAO-12-325 Survey of 401(k) Plan Sponsors

Examples of the Fee Amounts Paid by Small and Large Plans with 

Group Annuity Contracts

• A small plan with approximately $1.2 million in plan assets paid 

approximately $20,600 in fees and about 37 percent of that 

($7,700) were mortality, expense, and administrative fees.

• Another plan, with approximately $2.7 million in plan assets, 

reported paying wrap fees of 0.1 percent of plan assets, or about 

$2,700 for the plan year, after the plan’s providers negotiated for 

lower fees.

• A large plan with about $19.3 million in group annuity assets paid 

0.14 percent of plan assets, or approximately $27,000, in 

administrative maintenance charges

Many plan sponsors may not be aware that their participants are paying 

potentially significant transaction costs (also known as trading costs), 

which are commonly paid for indirectly by plan participants out of fund 

assets and typically include commissions associated with an investment 

manager’s buying and selling of securities within a particular investment 

vehicle.54

 

54There are also “transaction costs” associated with plan participant actions, such as 

withdrawals and taking a loan from their 401(k) plan accounts; however, this meaning of 

transaction costs differs from the types of transactions referred to in this report. 

While transaction costs are common among mutual funds, and 

more than 80 percent of 401(k) plans in our survey offer mutual funds, 

sponsors of an estimated 48 percent of plans did not know if their plans—

through the deduction from participants’ returns of investments—incurred 

transaction costs. In fact, as shown in figure 10, only an estimated 12 

percent of sponsors said that their plans incurred these costs.

A Majority of Sponsors Did 

Not Know about 

Commonly Charged 

Transaction Costs
 

Page 35 GAO-12-325 Survey of 401(k) Plan Sponsors

Figure 10: Percentage of Sponsors Who Reported That Transaction Costs Were 

Charged in 2010

Of the sponsors that did not know if their plan participants were charged 

transaction costs, about 95 percent of them also reported that they had 

not asked their service providers for information regarding transaction or 

trading costs. Even those that did ask about these fees sometimes did not 

know whether their plan participants were charged transaction costs. For 

example, a plan sponsor of a large plan with 15,000 participants and over 

$100 million in plan assets told us that its plan does not pay transaction or 

trading costs, and that it has asked its service provider for information on 

these fees. However, on the basis of BrightScope’s estimates, the plan 

was charged about $310,400 in transaction costs.55

 

55BrightScope estimates transaction cost by taking into account a fund’s disclosed 

brokerage commissions and estimates spread costs, market impact costs, and opportunity 

costs using the fund’s turnover rate, total net assets, and the asset allocation of the 

portfolio of underlying assets.
 

Page 36 GAO-12-325 Survey of 401(k) Plan Sponsors

Calculating Transaction Costs

SEC has identified four major types of mutual fund transaction costs: 

commissions, spread costs, market impact costs, and opportunity 

costs. However, no industrywide standard currently exists for 

calculating transaction costs. Different researchers and private sector 

companies have developed various methods to determine transaction 

costs. For example, one researcher focuses on spread costs, 

brokerage commissions, and tax costs using individual fund quarterly 

reports of stocks traded and SEC filings, while another researcher 

estimates trading costs using price impacts and effective bid-ask 

spreads. Adding to the difficulty of estimating transaction costs is the 

fact that even though mutual funds have transaction costs associated 

with them, they are not uniformly measured or disclosed

Transaction costs vary by different types of investment vehicles. Our review 

of BrightScope data for 83 plan sponsors that responded to our survey and 

had corresponding BrightScope data suggests that transaction costs for an 

investment option can be as high as 2.72 percent.56

 

56Our analysis of transaction costs was limited to the 83 plans in our sample that 

BrightScope also estimated transaction costs for, when we downloaded BrightScope 

reports in September 2011. BrightScope generally did not have transaction costs for plans 

with fewer than 100 participants; see appendix II for additional details about BrightScope 

fee data.

However, average 

transaction costs for the investment options offered in the plans we 

reviewed were approximately 0.45 percent of assets. Even though 

transaction costs for individual funds are high, the amount a participant or 

plan pays may be lower depending on how much is invested in these highcost options; for example, for the plan that had an investment option with a 

transaction cost of 2.72 percent, only 6.57 percent of plan assets were 

invested in that option, resulting in transaction costs of 0.18 percent of total 

plan assets. Different types of investment options yield different amounts of 

transaction costs. For example, more actively managed funds may have 

higher transaction costs than less actively managed funds because they 

often have a higher turnover. More actively managed investment options 

with higher turnovers could benefit participants by producing a higher 

return; however, their higher transaction costs may or may not lead to a 

higher net return.
 

Page 37 GAO-12-325 Survey of 401(k) Plan Sponsors

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. For example, Labor undertook 

several educational initiatives to help sponsors ensure that the services 

provided to their plans are necessary and the fees for those services are 

consistent with ERISA requirements. We also recently reported that Labor 

developed online tools and a website to specifically help small plan 

sponsors navigate retirement plan information and make informed 

decisions about plan options.57

www.dol.gov

In addition, Labor has created a fiduciary 

education program intended to provide all plan sponsors and other plan 

officials with an understanding of the law and their responsibilities, with an 

emphasis on obligations, such as understanding the terms of their plans 

and selecting and monitoring service providers. The program includes 

holding nationwide educational seminars and webcasts on topics such as 

fees. 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. As described in table 3, Labor distributes other key 

publications, which are available to sponsors on its website. . 

 

57GAO-12-326. 

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
 

Page 38 GAO-12-325 Survey of 401(k) Plan Sponsors

Table 3: Description of Key Publications Related to 401(k) Plan Fees on the 

Department of Labor’s Website

Publication Description

401(k) Plan Fee 

Disclosure Form (1999)

a This 401(k) plan fee disclosure form is aimed to assist plan 

sponsors in making informed cost-benefit decisions with 

respect to their plans. The purpose of the form is to help 

sponsors determine the total cost of the plan. It is also 

intended to provide sponsors with a means to compare 

investment product fees and plan administration expenses 

charged by competing service providers, regardless of how 

a particular service provider structures its fees. 

A Look At 401(k) Plan 

Fees (1999)

A booklet that answers some common questions about 

401(k) plan fees and expenses that may be paid by 401(k) 

plans. It highlights the most common fees and encourages 

401(k) plan participant to

• make informed investment decisions,

• consider fees as one of several factors in decision 

making,

• compare all services received with the total cost, and

realize that cheaper is not necessarily better. 

The booklet also includes a 401(k) Fees Checklist, which is 

10 questions to help gather information about fees and 

expenses paid by a plan.

Meeting Your Fiduciary 

Responsibilities (2010)

A booklet that addresses the scope of ERISA’s protections 

for private sector retirement plans. It provides a simplified 

explanation of the law and regulations, including a 

description of who a fiduciary is and fiduciaries’ 

responsibilities. These responsibilities may include hiring a 

service provider and understanding the fees charged and 

the services provided.

Study of 401(k) Plan Fees 

and Expenses (1998)

The study includes a description of the various 

mechanisms used to provide administrative and investment 

management services for 401(k) plans. It describes 

different fee structures faced by plan sponsors when they 

purchase services from outside providers and the ranges of 

expenses resulting from those fee structures.

Understanding 

Retirement Plan Fees 

and Expenses (2004)

A booklet to mainly help 401(k) plan sponsors better 

understand and evaluate plan fees and expenses. The 

booklet describes various plan fees, including 

administration, investment, and individual service fees, and 

who typically pays these fees. It also provides guidance on 

the steps sponsors can take to evaluate plan fees.

Source: Labor.

Notes: In addition to these publications, Labor also published two tip sheets aimed at assisting small 

business owners with service provider selection: (1) Tips For Selecting And Monitoring Service 

Providers For Your Employee Benefit Plan, and (2) Selecting And Monitoring Pension Consultants - 

Tips For Plan Fiduciaries.

a

This document was developed by the American Bankers Association, the American Council of Life 

Insurance, and the Investment Company Institute, and distributed by Labor. 
 

Page 39 GAO-12-325 Survey of 401(k) Plan Sponsors

However, as shown in figure 11, our generalizable survey results indicate 

that the majority of plan sponsors either did not use Labor’s resources to 

compare and assess fees or did not know about them. 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. In addition to the 

resources we specifically asked about, one sponsor noted using Labor’s 

Frequently Asked Questions, available on its website, but also reported 

not knowing how much the plan paid in investment management and 

consulting fees. Another sponsor, who did not know about Labor’s 

resources, commented that Labor’s website is massive, which could 

make it difficult to access 401(k) information. Additionally, in March 2012, 

we reported that many small employers with retirement plans were 

unaware of Labor’s education and outreach initiatives and recommended 

that Labor take steps to enhance the visibility and usefulness of federal 

guidance on retirement plans for small employers.58

 

58GAO-12-326. 
 

Page 40 GAO-12-325 Survey of 401(k) Plan Sponsors

Figure 11: Estimated 401(k) Plan Sponsors’ Use of Labor’s Educational Resources 

to Compare and Assess Fees

Sponsors typically rely on their service providers for plan fee information 

and advice, which may be one reason sponsors do not use the resources 

on Labor’s website. Our prior work indicated that small employers use 

plan service providers to address various aspects of plan administration 

and may lack the financial resources and in-house expertise to manage a 

plan. Our survey of small and large plan sponsors shows that about 95 

percent of plans hired outside entities, such as a plan consultant, an 

investment adviser, or a third-party administrator, to help with plan 

functions. In survey comments, some sponsors told us that their service 

providers either provided or could provide other types of information, such 

as a breakdown of fees by services performed or comparative plan size 

benchmarking data, to help ensure the services provided to the plan are 
 

Page 41 GAO-12-325 Survey of 401(k) Plan Sponsors

necessary and the fees for those services are reasonable. However, our 

survey results do not indicate that Labor’s efforts are reaching its target 

audience, even though it aims to educate and assist employers, 

particularly small employers, in understanding their obligations under the 

law and related regulations.

Labor has also made changes to the Form 5500, expanding plan data 

available to sponsors and others, but sponsors are not using the 

additional information to help them manage their plans. In particular, an 

updated Form 5500 Schedule C requires plan sponsors to collect and 

classify the fees they pay service providers as either direct or indirect 

compensation. Although these changes were implemented for plan year 

2009 filings, understanding indirect fees continues to challenge plan 

sponsors, as we noted in the previous section of this report. On the basis 

of our survey, of those that reported completing Form 5500 Schedule C, 

the additional compensation information helped sponsors of an estimated 

17 percent of plans negotiate fees with their current providers.

59

 

59The margin of error for this estimate is plus or minus14 percentage points.

Furthermore, even less, between 2 and 3 percent, reported that Form 

5500 information was used to compare fees paid with those charged by 

other providers. As shown in figure 12, sponsors did not know or use 

Form 5500 information to compare or assess fees charged by various 

service providers. Specifically, sponsors of an estimated 50 percent of 

plans did not use Form 5500 data available on Labor’s website to 

compare and assess record keeper fees, and about 47 percent did not 

know the data could be used for this purpose. Moreover, industry experts 

and sponsors told us that plan reporting is an onerous and costly part of 

operating and maintaining a 401(k) plan.

Labor Has Improved Form 

5500 Data, but Sponsors 

Do Not Use the 

Information
 

Page 42 GAO-12-325 Survey of 401(k) Plan Sponsors

Figure 12: Estimated 401(k) Plan Sponsors’ Use of Form 5500 Data to Compare and 

Assess Fees for Select Services

In addition, even if sponsors wanted to use Form 5500 data from other 

plans to determine fees, they would be hindered because of several 

limitations we found, such as the inability to search for reports of plans 

with similar features or the same provider to compare fees. Table 4 

describes some limitations that pose obstacles to sponsors using Form 

5500 data.
 

Page 43 GAO-12-325 Survey of 401(k) Plan Sponsors

Table 4: Key Obstacles to Using Form 5500 Data to Assess 401(k) Plan Fees

Limitation Explanation of limitation

Explicit fees not reported We previously reported that not all plan fees are explicitly reported on the Form 5500.a For 

example, the investment management fees associated with mutual funds are not explicitly 

reported on the Form 5500, a fact that, in turn, has limited Labor’s ability to identify fees that 

may be questionable. Although it is important for the additional fee information to be reported 

to Labor, some useful plan and fee information, such as explicit fees reported in the income 

and expense statement, could help sponsors monitor and compare fees.

Limited web-based search function Access to fee information collected under Labor’s new web-based Form 5500 filing system for 

the purpose of benchmarking or comparing fees remains limited.

• Currently, users can search for and download individual returns filed through the ERISA 

Filing Acceptance System 2 (EFAST2), but the search functions are limited to filtering the 

data by a few variables, such as the plan name, Employer Identification Number, and 

system-generated variables, which has little to no meaning to the general public.

• At the same time, this system does not easily allow a user, such as a plan sponsor, to 

review aggregated data from multiple plans to identify amounts and trends in fees charged 

by service providers for plans that may be similar in size or nature of business. 

Data not presented in a usable or 

understandable format 

Sponsors and others can download all filings by plan year from Labor’s website to create their 

own customized reports from the unedited publicly available Form 5500 data. However, these 

files are large, with hundreds of thousands of records, and would be difficult to analyze without 

additional support from Labor or an experienced data analyst.

Additionally, the Form 5500 dataset files, which contain filings for all plans within a plan year, 

are not presented in an understandable or usable format.

• While users can download the data, there is no user’s guide similar to the one distributed 

for Labor’s research file with key information, such as a description of the variables, the 

corresponding item number on the Form 5500, and data limitations, needed to help users 

understand and mine the data for key information about plan trends and fees.

• Additional information from Labor is needed for users to determine which record/filing is 

the most current and accurate. During the course of our data reliability assessment of the 

datasets, we found that some files for each plan year contained more than one record for 

a single unique plan as some plans submit amended filings.

• Sponsors would also need to take steps to edit the data before they could use them. For 

instance, we took several steps to accurately identify the population of 401(k) plans, such 

as reviewing plan names for the term “401(k),” because, according to Labor officials, 

sponsors did not always update or correctly identify the plan as a 401(k) plan under plan 

characteristics.b Labor researchers, who produce Labor’s Form 5500 research files, and 

others also adapt the data to improve the accuracy of the data. 

Source: GAO analysis.

a

GAO, Private Pensions: Additional Changes Could Improve Employee Benefit Plan Financial 

Reporting, GAO-10-54 (Washington, D.C.: Nov. 5, 2009). 

b

For additional information on the steps we took to review and edit Form 5500 data, see appendix II. 

As of December 2011, Labor did not have plans to address these 

limitations. For example, while Labor is developing an online search 

capability for pre-2009 filings, which are currently not searchable, it does 

not have plans to expand the search functions and capabilities for 

information filed under the new Form 5500 web-based filing system. 
 

Page 44 GAO-12-325 Survey of 401(k) Plan Sponsors

Labor has also not taken steps to make additional information about the 

publicly available pre-2009 Form 5550 data to help sponsors and others 

use it more effectively.

We previously reported that service provider disclosures can be very 

complicated and difficult to understand, which could reduce their 

usefulness to plan sponsors.60 Our survey results also indicate that even 

when certain service provider business arrangements, such as revenue 

sharing, are disclosed to sponsors, they may not fully understand how 

these arrangements affect plan fees.61 On February 3, 2012, Labor 

finalized the regulations regarding disclosure of service providers’ direct 

and indirect compensation, which is intended to provide sponsors with 

information to assess the reasonableness of fees received by plan 

service providers, their affiliates, and subcontractors.62 Additionally, the 

final rule encourages service providers to provide the information in a 

summary format or offer a guide to sponsors to help them locate 

information, but does not require such actions.63

 

60

However, our survey 

also shows that sponsors contract with more than one provider, some of 

which have revenue sharing arrangements with other providers. 

Therefore, under the final rule, sponsors could receive disclosure 

statements in different formats from different providers, which may further 

contribute to sponsors’ confusion about plan fees. We previously 

recommended that Labor require that the service provider disclosures be 

provided in a consistent and summary format, and in light of our survey 

GAO-11-119. 

61We administered our survey of 401(k) plan sponsors on fees before Labor finalized the 

regulations regarding disclosure of service providers’ direct and indirect compensation. 

62Reasonable Contract or Arrangement Under Section 408(b)(2)—Fee Disclosure, 77 

Fed. Reg. 5632 (Feb. 3, 2012)(to be codified at 29 C.F.R. pt. 2550). 

63In the Fall 2011 Regulatory Agenda, Labor announced plans to publish a proposed 

amendment to its final regulation under ERISA section 408(b)(2) to request public 

comment on a requirement that service providers furnish a guide or similar tool to assist 

plan fiduciaries, especially fiduciaries to small and medium-sized plans, in identifying 

required fee disclosures in potentially lengthy, complex, or multiple documents. The 

preamble to Labor’s final regulation also notes that Labor intended to publish a Notice of 

Proposed Rulemaking to request public comments on whether covered service providers 

should be required to furnish a guide or similar tool with the required fee disclosures. 77 

Fed. Reg. 5632 (Feb. 3, 2012)(to be codified at 29 C.F.R. pt. 2550). 

Service Provider 

Disclosure Regulations 

May Help Plan Sponsors 

Better Understand Fees
 

Page 45 GAO-12-325 Survey of 401(k) Plan Sponsors

results, making these actions a requirement and not voluntary on the part 

of service providers may be useful to plan sponsors.64

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. In 

October 2010, Labor proposed regulations to amend the definition of an 

ERISA fiduciary to account for significant changes in both the financial 

industry and the expectations of plan officials and participants who 

receive investment advice by reducing the number of conditions that need 

to be met to be deemed an ERISA fiduciary. These changes would likely 

allow Labor to oversee a broader range of plan providers. However, on 

September 19, 2011, Labor withdrew its proposal, citing the need for 

more public input and announced that it will repropose its rule in 2012.65

While Labor’s initial proposal to amend the definition of an ERISA 

fiduciary may help reduce confusion on the part of plan sponsors with 

respect to their providers that provide investment advice, it may not 

address any unclear roles related to a variety of other providers that have 

considerable influence over the plan sponsor. Our survey results show 

that, on the basis of respondents’ perceptions, various providers other 

than investment advisers also serve as plan fiduciaries, but some may not 

be considered fiduciaries under current and proposed regulations.66

 

64

For 

example, of those that use a third-party administrator, sponsors of an 

estimated 14 percent of plans reported that their administrator also 

served as a plan fiduciary. Sponsors also reported that some bundled 

service providers served as fiduciaries. However, most service providers, 

GAO-11-119. 

65EBSA News Release No. 11-1382-NAT, Sept. 19, 2011. As of March 2012, no revisions 

to the proposal had been announced.

66ERISA requires that at least one fiduciary be named in the plan documents, which is 

typically the plan sponsor, but others may be identified. Plan sponsors may share or 

delegate certain fiduciary roles with their service providers, which can contribute to the 

confusion if roles are not well defined in these instances. In some cases, determination of 

fiduciary status may not be made unless a lawsuit is filed claiming that the plan has been 

harmed. While Labor is charged with enforcing the fiduciary standards required under Title 

I of ERISA, its authority over providers that are not determined to be acting in the capacity 

of an ERISA fiduciary is limited. For the proposed regulation, see Definition of the Term 

“Fiduciary,” 75 Fed. Reg. 66263 (Oct. 22, 2010)(to be codified at 29 C.F.R. pt. 2510).

Labor Is Reexamining the 

Definition of a Fiduciary, 

but Additional Efforts 

Could Help Sponsors and 

Others
 

Page 46 GAO-12-325 Survey of 401(k) Plan Sponsors

including some investment advisers, are not considered to be plan 

fiduciaries by plan sponsors, according to information on our survey.

We also found that some sponsors relied on providers, who may not be 

considered plan fiduciaries under current regulations, to perform fiduciary 

functions, which can lead to gaps in plan oversight. As shown in figure 13, 

service providers who perform certain activities could be considered 

ERISA fiduciaries, and thus under the authority of Labor; however there 

are circumstances that may result in an unclear fiduciary role. During the 

course of our review, we found instances in which plan fiduciary roles 

were unclear. For example, we met with a sponsor of a small plan that 

told us the plan relied on its bundled provider to the extent that the 

sponsor considered the provider a plan manager and never felt the need 

to negotiate plan fees, because the sponsor trusted that the provider’s 

representatives would let the sponsor know if the plan was being 

overcharged. This sponsor also told us that the provider’s representative 

was always very clear that the information provided was not investment 

advice, and therefore the provider may not be considered an ERISA 

fiduciary. In another instance, a sponsor told us that the selection of the 

plan’s investment provider was based on the recommendation of the 

plan’s third-party administrator, whose fiduciary status was unclear.
 

Page 47 GAO-12-325 Survey of 401(k) Plan Sponsors

Figure 13: Examples of Activities Performed by Some Service Providers That May or May Not Be Considered ERISA 

Fiduciaries and Labor’s Role with Respect to These Service Providers

Note: ERISA requires that plan documents identify one or more named fiduciaries, typically plan 

administrators and trustees. Aside from these named fiduciaries, the determination of fiduciary status 

is a facts and circumstances determination. Title I of ERISA gives Labor the primary authority to 

enforce requirements governing the conduct of fiduciaries of pension and other employee benefit 

plans. Our prior work indicates that the existing law limits Labor’s ability to pursue certain service 

providers that are not fiduciaries under ERISA. 

Nonetheless, unclear fiduciary roles can lead to gaps in plan oversight. 

We previously reported that Labor generally would not be able to take 

action against a provider that was not considered a fiduciary under 

ERISA, and even in instances in which the courts have allowed Labor to 

pursue nonfiduciaries that contribute to a fiduciary breach, Labor officials 

noted that remedies were limited.67

 

67GAO, Defined Benefit Pensions: Conflicts of Interest Involving High Risk or Terminated 

Plans Pose Enforcement Challenges, 

These limitations are further 

exacerbated by the fact that, as our survey shows, in the current 

retirement market, sponsors heavily rely on providers that may not be 

GAO-07-703 (Washington, D.C.: June 28, 2007). 
 

Page 48 GAO-12-325 Survey of 401(k) Plan Sponsors

considered plan fiduciaries to help them manage their plans. 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. Such an evaluation may help Labor better oversee providers that 

may knowingly or unknowingly charge sponsors and participants higher 

fees than are necessary.

While some of our fee estimates are not representative of all 401(k) 

plans, our results indicate that small plans, which account for the majority 

of 401(k) plans, pay higher fees for a number of reasons. Our previous 

work on issues related to retirement plan sponsorship among small 

employers indicated that starting and maintaining a plan can be 

challenging. Some small plan sponsors are overwhelmed by the various 

administrative and fiduciary responsibilities and use service providers to 

help manage their plans, which can be costly. Regardless of plan size, 

many of these fees charged in 401(k) plans are passed along to plan 

participants, which ultimately results in reduced retirement savings. In this 

regard, plan sponsors may need to be aware of and closely monitor the 

fees charged by various service providers to help ensure the fees they 

and their participants pay are not excessive. 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. In addition, because sponsors of 

plans of all sizes may not be aware of certain fees that participants are 

paying, such as transaction costs and wrap fees, it is difficult to get a 

clear understanding of the total fees that participants are actually paying.

Labor has taken actions to help educate plan sponsors and provide them 

with complete information about fees, but our survey shows that Labor’s 

efforts are not reaching its target audience. While Labor’s service provider 

disclosure regulation is likely to provide plan sponsors with information to 

help them assess the reasonableness of fees received by plan service 

providers, our survey results show that sponsors whose providers are 

already disclosing revenue sharing arrangements have trouble 

understanding the impact of these arrangements on plan fees.

Furthermore, sponsors in our survey had more than one provider and will 

likely receive multiple disclosure statements under the new regulation. 

Thus, more disclosures from multiple service providers about their fees 

may not be enough to ensure sponsors, and ultimately participants, are 

paying the most appropriate fee for plan services if they do not fully 

Conclusions
 

Page 49 GAO-12-325 Survey of 401(k) Plan Sponsors

understand how certain arrangements work. By taking a more proactive 

approach to its educational outreach efforts, thereby ensuring its efforts 

are more effective at reaching plan sponsors, particularly those of small 

plans, who may lack the in-house expertise and resources necessary to 

manage their plans, Labor can increase the awareness of how fees are 

charged under complex arrangements and reduce the likelihood that 

sponsors and participants pay higher fees than necessary.

Although the Form 5500 was not intended to be a comprehensive 

database of plan fees, it could be a valuable source of information for 

sponsors to help them compare the fees they pay with those paid by 

other plans of similar size. Without enhancements to Labor’s website, 

such as search functions for multiple purposes and different audiences, it 

will be difficult for users, namely plan sponsors, to use Form 5500 data, if 

they so choose, to compare the fees charged by service providers. Labor 

has a unique opportunity to make the information it collects available to 

sponsors in a way that will help them compare and negotiate their fees. In 

the absence of better access to high-quality plan fee information, 

sponsors will continue to rely on service providers for comparative fee 

information, which may or may not be unbiased. In addition, sponsors will 

continue to believe filing the form is onerous and not beneficial to them, 

because they cannot easily access and use it to determine fees.

Finally, our work shows that numerous providers have significant 

influence over sponsors and plan decisions but do not consider 

themselves to be fiduciaries, are not considered fiduciaries by plan 

sponsors, and may not be considered fiduciaries under Labor’s proposed 

changes because they do not provide investment advice or have not 

already identified themselves as fiduciaries. In addition to Labor’s ongoing 

efforts, an evaluation of the entire definition of the term “fiduciary” would 

be helpful to plan sponsors and service providers. Without an evaluation 

that considers the current structure of the retirement market, sponsors 

may continue to be unclear about the role of their providers. In addition, 

Labor may not have the ability to pursue service providers who have 

substantial influence over the plan and may seek to profit at the expense 

of the plan participants.

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 

Recommendations for 

Executive Action
 

Page 50 GAO-12-325 Survey of 401(k) Plan Sponsors

sponsor engagement. Such actions could include e-mailing sponsors 

about new regulations, guidance, and tools available on its website, and 

then monitoring website traffic and publication downloads to determine 

whether such initiatives are reaching their targeted audience.

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. It should also consider developing and posting 

key information, such as a data dictionary, about the publicly available 

Form 5500 datasets on its website, similar to the information distributed 

about the Form 5500 research files.

To help strengthen Labor’s ability to oversee 401(k) plans, we 

recommend that in addition to Labor’s ongoing efforts, Labor should 

evaluate whether individuals and service providers who exert significant 

control over the plan should be considered ERISA fiduciaries.

We provided a draft of this report to Labor, the Department of the 

Treasury, and SEC for their review and comment. The Department of the 

Treasury did not have any comments. Labor and SEC provided technical 

comments, which we incorporated as appropriate. Labor also provided 

written comments, which are reproduced in appendix III.

In its written response, Labor generally agreed with our findings and 

recommendations. Labor appreciated our interest in improving awareness 

of plan fees and in ensuring that employers and other plan fiduciaries 

make more informed decisions with respect to the management of 401(k) 

plans. Labor noted that helping plan sponsors and participants obtain 

objective services at a fair price by enhancing the transparency of plan 

fees has been one of its highest priorities in recent years. Specifically, 

Labor cited the completion of three regulatory initiatives—(1) a regulation 

regarding the disclosure of service provider fee and revenue sharing 

arrangements, (2) disclosure of plan and investment-related information 

to participants and beneficiaries in 401(k)-type plans, and (3) changes to 

the information large plans must report about service provider 

compensation on the Form 5500—designed to augment and improve the 

disclosure of plan fee information at all levels. Labor was surprised that 

these initiatives were not highlighted more prominently in the summary 

Agency Comments 

and Our Evaluation
 

Page 51 GAO-12-325 Survey of 401(k) Plan Sponsors

section of the report. In fact, we outline these regulations in the 

background section of the report, discuss issues related to Labor’s 

service provider disclosure regulation in the third section of the report, 

and summarize our overall assessment of Labor’s regulatory actions on 

our highlights page. Labor also noted that the draft report did not include 

a substantive discussion of how these regulations are expected to 

address the issues raised in the report. Of the three regulations Labor 

noted, two—Labor’s regulations regarding service provider disclosures to 

plan fiduciaries and disclosures to participants and beneficiaries—had not 

yet been implemented during our review, and therefore their effectiveness 

remains to be seen. With respect to the third regulation noted in Labor’s 

written comments regarding changes to Schedule C of the Form 5500 

Annual Report, which began with the 2009 plan year, our report and esupplement describe these changes and how sponsors have used the 

additional information collected on the Form 5500. Our survey results 

show that the additional information collected on Schedule C provided 

some plan sponsors more useful information about their provider’s 

compensation, but it did not help many sponsors negotiate plan fees nor 

did it result in the ability to compare fees paid with those charged by other 

service providers.

We commend Labor for quickly responding to our prior recommendation 

to finalize the regulation regarding disclosures of service providers’ direct 

and indirect compensation from plan investments and Labor’s efforts to 

collect information on a guide or similar requirement to assist plan 

sponsors in identifying and understanding the disclosures.68

Regarding our third objective, Labor appreciated our interest in EBSA’s 

outreach and educational efforts on key fiduciary responsibilities, such as 

the fees paid for operating retirement plans. With respect to our 

recommendation on Labor’s approach to plan sponsor outreach and 

As we noted 

in the third section of this report, service provider disclosures under the 

new regulation may be difficult to understand, and multiple disclosures in 

different formats may further contribute to sponsors’ confusion about plan 

fees. Labor shared our concerns about how plan fee information could be 

presented to sponsors and stated it will propose for public comment a 

supplement to the service provider disclosure regulation to fully address 

our previous recommendation.

 

68GAO-11-119. 
 

Page 52 GAO-12-325 Survey of 401(k) Plan Sponsors

education, Labor cited several ongoing efforts to engage sponsors and 

stated that it is exploring new ways to reach plan sponsors. We commend 

Labor for its efforts to provide educational information to the public; host 

webcasts on complex topics, such as its new fee regulations; and work 

with stakeholders, such as the Small Business Administration, to reach 

plan sponsors with its limited resources. However, throughout the section 

we illustrate through various survey results that Labor’s efforts are not 

currently reaching its target audience. 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. We recognize that reaching 

sponsors may be challenging, but attempts to directly reach sponsors and 

help ensure they are considering all the relevant information when making 

plan decisions will be even more important as Labor’s regulatory changes 

take effect. Consequently, we continue to believe new approaches to 

outreach are needed to help educate sponsors about complex fee 

arrangements and ensure sponsors and participants do not pay higher 

fees than necessary.

With respect to our findings on the availability of Form 5500 data, Labor 

shares our interest in making the data collected accessible to the public. 

Regarding our recommendation that Labor provide additional 

documentation to help users of the unedited Form 5500 data, Labor plans 

to explore the implementation of our recommendation. With respect to our 

recommendation that Labor enhance web access to facilitate sponsors’ 

ability to compare and benchmark fees, Labor noted that a web tool for 

these purposes would have a limited effectiveness because of some 

inherent limitations to the Form 5500 data. Our report also outlines 

limitations with the data including the fact that not all plan fees are explicitly 

reported on the Form 5500. However, we continue to believe that the fee 

information collected could help sponsors monitor and compare fees. 

Additionally, while Labor also noted that it believes its new fee disclosure 

regulations will be a better tool for expanding transparency and 

encouraging informed comparison shopping by plan fiduciaries, as we 

previously noted, the effects of these regulations remain unclear. 

Furthermore, although Labor notes that the Form 5500 was not designed to 

be a government database for evaluating compensation arrangements in 

the pension plan market, it remains the primary and most comprehensive 

source of information on U.S. private pension plans and could be more 

effectively used to help sponsors. Thus, we reaffirm our recommendation to 

enhance web access to publicly available Form 5500 data.

Finally, with respect to our findings about the fiduciary status of service 

providers, Labor stated that it appreciated our support for its recent effort 
 

Page 53 GAO-12-325 Survey of 401(k) Plan Sponsors

to update its rule defining the persons who are investment advice 

fiduciaries under ERISA. Regarding our recommendation to evaluate the 

types of individuals who should be considered ERISA fiduciaries, Labor 

agreed that there are individuals and service providers who exert 

significant control over plan decisions and should be held accountable for 

the advice they provide as fiduciaries. Labor noted that this regulatory 

initiative continues to be a high priority and that the agency plans to craft 

a clear and workable regulation that provides the strongest possible 

protections to individuals as well as to plan sponsors who offer retirement 

plans for their workers. While our review focused on plan sponsors, we 

recognize that 401(k) plan participants generally make investment 

decisions for their own accounts and ultimately pay the vast majority of 

plan fees. Therefore, we also agree with Labor’s position that the 

absence of adequate fiduciary protections and safeguards is particularly 

problematic for plan participants.

As arranged with your office, unless you publicly announce the contents 

of this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the Secretary of Labor, 

the Secretary of the Treasury, and the Chairman of the Securities and 

Exchange Commission. In addition, the report will be available at no 

charge on the GAO website at http://www.gao.gov. 

If you or your staff have any questions concerning this report, please 

contact me at (202) 512-7215 or jeszeckc@gao.gov. Contact points for 

our Office of Congressional Relations and Office of Public Affairs may be 

found on the last page of this report. GAO staff who made key 

contributions to this report are listed in appendix IV.

Charles A. Jeszeck

Director, Education, Workforce

and Income Security
Appendix I: Objectives, Scope, and 

Methodology

Page 54 GAO-12-325 Survey of 401(k) Plan Sponsors

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. We conducted this performance 

audit from October 2010 to April 2012, in accordance with generally 

accepted government auditing standards. Those standards require that 

we plan and perform the audit to obtain sufficient, appropriate evidence to 

provide a reasonable basis for our findings and conclusions based on our 

audit objectives. We believe that the evidence obtained provides a 

reasonable basis for our findings and conclusions based on our audit 

objectives.

To answer our research objectives, we reviewed relevant federal laws 

and regulations pertaining to 401(k) fees and fee disclosure. We also 

reviewed available guidance provided by Labor, the Securities and 

Exchange Commission (SEC), and industry research related to 

understanding and disclosing fee information. We interviewed Labor, 

SEC, and Internal Revenue Service officials; industry experts; plan 

sponsors; and service providers to learn about current and proposed 

regulations and the requirements governing the disclosure of fee 

information as well as factors that affect the amount of 401(k) fees that 

can be charged to sponsors and participants.

We also surveyed plan sponsors to obtain information regarding their 

plans from calendar year 2010, such as the fee amounts paid for certain 

services, the factors they considered in selecting service providers, the 

investments offered to plan participants, and Labor resources they may 

have used, among other things. We conducted our survey using mail and 

electronic distribution from May 2011 to September 2011. To encourage 

survey participation, we obtained permission from our congressional 

requesters to remove links in our paperwork between individuals’ 

identities and their responses. We informed sponsors of this agreement in 

the introductory letter transmitted with the survey. A copy of the 

questionnaire and survey responses for most questions is available in the 

e-supplement to this report, GAO-12-550SP. The practical difficulties of 

conducting any survey may introduce errors, commonly referred to as

Appendix I: Objectives, Scope, and 

Methodology 

Survey of 401(k) Plan 

Sponsors

Overview
Appendix I: Objectives, Scope, and 

Methodology

Page 55 GAO-12-325 Survey of 401(k) Plan Sponsors

nonsampling errors. For example, difficulties in interpreting a particular 

question or sources of information available to respondents can introduce 

unwanted variability into the survey results. We took steps in developing 

the questionnaire, collecting the data, and analyzing them to minimize 

such nonsampling error (see below).

In order to capture information from plans of all sizes, we identified the 

population of 401(k) plans using Form 5500 filings submitted for plan year 

2009, which resulted in approximately 468,000 unique active plans. We 

used Form 5500 data because they are the primary data source of 

information about the operations, funding, and investments of 

approximately 800,000 retirement and welfare benefit plans. We chose to 

use the Form 5500 dataset for the 2009 plan year because it was the 

most current and accurate available as of January 2011. For details on 

our methodology for identifying the population of 401(k) plans and 

assessing the reliability of Form 5500 data, see appendix II. We drew a 

representative sample of 1,000 401(k) plans from the 2009 population. 

We stratified our sample based on the number of participants reported at 

the beginning of plan year 2009 into five groups: fewer than 10 

participants, 10-49 participants, 50-99 participants, 100-499 participants, 

or 500-plus participants. This stratification emphasized smaller plans 

because a majority of plans in the 401(k) plans universe have fewer than 

500 participants. Although our sample was grouped into five strata, for the 

purposes of comparison and to help increase the statistical power of our 

estimates, we analyzed survey results by three groups: fewer than 50 

participants (small), 50 to 499 participants (medium), and 500 or more 

participants (large). We defined “small,” “medium,” and “large” for the 

purposes of our report, as there is no industrywide definition.

To inform the design of our survey instrument, we reviewed surveys 

conducted by companies and industry organizations and met with them to 

gain a better understanding of their methodology and any limitations. In 

addition, for each of our five strata, we conducted two to three in-person 

and telephone pretests with plan sponsors in four geographically different 

areas representing an array of businesses for a total of 13 pretests to 

ensure that survey questions were collecting the expected information, 

obtain any suggestions for clarification, and determine whether sponsors 

would be willing to provide fee information.

Sample Design and Survey 

Pretesting
Appendix I: Objectives, Scope, and 

Methodology

Page 56 GAO-12-325 Survey of 401(k) Plan Sponsors

For the 1,000 plans in our sample, we contacted the individuals who 

signed the Form 5500 as the plan sponsor or plan administrator, because 

these individuals are generally responsible for, or serve on the committee 

responsible for, selecting a 401(k) plan’s investment options or service 

providers, among other key plan decisions that affect plan fees. To help 

ensure the plan was still within the scope of our review and that the 

identified individual was the appropriate survey respondent to complete 

the survey, we contracted with a survey research firm to call sampled 

sponsors to confirm the name and contact information of the target. 

Contractor staff used a call script, which we drafted, and included 

questions about whether the plan was still active. The script also included 

several screening questions to help determine whether our identified 

target was the appropriate survey respondent. These questions were as 

follows:

• Are you or a committee you serve on responsible for selecting the 

companies that provide services such as recordkeeping, financial 

advice, or managing securities, for your 401(k) plan?

• Are you or a committee you serve on responsible for selecting the 

menu of investment options for your company’s 401(k) plan?

• Are you or a committee you serve on responsible for handling noninvestment decisions for your company’s 401(k) plan, such as the 

level of the employer match and rules about loans, vesting, and 

coverage?

We included these questions to help ensure that a person knowledgeable 

about the plan received the survey and reduce the likelihood of response 

bias being introduced by nonfiduciaries completing the survey. We 

determined that if a target did not respond affirmatively to at least two of 

three questions, then contractor staff should attempt to collect the name 

and contact information for an alternative target. If contractor staff were 

able to connect with the alternative target, the screener questions were 

again asked. Once the survey had been fielded, contractor staff 

conducted follow-up calls using a script to confirm that the target had 

received the survey and encourage participation. As with the first round of 

calling, the script included questions geared toward verifying the plan was 

still active and that the appropriate target received the survey. Inactive 

plans were considered to be out of scope for this survey.

Efforts to Minimize

Response Bias
Appendix I: Objectives, Scope, and 

Methodology

Page 57 GAO-12-325 Survey of 401(k) Plan Sponsors

As summarized in table 5, we obtained questionnaires from 365 

respondents, for an overall weighted response rate of 39 percent. We 

conducted a nonresponse bias analysis to see if the characteristics of 

survey respondents generally reflected population characteristics, such 

as plan size (i.e., the total number of participants), total plan assets, 

geographic distribution, and nature of business. We initially used 

variables available in the Form 5500 data to look at plans’ propensity to 

respond to the survey. We looked at a couple of models, but found that 

the stratification variable did as good a job of predicting response as the 

other models. The differences between the models were not substantively 

significant. The number of participants is the basis of our stratification 

variable and a significant factor for the propensity of response. We 

assumed that the nonrespondents were missing at random within each 

stratum and used the strata as nonresponse adjustment cells. The results 

of our analysis enable us to generalize our results to the total population 

of 401(k) plan sponsors for most survey questions. All percentage 

estimates from the survey have margins of error at the 95 percent 

confidence level of plus or minus 8 percentage points or less, unless 

otherwise noted. 

Table 5: 401(k) Plan Survey Sample and Response Rates

Number of plan participants Population

Number of 

cases selected Response Out of scopesa Weighted response rate (percentages)b

Fewer than 10 participants 149,783 234 70 33 41

10-49 participants 205,138 233 84 24 39

50-99 participants 56,071 233 81 14 27

100-499 participants 44,928 150 60 8 40

500 or more participants 12,274 150 70 8 44

Total sample 468,194 1,000 365 87 39

Source: GAO.

a

A total of 87 plans in our sample were determined to be out of scope for this survey, generally 

because a plan was no longer active or the company sponsoring the plan appeared to be no longer in 

business after several attempts to call or locate new contact information. 

b

For respondents, we used their answers to a survey question asking the number of participants in 

the 2010 calendar year for these calculations. 

We also conducted integrity checks of answers across questions and 

enforced skip patterns, when appropriate. As a result of this review, we 

re-categorized the type of information provided by some sponsors when 

their responses were inconsistent. For example, if a sponsor did not 

Analysis of Respondents
Appendix I: Objectives, Scope, and 

Methodology

Page 58 GAO-12-325 Survey of 401(k) Plan Sponsors

respond to the question asking whether the plan paid recordkeeping and 

administrative fees, but in a subsequent question listed amounts paid or 

that were taken out of plan assets for recordkeeping and administrative 

services, we determined it was reasonable to categorize the plan as 

having paid these fees.

To compare fees reported for (1) recordkeeping administrative services, 

(2) investment management, (3) retirement plan consulting and 

investment advice, and (4) other fees, we generated estimates of the 

amounts paid by plan sponsors and participants. We calculated our 

estimates as a percentage of plan assets and on a per participant basis 

using the annual amounts reported by sponsors for each service, plan 

assets, and number of plan participants for calendar year 2010. We 

calculated fee estimates by each service type, instead of calculating an 

overall fee amount, because only 14 of our 365 survey respondents 

provided amounts for all of the services. When generating our estimates 

of the amounts paid by sponsors for a particular service, we excluded a 

sponsor’s response if

• the value for the amount that the sponsor paid was missing;

• the sponsor indicated that it did not know the amount paid 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.

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.

In addition, we also exclude respondents who indicated their fees were 

waived or the amount the sponsor paid was zero when reporting ranges 

Fee Estimates
Appendix I: Objectives, Scope, and 

Methodology

Page 59 GAO-12-325 Survey of 401(k) Plan Sponsors

and averages to more accurately represent the fees deducted from plans 

and plan participants.

As part of our analysis of sponsors’ understanding of how fees are 

charged to plans, we analyzed documents that sponsors submitted with 

their survey responses. Of the 365 plan sponsors who responded to our 

survey, 163 provided copies or successfully uploaded documents for our 

request for a summary of all investment options and the fees associated 

with each option. We reviewed the documents provided to determine if 

their plans paid revenue sharing fees, such as 12b-1 or sub-TA fees, and 

wrap fees associated with insurance products. We also reviewed 

investment fund prospectuses associated with the investment options 

included in the documents sponsors submitted to determine if their plans 

paid these fees.1 Finally, for respondents for whom data were available, 

we reviewed fee reports generated by a third party, BrightScope, to 

determine the fees associated with transaction costs for individual 

investment options. BrightScope calculates estimates of 401(k) plan fees 

by drawing on publicly available data, primarily Form 5500 filings.2

 

1

Presently, funds must provide investors with written disclosures about the fund in a 

prospectus that must be provided to investors when they purchase shares. According to 

SEC, under federal securities laws, a fund can satisfy its prospectus delivery obligation by 

providing its prospectus to the plan (without having to provide the prospectus to 

participants).SEC rules require that the prospectus include a fee table containing 

information about the sales charges, operating expenses, and other fees that investors 

pay as part of investing in the fund.

BrightScope fee data are limited to plans with more than 100 participants, 

because the data’s main source is Form 5500 Schedule H–Financial 

Information, which includes independently audited information, and plans 

with fewer than 100 participants are generally not required to file this

schedule. We took actions to determine whether the BrightScope data 

were sufficiently reliable for our purpose of describing the range of 

transaction costs incurred by 401(k) plan participants by interviewing 

company representatives and reviewing the methodology used to develop 

estimates.

2

BrightScope is a financial information company that services U.S. plan sponsors, 

advisers, providers, and participants. BrightScope maintains a database of information on 

401(k) plans, which it uses to quantitatively rate plans across a number of metrics, 

including total plan fees, quality of investment menu options, and plan participation.

BrightScope used publicly available data from various sources, including Form 5500 

filings, SEC, the U.S. Census Bureau, and the Bureau of Labor Statistics to help develop 

and maintain its database.

Analysis of Supplemental 

Documents
Appendix I: Objectives, Scope, and 

Methodology

Page 60 GAO-12-325 Survey of 401(k) Plan Sponsors

In conducting a review of fees and analysis of supplemental documents, it 

was not the purpose, nor does GAO purport, to identify situations or 

circumstances in this report where plan sponsors or fiduciaries may have 

breached their fiduciary duties. Determining whether a fiduciary breach 

has occurred is based upon the facts and circumstances of each case. 

Our follow-up with plan sponsors was not aimed at reaching this 

determination. Therefore, our findings should not be read as indicating a 

breach of fiduciary or other obligation.
Appendix II: Identification of 401(k) Universe 

and Assessment of Form 5500 Data 

Page 61 GAO-12-325 Survey of 401(k) Plan Sponsors

To identify our study population of 401(k) plans, we obtained the most 

current and complete Form 5500 Annual Reports/Filings from Labor, 

which as of January 2011 were plan year 2009 data. We used Form 5500 

data because they are the primary data source of information about the 

operations, funding, and investments of approximately 800,000 retirement 

and welfare benefit plans. During our initial meeting with Labor officials on 

November, 30, 2010, the most complete dataset available was for plan 

year 2007 and plan year 2008 data would be available in the spring of 

2011. However, according to Labor officials, 2008 data are the least 

accurate and reliable of years 2007, 2008, and 2009—with 2009 being 

the most accurate. By January 2011, about 85 percent of the expected 

filings for 2009 were received and validated. The main reason that Labor 

has not received the remaining 15 percent of expected filings is because 

plans can have later beginning and ending plan dates (i.e., December 30, 

2009-December 31, 2010) and therefore are not yet required to file. For 

example, if a plan’s begin date is December 31, 2009, and end date is 

December 31, 2010, the normal statutory deadline to file would be July 

31, 2011. Labor officials suggested that we supplement incomplete 2009 

filings with 2008 filings. On the basis of testimonial evidence from Labor 

officials and representatives from other entities that regularly use Form 

5500 data, and our review of key variables, we determined that the 2008 

data were not sufficiently reliable for our purpose of identifying the 

population of 401(k) plans for a single year.

To assess the reliability of Labor’s data, we (1) performed electronic 

checking for errors in accuracy and completeness; (2) reviewed related 

documentation, such as the system’s Data Element Requirements; and 

(3) held numerous meetings and remained in ongoing correspondence 

with Labor to discuss data fields and analysis procedures. When we 

found inconsistencies, for example, between the data and information 

Labor officials told us about the structure of the file, we clarified them with 

Labor. For example, during our interviews with Labor, we learned that the 

unedited Form 5500 datasets contained duplicate filings for unique plans 

(with a unique combination of an Employer Identification Number [EIN] 

and plan number), because filers may amend their returns and, for data 

file pre-2009, steps would need to be taken to identify the most current 

filing. After clarifying and resolving our questions pertaining to the data, 

Appendix II: Identification of 401(k) Universe 

and Assessment of Form 5500 Data
Appendix II: Identification of 401(k) Universe 

and Assessment of Form 5500 Data 

Page 62 GAO-12-325 Survey of 401(k) Plan Sponsors 

we concluded that the 2009 dataset was reliable for the purpose of 

identifying the population of 401(k) plans.1

In using plan year 2009 data, we had to merge data filed from filers of the 

normal Form 5500, and the Form 5500-SF (Short Form) filings for small 

plans—generally plans with fewer than 100 participants—that choose to 

file the new shorter form.2

 Our analysis also included a review of plan 

assets, which are filed in Schedule H–Financial Information for plans with 

100 or more participants at the beginning of the plan year and 

Schedule I–Financial Information-Small Plan for plans with fewer than 

100 participants.3

 Because data filed for schedules are stored separately, 

financial information for plans also had to be merged before we could 

conduct our analysis of the data. 

For the purposes of this report, we defined our study population as unique 

single-employer-sponsored 401(k) plans. On the basis of discussions with 

Labor officials, a unique plan is defined by a unique combination of a 

plan’s Employer Identification Number and plan number, because private 

sector companies may have more than one plan. We also took the 

following steps to edit the data: 

Excluded other plan year filings: We first checked for and 

removed records in the dataset that were not for the 2009 filing year. 

Labor accepts and processes Form 5500 filings as companies 

submit information, which could be for an earlier plan year, but 

included in a different year’s Form 5500 dataset. 

 

1

With the implementation of the ERISA Filing Acceptance System 2 (EFAST2), Labor 

began posting the electronic files in two forms: All and Latest. The dataset listed as “All” 

includes all filings received by Labor without regard to filing status or the number of 

attempts to file. This dataset may contain multiple filings for a single plan. The dataset 

listed as “Latest” includes only the latest, most correct filing for a plan. We downloaded 

2009 “Latest” dataset on March 7, 2011 to identify the 401(k) universe. 

2

On November 16, 2007, Labor finalized regulations that established a new Short Form 

5500 to help reduce and streamline the reporting requirements for certain small pension 

plans (generally plans with fewer than 100 participants) that meet certain conditions 

regarding their investments being held or issued by regulated financial institutions and 

have a readily determinable fair market value. The use of the Short Form 5500 was not 

made available for filing until the implementation of the fully electronic filing system, known 

as EFAST2. 

3

For plans that filed using the Form 5500-SF, we used the plan asset information 

incorporated into the form. 
Appendix II: Identification of 401(k) Universe 

and Assessment of Form 5500 Data 

Page 63 GAO-12-325 Survey of 401(k) Plan Sponsors

401(k) plans: Because the scope of the job focuses on 401(k) plans 

and not other pension plans, such as defined benefit plans, we 

created a subset of the data for only 401(k) plans by reviewing 

records in which the filer indicated “2J” as a pension feature. Labor 

officials recommended that we review the plan name for variations of 

401(k), such as “401(k)” or “401k”, because some filers do not 

correctly complete or update their pension feature codes, a 

recommendation that we incorporated into our design.

Single-employer plans: We exclude multiemployer plan and 

multiple-employer plan filers, because these plans are maintained by 

more than one employer for special groups such as labor unions and 

are typically managed by going to another source for a pension plan 

model. We removed records for plan filers that were not singleemployer plans—multiemployer, multiple-employer, and direct filing 

entity.

Final return: Last, we dropped plans in which the filer indicated that 

the report was the final return/report. We assume a final return 

indicates that the plan is no longer active. The establishment 

sponsoring the plan could have gone out of business or the plan may 

have been rolled over as a result of an acquisition or merger.

Our analysis yielded a population of more than 468,000 active unique 

single-employer-sponsored 401(k) plans for plan year 2009; see the table 

below for additional details.

Table 6: 401(k) Plan Characteristics, 2009 

(Dollars in millions)

Number of plan 

participants

Number of 

plans Participants Total plan assets 

Average 

account 

balance

Fewer than 100 410,992 9,456,007 $367,174 $38,830

100 or more 57,202 53,497,737 2,032,956 38,000

Total 468,194 62,953,744 $2,400,130 $38,125

Source: GAO analysis of 2009 Form 5500 filings/returns.
Appendix III: Comments from the Department 

of Labor

Page 64 GAO-12-325 Survey of 401(k) Plan Sponsors

Appendix III: Comments from the 

Department of Labor
Appendix III: Comments from the Department 

of Labor

Page 65 GAO-12-325 Survey of 401(k) Plan Sponsors
Appendix III: Comments from the Department 

of Labor

Page 66 GAO-12-325 Survey of 401(k) Plan Sponsors
Appendix III: Comments from the Department 

of Labor

Page 67 GAO-12-325 Survey of 401(k) Plan Sponsors
Appendix III: Comments from the Department 

of Labor

Page 68 GAO-12-325 Survey of 401(k) Plan Sponsors
Appendix IV: GAO Contacts and Staff 

Acknowledgments

Page 69 GAO-12-325 Survey of 401(k) Plan Sponsors

Charles A. Jeszeck, (202) 512-7215 or jeszeckc@gao.gov

In addition to the contact named above, Tamara Cross, Assistant Director; 

Lacy Vong, Analyst-in-Charge; Joy Myers; Nathan Gottfried; Michael 

Aksman; and Kun-Fang Lee made important contributions to this report.

Cynthia Grant, Ying Long, Karen O’Conor, Carl Ramirez, and Walter 

Vance provided technical support in methodology, survey design, and 

data analysis. Frank Todisco provided technical advice. Roger Thomas 

and Sheila McCoy provided legal assistance. Ernest Powell and Mimi 

Nguyen created visuals for the report and provided graphic design 

assistance. Kathy Leslie, Delores Hemsley, Timothy Hunter, and David 

Chrisinger also provided support.

Appendix IV: GAO Contacts and Staff 

Acknowledgments 

GAO Contact

Acknowledgments

(131022)
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