GAO 

United States Government Accountability Office

Report to the Chairman, Committee on 

Ways and Means, House of 

Representatives 

RETIREMENT 

SAVINGS 

Better Information 

and Sponsor Guidance 

Could Improve 

Oversight and Reduce 

Fees for Participants 

September 2009 

GAO-09-641 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2009

RETIREMENT SAVINGS

Better Information and Sponsor Guidance Could 

Improve Oversight and Reduce Fees for Participants

Highlights of GAO-09-641, a report to the 

Chairman, Committee on Ways and 

Means, House of Representatives 

American workers increasingly rely 

on defined contribution (DC) plans 

like 401(k) plans and individual 

retirement accounts (IRA) for 

retirement income. Together with 

other DC plans—401(a), 403(b), 

and 457 plans—these accounts 

hold about $7.1 trillion. As workers 

accrue earnings on their 

investments, they also pay a 

number of fees that may 

significantly decrease retirement 

savings over the course of a career. 

 

GAO examined: (1) the types of 

fees charged to participants and 

investments of various DC plans; 

(2) how DC plan sponsor actions 

affect participant fees; (3) how fee 

disclosure requirements vary; and 

(4) the effectiveness of DC plan 

oversight. GAO reviewed laws and 

regulations and consulted with 

experts, federal officials, service 

providers, and six plan sponsors. 

What GAO Recommends

Congress should consider (1) 

amending ERISA to require 

sponsors to disclose fee 

information to facilitate 

comparisons, and (2) giving the 

Department of Labor (Labor) 

specific authority over certain 

plans. Also, GAO recommends that 

the Internal Revenue Service (IRS) 

develop guidance on sponsor 

involvement, collect additional data 

on 457(b) plans, and share more 

information with financial 

regulators. Labor and IRS agreed 

with our recommendations, 

although IRS stated that it will 

continue sharing information with 

regulators using its current 

methods. 

Participants in DC plans and IRAs generally pay the same types of fees, 

regardless of the plan in which they are enrolled, such as investment 

management fees. However, participants in some plans are more likely to 

invest in products that may have higher fees. For example, we found that 

participants in 403(b) plans and individual IRAs are more likely to invest in 

products like individual variable annuities or retail mutual funds, which 

frequently charge more than other investments. According to experts, one 

reason for the different investments is that many 403(b) plan sponsors do not 

make group products available to participants. 

DC plan sponsors generally take certain actions that decrease participants’ 

fees. Sponsors can help reduce participants’ fees by, for example, offering 

cheaper investment products in which participants may choose to invest, like 

low-cost mutual funds. Sponsors may also pool assets to obtain pricing 

advantages. 401(k) and 401(a) plan sponsors frequently pool participants’ 

assets to realize lower fees in mutual funds, but sponsors of 403(b) plans often 

do not. Instead, many 403(b) plan sponsors keep sponsor involvement to a 

minimum, which limits the opportunities to pool assets and decrease fees. 

Fee disclosure requirements vary depending on plan regulations and 

investment regulations. Sponsors of plans subject to Title I of the Employee 

Retirement Income Security Act of 1974 (ERISA)—which was enacted in part 

to protect the interests of employee benefit plan participants—are required to 

disclose certain documents to participants, which may or may not describe 

fees. For plans not subject to these laws, such as state and local government 

plans, some states impose disclosure requirements, and some do not. Fee 

disclosure requirements also vary based on the type of investment product in 

which participants invest. The Securities and Exchange Commission regulates 

some investment products, like mutual funds, while others are regulated by 

states’ insurance agencies. Because different regulators require different 

disclosures, participants in DC plans and IRAs can invest in similar products 

but receive different information on fees. 

Labor oversees disclosure for participants of certain DC plans, while IRS 

oversees tax laws that underlie all DC plans, but both lack information that 

could strengthen oversight. Labor is responsible for enforcing requirements 

for disclosure—which may include fees—and the requirement that fiduciaries 

for some plans must ensure reasonable fees, and has proposed regulations to 

improve fee disclosure. However, Labor does not have the specific authority 

to collect information to help ensure that sponsors of certain 403(b) plans 

continue to protect participants’ interests. While IRS does not oversee fees or 

fee disclosure, IRS oversees DC plans’ compliance with the tax code. IRS does 

not collect information to easily enforce 457(b) plans’ contribution limits and 

detect violations that may reduce federal tax revenue. In addition, IRS and 

other regulators do not routinely share information with one another to use 

resources effectively and help enforce a rule requiring reasonable fees. 

View GAO-09-641 or key components.

For more information, contact Barbara 

Bovbjerg at (202) 512-7215 or 

bovbjergb@gao.gov. 
Page i GAO-09-641 

Contents 

Letter 1

Background 3 

Participants in Different Plans and IRAs Pay the Same Types of 

Fees, but Investment Choices Can Affect Fee Amounts 14 

Certain Sponsor Actions Decrease Participants’ Fees, but Some 

Sponsors Take Fewer Actions than Others 18 

Participants Receive Different Fee Information Depending on 

ERISA Coverage and Regulator, Limiting Participants’ Ability to 

Compare Investment Options 24 

Oversight of Fees and DC Plans Will Likely Improve with Recent 

Regulations, but IRS and Labor Still Lack Information That 

Could Strengthen Oversight 30 

Conclusions 37 

Matters for Congressional Consideration 38 

Recommendations 39 

Agency Comments and Our Evaluation 39 

Appendix I Objectives, Scope, and Methodology 41 

Appendix II Comments from the Internal Revenue Service 44 

Appendix III Comments from the Department of Labor 48 

Appendix IV Characteristics of DC Plans and IRAs 50 

Appendix V GAO Contact and Staff Acknowledgments 52 

Tables 

Table 1: Employers Eligible to Establish DC Plans and IRAs 6 

Table 2: Estimated Number of DC Plans and Participants, 2007 7 

Table 3: Tax-Deferred Contribution Limits for DC Plans, 2009 7 

Table 4: Opportunities for Rollovers and Transfers of Assets among 

Plans and IRAs 9 

 Retirement Savings 
Table 5: Regulators That Oversee DC Plans by Type of Employer 11 

Table 6: Fees Associated with Three Common Investment Products 14 

Table 7: Administrative Fees Associated with Plans 16 

Table 8: Required Disclosure Documents to All Participants in 

Plans Subject to Title I of ERISA 24 

Table 9: Required Fee Disclosure Information, by Regulator 28 

Table 10: Estimated Total Assets for DC Plans and IRAs, 2008 50 

Table 11: Estimated Contributions to DC Plans, 2007 50 

Table 12: Estimated Contributions to Individual IRA Accounts, 

SEP, and SIMPLE Accounts, 2006 51 

Table 13: Estimated Number of Individual IRA Account Owners 

and Individuals Contributing to Employer-Sponsored IRAs, 

2006 51 

Figures 

Figure 1: Effect of a 1-Percentage Point in Higher Annual Fees on a 

$20,000 DC Plan Balance Invested over 20 Years 21 

Figure 2: Oversight of Fee Information Disclosed to Retirement 

Plan Participants 29 

Figure 3: IRS Form W-2, Wage and Tax Statement, with Emphasis 

on Box 12, for Retirement Plan Contributions 35 

Figure 4: Form W-2 Instructions 35 

Page ii GAO-09-641 Retirement Savings
Abbreviations 

CIF collective investment funds 

DB defined benefit 

DC defined contribution 

ERISA Employee Retirement Income Security Act 

ESOP employee stock ownership plan 

IRA individual retirement account 

I.R.C. Internal Revenue Code 

IRS Internal Revenue Service 

Labor Department of Labor 

MOU memorandum of understanding 

NAIC National Association of Insurance Commissioners 

OCC Office of the Comptroller of the Currency 

RFP request for proposal 

SEC Securities and Exchange Commission 

SIMPLE Savings Incentive Match Plan

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Page iii GAO-09-641 Retirement Savings
Page 1 GAO-09-641 

 

United States Government Accountability Office

Washington, DC 20548 

 

September 4, 2009 

The Honorable Charles B. Rangel 

Chairman 

Committee on Ways and Means 

House of Representatives 

Dear Mr. Chairman: 

American workers increasingly rely on 401(k) plans and individual 

retirement accounts (IRA) for retirement income. Besides 401(k) plans, 

lesser-known defined contribution (DC) plans—plans in which retirement 

savings are based on contributions and the performance of the 

investments in individual accounts—can provide opportunities for 

employers and employees to make tax-deferred contributions to 

retirement savings accounts. These other DC plans include 401(a),1

 403(b), 

457(b), and 457(f) plans. More than 49 million U.S. workers participate in 

employer-sponsored DC retirement plans, and 50 million have IRAs. 

Together, these retirement savings accounts hold about $7.1 trillion in 

assets. 

In recent years, policymakers have focused on the oversight of 401(k) 

plans and the fees charged to 401(k) plan participants. Fees are one of 

many factors—such as the historical performance and investment risk for 

each plan option—participants should consider when investing in a 

retirement plan because fees can significantly decrease retirement savings 

over the course of a career. In 2006, we reported that even a small fee 

deducted from a worker’s assets annually could represent a large amount 

of money years later had it remained in the account to be reinvested and 

that 401(k) plan participants do not always receive information on the fees 

they are being charged.2

 Given the current economic environment, 

regulators, plan sponsors, and workers have reason to be increasingly 

worried about the performance of their retirement accounts. 

1

In this report, we refer to DC plans, besides 401(k) plans, that qualify for a tax deferral 

under Internal Revenue Code section 401(a) as “401(a) plans.” 

2

GAO, 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). 

 Retirement Savings 
 

The types of fees charged to participants of 401(k) plans have led to 

questions about what types of fees are charged to participants in other 

types of DC plans and IRAs and whether participants across DC plans are 

getting the same information disclosed about fees to them. Similarly, 

questions have also been raised about how other types of DC plans are 

overseen. In light of the uncertainty about fees, disclosure to participants, 

and oversight of these plans and IRAs, the Chairman of the House 

Committee on Ways and Means asked GAO to examine other 401(a) plans, 

403(b) plans, 457 plans, and IRAs to address the following questions: (1) 

How do the types of fees charged to participants and investments of 

various DC plans differ? (2) How do DC plan sponsor actions affect 

participants’ fees? (3) How do fee disclosure requirements vary? and (4) 

How effective is the oversight of DC plans? 

To explain how the types of fees charged to participants and investments 

in various DC plans differ, we consulted with a number of academic, 

industry, and association experts and obtained fee information from 

selected service providers. To determine how DC plan sponsor actions 

affect participant fees, we consulted with industry experts, as well as 11 

service providers and 6 plan sponsors. To outline how fee disclosure 

varies by plan, we interviewed staff from relevant federal agencies, state 

insurance regulators, and national experts. We also conducted structured 

interviews with 11 service providers. To describe the effectiveness of DC 

plan oversight, we interviewed regulators and reviewed documentation, 

laws, and regulations. 

We conducted this performance audit from June 2008 through September 

2009 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. 

Page 2 GAO-09-641 Retirement Savings
 

Pension plans are classified either as defined benefit (DB) or as defined 

contribution (DC) plans.3

 The benefits participants receive from DC plans 

are based on the amount of money in their individual accounts. The funds 

in these accounts can fluctuate over time as participants and employers 

make contributions and as the value of the investments rises and falls. 

Employers and participants both play roles in a DC plan. Employers 

generally establish a plan, becoming the plan’s “sponsor.” Sponsors’ roles 

vary depending on how the sponsor chooses to operate the plan or the 

type of plan. Some sponsors activities include: 

Background 

Role of Employer and 

Participants in DC Plans 

• Contributing to participants’ accounts; 

• Deciding upon the investment options from which participants may 

choose; 

• Processing participants’ contributions to send to investment service 

providers; 

• Keeping track of participants’ investment choices, contributions, and other 

record-keeping; and 

• Paying for the costs associated with maintaining the plan. 

Participants’ role in DC plans can also vary significantly depending on how 

the sponsor operates the plan, and the type of plan. Some participant 

activities include: 

• Contributing to individual accounts; 

• Choosing among investment options; 

• Transferring assets to a different plan; and 

• Paying for costs associated with participating in the plan. 

 

3

Generally, DB plans promise to provide a fixed level of monthly retirement income that is 

based on salary, years of service, and age at retirement regardless of how the plan’s 

investments perform. 

Page 3 GAO-09-641 Retirement Savings
 

There are several types of DC plans, each one named for a section of the 

Internal Revenue Code (I.R.C.): 

Different types of DC plans 

• In “401(a) plans,” participants qualify for an income tax deferral under 

section 401(a) of the I.R.C. One type of 401(a) plan is a money purchase 

plan. Sponsors of these plans are required to make specified contributions 

to participants’ accounts. Profit sharing plans can also be created under 

section 401(a). These plans are similar to money purchase plans, but 

sponsors can decide each year whether or not to make a contribution.4

• 401(k) plans are a type of 401(a) plan, typically a profit-sharing plan. Both 

sponsors and participants are permitted pre-tax contributions in 401(k) 

plans. 

• 403(b) plans are similar to 401(k) plans, in that they typically permit both 

sponsors and participants to make pre-tax contributions, but are designed 

for public education entities and tax-exempt organizations that operate 

under I.R.C. §501(c)(3). Participants in these plans are generally limited to 

investing in annuity contracts issued by insurance companies and 

custodial accounts invested in mutual funds.5

• 457(b) plans are also like 401(k) and 403(b) plans in that they typically 

permit both sponsors and participants to make pre-tax contributions. 

457(b) plans can be one of two types. 457(b) governmental plans are 

usually open to all employees at a state or local government, and are 

similar to some other DC plans in that contributions are set aside for the 

participants in a trust. In contrast, 457(b) tax-exempt plans usually limit 

participation to a group of managerial or highly compensated employees, 

and are unfunded. That is, the amounts deferred must remain the sole 

property of the tax-exempt sponsor, subject only to the claims of general 

creditors, until the amounts are made available to the participant or 

beneficiary. 

• 457(f) plans are typically designed for highly compensated employees. 

457(f) plans are generally “unfunded;” that is, sponsors do not have to set 

 

4

Stock bonus plans, which are similar to profit sharing plans except that sponsors’ 

contributions generally take the form of stock in the sponsors’ company, also qualify under 

I.R.C. section 401(a). Employee stock ownership plans (ESOP) can be a type of stock 

bonus plan. 

5

Churches may also establish 403(b) plans. Participants in church plans have additional 

investment options. 

Page 4 GAO-09-641 Retirement Savings
 

aside assets for participants. Instead, sponsors make a promise to pay 

participants some amount at a later date.6

In addition to DC plans, individuals can save for retirement in traditional 

IRAs, and employer-sponsored IRAs—Savings Incentive Match Plans for 

Employees (SIMPLE) and Simplified Employee Pension (SEP). Traditional 

IRAs allow eligible individuals to make tax-deductible contributions and 

accumulate tax-deferred investment earnings. Distributions from these 

accounts are generally subject to tax.7

 Another type of individual IRA, the 

Roth IRA, allows eligible individuals to make after-tax contributions; 

distributions are then generally tax-free. SIMPLE IRAs allow small 

employers to either match participating employee contributions or to 

contribute a fixed percentage of all eligible employees’ pay.8

 SEP IRAs 

allow employers of any size to make voluntary tax deductible 

contributions into traditional IRAs for themselves and their employees. 

Contributions to all IRAs may not exceed certain limits. 

As shown in table 1, different types of employers are eligible to establish 

various types of DC plans and IRAs. For example, all types of employers 

can establish a 401(a) plan or an employer-sponsored IRA, but only state 

and local governments can establish a 457(b) governmental plan. 

 

6

Both 457(f) and 457(b) plans of tax-exempt organizations are sometimes referred to as 

“top hat” plans. 

7

Taxpayers ineligible for the deduction can make nondeductible contributions to take 

advantage of the deferral on investment earnings. Distributions are partially taxable. 

Distributions received before age 591⁄2 are subject to an additional 10-percent income tax 

unless they meet certain requirements or are used for specific purposes, including the 

purchase of a first home or for higher education expenses. 

8

Employers must have 100 or fewer employees who earned $5,000 or more during the 

preceding calendar year. 

Page 5 GAO-09-641 Retirement Savings
 

Table 1: Employers Eligible to Establish DC Plans and IRAs 

Private 

company 

Tax-exempt 

organization Church 

Public education 

entity (school 

district) 

State and local 

governments 

401(a) Yes Yes Yes Yes Yes 

401(k) Yes Yes Yes No Nob

403(b) No YesaYes Yes No, except public 

education entities 

457(b) governmental No No No Yes Yes 

457(b) Tax-exempt No Yes Noc No No 

457(f) No Yes No Yes Yes 

Employer-sponsored IRA Yes Yes Yes Yes Yes 

Traditional IRA N/A N/A N/A N/A N/A 

Source: IRS, GAO analysis. 

a

Only tax-exempt organizations that operate under I.R.C. §501(c)(3) are eligible to establish a 403(b) 

plan. 

b

The Tax Reform Act of 1986 prohibited state and local governments from establishing new 401(k) 

plans. However, 401(k) plans established by state and local governments before May 6, 1986, were 

“grandfathered,” and therefore permitted to maintain their plan as a 401(k) plan and are not subject to 

Title I of ERISA. 

c

Church plans that include employees may have 457(b) tax-exempt plans. 

DC plans and IRAs are important vehicles for Americans’ retirement 

savings. As shown in table 2, DC plans have about 47 million participants. 

Among DC plans, 401(k) plans have the most participants with 

approximately 37 million. Together, DC plans and IRAs held about $6.7 

trillion in assets at the end of 2008. Participation in plans has increased 

over time; in 2005, the most recent year for which data is available, about 

33 percent of workers participated in a DC plan and about 23 percent had 

an IRA account, while 12 percent participated in both. For more 

information on contributions and assets in DC plans and IRAs, as well as 

information on IRA account holders, see appendix IV. 

Page 6 GAO-09-641 Retirement Savings
 

Table 2: Estimated Number of DC Plans and Participants, 2007 

 

Number of plans 

(thousands) 

Number of participants 

(thousands)

401(k) 624 37,492

403(b) 88 6,521

457(b) governmental and tax-exempt 30 3,476

Source: IRS. 

Note: Data on 401(a) plans and 457(f) plans are not available. The data in this table come from a 

database taken from annual Form W-2 filings. The data are estimated and should not be compared to 

the data in other tables. In addition, these estimates differ from estimates generated from annual 

filings compiled by Labor because the collection methods are different. 

DC plans that permit participants to defer income have varying limits on 

the amount participants can defer annually. For example, in 2009, the 

contributions on which participants can defer income taxes are limited to 

$16,500 for 401(k) and 403(b) plans, as shown in table 3. Contributions 

from 401(k) plan and 403(b) plan participants and sponsors together may 

not exceed the lesser of 100 percent of compensation or $49,000. For 

457(b) plans, deferrals cannot exceed $16,500 in 2009.9

Contribution Limits 

Table 3: Tax-Deferred Contribution Limits for DC Plans, 2009 

 

Individual 

contribution limit Sponsor contribution limit 

Sponsor and participant together 

contribution limit 

401(a) N/A N/A The lesser of 100% of compensation 

or $49,000 

401(k) Up to $16,500 N/A The lesser of 100% of compensation 

or $49,000 

403(b) Up to $16,500 N/A The lesser of 100% of compensation 

or $49,000 

457(b) Governmental N/A N/A The lesser 100% of compensation or 

$16,500 

457(b) Tax-exempt N/A N/A The lesser 100% of compensation or 

of $16,500 

 

9

457(f) plans are generally different from other plans in that they are unfunded and have no 

deferral limits. Unlike most plans, deferrals are generally not required to be set in a 

retirement account or a trust. Thus, the plan is “unfunded.” Instead, participants and 

sponsors can agree in advance how much individuals will receive from the sponsor pending 

the fulfillment of certain terms, such as 5 years of service. Until the terms are met, the 

assets must remain in the possession of the employer and must be subject to a “substantial 

risk of forfeiture.” Otherwise, the assets generally become taxable in the year in which 

there is no substantial risk of forfeiture. 

Page 7 GAO-09-641 Retirement Savings
 

 

Individual 

contribution limit Sponsor contribution limit 

Sponsor and participant together 

contribution limit 

457(f) Unlimited Unlimited Unlimited 

Employer-sponsored IRA SIMPLE : Up to 

$11,500 

SEP: N/A 

SIMPLE: Either 100 percent match of 

employee contributions up to 3 

percent of employee compensation; or 

contribute 2 percent of each eligible 

employee’s compensationa

SEP: Up to 25% of employee’s annual 

compensation, not to exceed $49,000 

SIMPLE: N/A 

SEP: N/A 

Traditional IRAsbUp to $5,000 NA N/A 

Source: IRS. 

a

SIMPLE sponsors must choose to meet either of the two contribution criteria. However, employers 

choosing the first option are permitted to reduce the match to as low as 1 percent of compensation in 

any 2 of 5 years. 

b

Yearly contribution amounts are subject to limits based on income, pension coverage, and filing 

status. 

Most DC plans permit participants to move their assets out of their current 

plan under certain circumstances without being subject to income tax. 

Participants in most plans may “roll over” their assets into an IRA or into 

another type of plan without being subject to income taxes if they follow 

certain rules. Rollovers can occur when participants experience certain 

specified events—such as leaving their job or death—when their assets 

would otherwise be distributed. As shown in table 4, participants in 

401(a), 401(k), 403(b), and 457(b) governmental plans may roll over their 

assets to any of these same types of plans or to IRAs. In contrast, 

participants in 457(b) tax-exempt and 457(f) plans may not roll over their 

assets into other plans or IRAs. 

Rollover and Transfer Options 

Participants may also “transfer” their assets to other similar plans under 

certain conditions. Transferred assets are also not subject to income tax. 

For 403(b) and 457(b) governmental plans, participants may transfer their 

assets to another like plan, if the plan sponsor accepts such transfers, as 

shown in table 4. Participants in 457(b) tax-exempt and 457(f) plans 

generally have no assets.10

 

10The ability to transfer or rollover assets is not affected by the product in which assets are 

invested. For example, participants who are invested in annuities and participants who are 

invested in mutual funds will be subject to the same transfer and rollover rules and 

limitations. 

Page 8 GAO-09-641 Retirement Savings
 

Table 4: Opportunities for Rollovers and Transfers of Assets among Plans and IRAs 

 Rollovers Plan-to-Plan Transfers 

401(a) 401(a), 403(b) annuities, 401(k), 457(b) 

governmental, and IRAs 

Other 401(a) or 401(k) plans 

401(k) 401(a), 403(b) annuities, 401(k), 457(b) 

governmental, and IRAs 

Other 401(a) or 401(k) plans 

403(b) 401(a), 403(b) annuities, 401(k), 457(b) 

governmental, and IRAs 

Other 403(b) plans 

457(b) governmental 401(a), 403(b) annuities, 401(k), 457(b) 

governmental, and IRAs 

Other 457(b) governmental plans 

457(b) tax-exempt No N/Aa 

457(f) No N/A 

Traditional IRA 401(a), 403(b) annuities, 401(k), 457(b) 

governmental, and IRAs 

Other IRAs 

Source: IRS. 

a

Participants in 457(b) tax-exempt plans may transfer their assets to other 457(b) tax-exempt plans. 

However, these plans are generally unfunded; therefore, they have no assets to transfer. 

All DC plans and IRAs are subject to various provisions of the Employee 

Retirement Income Security Act of 1974 (ERISA), which was generally 

enacted to protect the interests of employee benefit plan participants and 

their beneficiaries. ERISA sets minimum standards for most pension plans 

in private industry to protect participants. 

Oversight of DC plans and IRAs 

Title I of ERISA, which is generally enforced by the Department of Labor 

(Labor), establishes guidelines that help protect participants. For example, 

Title I of ERISA requires sponsors to disclose to participants certain 

information concerning the plan. Title I also establishes standards of 

conduct for plan fiduciaries, which are usually plan sponsors but can also 

include other service providers.11 Fiduciaries must act for the exclusive 

benefit of plan participants and beneficiaries, rather than for their own or 

another party’s gain. This means that fiduciaries must avoid conflicts of 

interest and act prudently. 

 

11Under ERISA, a person is generally a fiduciary with respect to a plan, to the extent they 

exercise any discretionary authority or control over plan management or any authority or 

control over the management or disposition of plan assets, render investment advice 

respecting plan money or property for a fee or other compensation (or has the authority or 

responsibility to do so), or have discretionary authority or responsibility for plan 

administration. 29 U.S.C. § 1002(21)(A). 

Page 9 GAO-09-641 Retirement Savings
 

Some DC plans are not subject to Title I of ERISA and thus are not 

overseen by Labor. 

• Plans that are sponsored by state and local governments are not subject to 

Title I of ERISA. 

• Labor defined a “safe harbor” for 403(b) plans sponsored by tax-exempt 

organizations. Sponsors that follow the safe harbor guidelines are not 

considered subject to Title I of ERISA because the plan is considered not 

to have been “established or maintained by an employer.” Sponsors of 

these plans must restrict their involvement in the plan to certain actions, 

or they will become subject to Title I of ERISA. 

• Plans that are designed for highly compensated executives are generally 

excluded from certain parts of Title I of ERISA. 

• Certain religious organizations may establish different kinds of retirement 

plans, but they are generally exempt from Title I of ERISA.12

Regardless of whether or not plans are subject to Title I of ERISA, all DC 

plans are subject to the I.R.C. and are overseen by IRS. The I.R.C. contains 

rules to qualify plans for tax deferrals and deductions, such as generally 

requiring plans to cover rank-and-file workers, not only highlycompensated employees.13 The IRS enforces these provisions. 

State and local governments can also play a role in overseeing DC plans. 

State and local governments may establish ERISA-like laws for state and 

local government plans. For example, some state governments require that 

certain plan sponsors adhere to standards of conduct for fiduciaries. Table 

5 outlines how different DC plans are overseen by Labor, IRS, and state 

and local governments. 

IRS and Labor share responsibility for overseeing IRAs. IRS has primary 

responsibility for tax rules governing how to establish and maintain any 

IRA. Labor has sole responsibility for overseeing ERISA’s fiduciary 

standards for employer-sponsored IRAs. Unlike employer-sponsored IRAs, 

 

12These “church plans” can be 401(a), 401(k), or 403(b) plans. 

13State and local government plans are exempt from some of these requirements. 

Page 10 GAO-09-641 Retirement Savings
 

individual IRAs are not subject to Title I of ERISA and are generally not 

overseen by Labor.14

Table 5: Regulators That Oversee DC Plans by Type of Employer 

Subject to Title I of ERISA Not subject to Title I of ERISA 

Private companies 

Tax-exempt 

organizations 

State and local 

governments Churches 

Tax-exempt 

organizations 

under Labor’s 

403(b) safe 

harbor 

IRS Yes Yes Yes Yes Yes 

Labor Yes YesaNo No No 

State and local 

governments 

No No Yes NobNob

Source: GAO analysis. 

a

Tax-exempt sponsors of 457(b) plans and 457(f) plans designed for highly-compensated employees 

are exempt from most of ERISA’s requirements such as participation and fiduciary responsibility. 

These plans are subject to a few provisions of Title I of ERISA relating to reporting, disclosure, 

administration, and enforcement. 

b

Some states may have laws that affect aspects of these plans, such as contract remedies. 

DC plans and IRAs hold assets in a range of investments, which, in turn, 

are regulated by different entities. 

• Mutual Funds. A mutual fund is a pooled investment in a portfolio of 

securities, managed by a professional investment advisor. Investors buy 

shares in the fund, which represents an indirect ownership interest in the 

fund’s securities. Types of mutual funds include: stock or equity, bond or 

fixed-income, and money market. Mutual funds are sold in different “share 

classes” that each offer the same gross returns, but with different fee 

structures that result in different net returns. For example, in one share 

class, mutual fund shareholders may pay a “sales charge” when they 

purchase shares, while in another share class, they may pay a recurring 

charge deducted from fund assets to cover marketing costs. Mutual funds 

are generally regulated by the Securities and Exchange Commission 

(SEC), which requires funds to disclose fees and to inform investors of 

products’ potential risks. 

Different regulators oversee 

different investment options 

available to DC plans and IRAs 

 

14Labor and IRS also work together to oversee rules regarding IRA prohibited transactions; 

generally, Labor has interpretive jurisdiction and IRS has certain enforcement authority. 

Page 11 GAO-09-641 Retirement Savings
 

• Annuities. An annuity is a contract between a plan participant or sponsor 

and an insurance company, under which the participant makes a lumpsum payment or a series of payments and the insurance company provides 

a payout for an agreed-upon span of time. Annuities may be purchased for 

groups or for individuals and can be fixed or variable. Fixed annuities 

guarantee a minimum interest rate on assets while the account is growing 

and also guarantee periodic payments after the annuity is claimed. 

Variable annuities are also insurance products and also guarantee periodic 

payments to participants. However, the amount of those payments 

depends in part on the value of the investments that underlie the account, 

which are typically mutual funds. States regulate insurance companies that 

provide fixed annuities. State regulators generally supervise insurance 

sales and marketing practices and policy terms and conditions to ensure 

that consumers are treated fairly when they purchase insurance products 

and file claims. For variable annuities, state agencies generally regulate the 

insurance contract that “wraps” around the investment options. If the 

underlying investment options are registered securities, the investments 

are regulated by SEC. Also, if variable annuities are sold to participants 

within certain retirement plans, the contracts are also regulated by SEC.15

• Collective investment funds (CIF). CIFs are trusts managed by a bank or 

trust company that pool investments of retirement plans or other large 

institutional investors. These products are typically not available to 

individual investors. The federal agencies charged with oversight of banks 

regulate CIFs and other bank investment products, primarily the Federal 

Reserve Board, Office of the Comptroller of the Currency, and the Federal 

Deposit Insurance Corporation. 

As participants in DC plans and IRAs accrue earnings on their investments, 

they also pay a number of fees, including expenses, commissions, or other 

charges associated with investments and plan operation. Fees are one of 

many factors participants should consider when choosing among the 

investment options a plan offers because fees can significantly decrease 

retirement savings over the course of a career. Even a small fee deducted 

from a participant’s assets annually could represent a large amount of 

money years later had it remained in the account to be reinvested. 

Fees charged to participants in 

DC plans and IRAs 

 

15This report does not discuss annuities that are purchased to pay benefits when a pension 

plan is terminated or when an annuity is purchased for a terminating participant as a 

distribution from the plan. 

Page 12 GAO-09-641 Retirement Savings
 

Participants and sponsors pay investment fees charged by companies that 

manage mutual funds or other investment products for all services related 

to operating the fund. For example, a management fee covers the cost of 

selecting a mutual fund’s portfolio of securities and managing the fund. 

After investment fees, administrative fees generally account for the next 

largest portion of plan fees. These fees cover the cost of operating the 

plan, such as keeping records of all participants’ contributions and 

transactions. 

The amount of fees charged to participants for investments may depend 

on whether the plan invests in products that are “institutional” or “retail.” 

Generally, “institutional” investments are only sold to investors with large 

pools of assets and charge lower fees than retail products sold by the same 

service provider. “Retail” investments are available to any individual, and 

typically have higher fees. For example, individual investors typically 

purchase retail mutual funds, whereas large groups of investors, like 

certain DC plans, can pool their assets to purchase the same mutual funds 

with a volume discount depending on the size of the asset pool. 

Service providers charge fees for administering investment and 

administrative services to plans in two ways. Under a “bundled” 

arrangement, the sponsor hires one company that provides the full range 

of services directly or through subcontracts. A bundled service provider 

may, for example, provide all record-keeping and investment services, as 

well as communications with participants. Under an “unbundled” 

arrangement, the sponsor uses a combination of service providers. 

Sponsors can also provide some of the administrative services themselves, 

such as record-keeping, but can only charge fees for charges the sponsor 

incurred directly. 

Page 13 GAO-09-641 Retirement Savings
 

Participants in 

Different Plans and 

IRAs Pay the Same 

Types of Fees, but 

Investment Choices 

Can Affect Fee 

Amounts 

Participants Generally Pay 

the Same Types of Fees, 

Regardless of the DC Plan 

Service providers told us that plan participants generally pay the same 

types of fees regardless of the DC plan in which they are enrolled. Several 

of the service providers we interviewed, who serve all types of DC plans, 

reported that they charge the same types of fees to participants of all 

different DC plans. For example, representatives of a company that 

services both 401(a) plans and 403(b) plans told us that participants in 

both plans pay investment management and record-keeping fees, as shown 

in table 6 and table 7.16

Table 6: Fees Associated with Three Common Investment Products 

Fee description Fixed annuity Variable annuity Mutual fund 

All-inclusive annual fee imposed on the value of total 

assets in an account. 

N/A Wrap fee N/A 

Fee charged upon investing that reduces the initial 

investment. 

N/A Sales load Sales charge or sales 

load 

Fee charged upon redemption or when the product is 

sold, or when the contract is ended. 

Surrender or withdrawal 

charges 

Deferred sales load or 

surrender fee 

Deferred sales charge 

or deferred sales load 

or redemption fee 

Fee charged for any exchange or transfer of interest 

from the fund to another fund or to another investment 

company. 

N/A Exchange fee Exchange fee 

 

16401(a), 401(k), and 457(b) governmental plans generally require that contributions to 

participants’ accounts be set aside in a trust or held in an insurance contract. Service 

providers establishing and maintaining a trust to hold plan assets sometimes charge a 

trustee fee, usually a relatively small fee to maintain the trust. Sponsors of 403(b) plans are 

not required to hold assets in a trust, but participants investing in mutual funds must have 

custodial accounts. Sponsors or participants are sometimes charged for these custodial 

services, which are similar to charges for trustee services. 

Page 14 GAO-09-641 Retirement Savings
 

Fee description Fixed annuity Variable annuity Mutual fund 

Flat dollar amount that includes any contract, account, 

or similar fee imposed on contract-owner accounts on 

any recurring basis. 

Contract fee Contract fee Account fee 

Fee to compensate the insurance company for various 

risks it assumes under the annuity contract. 

N/A Mortality and expense 

risk fee 

N/A 

A fee that is charged by an advisor, often a pension 

consultant, hired to help the plan sponsor select funds 

for the plan and to monitor investments. 

N/A Investment consulting 

fee 

Investment consulting 

fee 

A fee to cover the cost of selecting a mutual fund’s 

portfolio of securities and managing the fund. 

N/A Management fee Management fee 

Fee for servicing of the accounts, such as providing 

statements, reports, dispersing dividends, as well as 

custodial services. 

N/A Administrative fee Administrative fee 

Fee related to marketing and compensating brokers to 

sell the fund. 

N/A Distribution (12b-1 fee) Distribution (12b-1 fee) 

A charge deducted from each premium paid. Percentage of premium 

charge 

N/A N/A 

Source: GAO analysis. 

Arrangements between DC plan sponsors and service providers may affect 

the types of fees charged. Sponsors can choose different service 

arrangements that may carry different types of fees, particularly bundled 

or unbundled services. Sponsors that choose a bundled arrangement may 

pay a smaller number of separate fees because service providers charge a 

consolidated fee for all services. For example, sponsors that hire a single 

service provider for all administrative services may pay a single fee for 

record-keeping, legal services, and accounting, while sponsors that have 

unbundled arrangements may be charged separate fees for each service. 

As shown in table 7, a range of administrative fees can be charged in 

unbundled arrangements. 

Page 15 GAO-09-641 Retirement Savings
 

Table 7: Administrative Fees Associated with Plans 

Fee type Fee description 

Record-keeping fee A fee that is usually charged by a service provider to set up and maintain the plan. This fee can 

cover a variety of activities such as enrolling plan participants, processing participant fund 

selections, preparing and mailing account statements, and other related administration activities. 

Communication fee A fee to cover the cost of educating participants about the plan such as providing participants with 

access to toll-free phone services, Internet service, and ongoing educational seminars. 

Custodial or trustee fee A fee that is charged by an individual, bank, or trust company to securely maintain plan assets. 

Audit fee A fee that is imposed by a service provider in connection with the annual audit that is required of 

ERISA-covered plans with more than 100 participants. 

Legal fee A fee that is charged by an attorney or law firm to provide legal support for administrative 

activities, such as ensuring the plan is in compliance with ERISA (by preparing forms like the 

Form 5500 or nondiscrimination testing) or representing the plan in a divorce settlement. 

Transactional fees Fees charged on an individual basis such as loan origination, loan maintenance, and distribution 

fees. 

Source: GAO analysis. 

Service providers also told us that traditional IRA account owners 

generally pay the same types of investment fees as DC plan participants. 

IRA account owners pay the same fees for investment products that any 

individual investor would pay, like sales loads or surrender charges. 

Investment service providers can charge IRA account owners a trustee fee 

to cover the administrative costs of managing the account, similar to a 

record-keeping fee or a custodial fee. Individual IRA account owners are 

not generally charged fees associated with plan compliance, like fees to 

cover the costs of ERISA-required annual reports. 

Participants in 403(b) 

Plans and IRAs More Often 

Invest in Products That 

Can Have Higher Fees 

Than Participants in Other 

DC Plans 

403(b) plan participants and IRA account owners are more likely than 

participants in other DC plans to invest in products that can have higher 

fees than other products, such as variable annuities. Experts we 

interviewed said that variable annuities generally have higher fees than 

other products such as mutual funds because variable annuities charge 

investment fees as well as fees associated with the insurance portion of 

the product to cover the risk associated with providing certain guarantees, 

such as annuity rights or death benefits. As shown in table 6, variable 

annuity service providers typically charge fees for the underlying mutual 

funds, and they also often charge “mortality and expense” fees to cover the 

risk associated with providing guaranteed payments and minimum death 

benefits. In contrast, equities, and mutual funds have no such insurance 

guarantees; therefore, investing in these products can result in lower fees. 

Page 16 GAO-09-641 Retirement Savings
 

In addition, 403(b) plan participants invest in individual investment 

products and mutual funds more often than participants in other plans, 

according to industry experts; these individual products generally have 

higher fees than group products. Employers may choose to have their 

403(b) plans invest in group or individual annuities. Individual annuities 

represent a contract between a single participant and the service provider. 

The terms, fees, and record-keeping for each contract are established 

separately for each participant. In contrast, when participants enter the 

group annuity, they enter into the prearranged contract established by the 

plan sponsor. The sponsor can negotiate with the annuity service provider 

for lower fees and choose the options to be made available to participants. 

Similarly, retail mutual funds are available to investors with relatively low 

assets and usually have higher fees, whereas institutional mutual funds 

under the same service provider often have lower fees because investors 

with large pools of assets can obtain pricing advantages. 

Experts told us that 403(b) plan participants may invest in individual 

annuities and mutual funds more often than participants in other plans for 

several reasons. First, according to Labor, 403(b) plans are different from 

other types of DC plans because individuals often have a more central role 

in choosing investment options. Like IRAs, many 403(b) plans operate 

with a one-to-one relationship between each participant and service 

provider. For example, the sponsors of some 403(b) plans simply send 

participants’ contributions to the designated financial service provider. 

Participants in 403(b) plans also tend to invest in individual variable 

annuities because more annuity providers market directly to 403(b) plan 

participants than mutual fund providers. Experts we interviewed told us 

that annuity sales staff commonly visit school districts and market directly 

to participants, while mutual fund sales staff rarely do so. 

Furthermore, 403(b) plan participants may choose annuities more often 

than other investment options because some states have laws in place that 

facilitate the marketing of annuity products. According to experts, states 

with certain laws generally require sponsors of public school 403(b) plans 

to permit any service provider that meets certain criteria the opportunity 

to receive contributions. According to one expert, there are at least a 

handful of such states, including California and Texas. Sponsors of public 

school 403(b) plans in California and Texas generally cannot limit the 

number of options available to participants, but instead must permit 

qualified service providers to be included as an option to participants. 

According to experts we interviewed, annuity service providers tend to be 

the most frequently listed among the plan options. 

Page 17 GAO-09-641 Retirement Savings
 

Like 403(b) plan participants, individual IRA account owners are more 

likely to invest in “retail” products than participants in other DC plans. IRA 

account assets are usually too low to be eligible for products typically 

reserved for high-volume clients, like collective investment funds, which 

generally have lower fees. In fact, one expert explained that it is common 

for individuals rolling over their assets from a DC plan into an IRA to see 

an increase in investment fees. This change occurs because individuals no 

longer have the group’s bargaining power to obtain lower-cost investment 

products. 

In contrast to participants in 403(b) plans and IRAs, participants in 401(a), 

401(k), and 457(b) governmental plans are more likely to invest in 

institutional mutual funds or group annuity products than retail mutual 

funds or individual annuities. Sponsors of 401(a), 401(k), and 457(b) 

governmental plans often pool assets and are able to purchase 

institutional products. Sponsors of 457(b) governmental plans also more 

frequently pool assets to invest in group annuity products, which can have 

lower fees than individual annuity products.17

Certain Sponsor 

Actions Decrease 

Participants’ Fees, but 

Some Sponsors Take 

Fewer Actions than 

Others 

Certain Sponsors’ Actions 

Decrease DC Plan 

Participants’ Fees 

A plan sponsor can take several actions to decrease DC plan participants’ 

fees. One way sponsors can help reduce participants’ fees is by offering 

relatively low-cost investment products in which to invest. For example, 

sponsors can offer low-cost mutual funds in addition to offering other 

products. Sponsors can also decrease participants’ fees by offering them 

the mutual fund share class that gives participants an opportunity to pay 

 

17Assets in 457(b) tax-exempt and 457(f) plans for highly compensated executives do not 

have to be invested. These plans are “unfunded;” that is, they are not set aside in an 

account for the participant, so in some cases, assets may not be invested at all. 

Page 18 GAO-09-641 Retirement Savings
 

lower fees. Because each share class has the same gross return but 

different fee structures, sponsors of certain plans can evaluate the options 

to offer the share class most likely to reduce participants’ fees. For 

example, owners of A class shares may pay fees when participants 

purchase shares, whereas owners of B class shares may pay fees when 

participants sell shares. Unlike owners of A and B class shares, owners of 

institutional class shares may pay very low or no fees when participants 

buy or sell shares.18

Sponsors may also decrease fees charged to participants by combining or 

pooling assets to access certain investment products, reduce fees, or 

negotiate with service providers. For example: 

• Some investment products are available only to large-size investors, like 

collective investment funds. These “institutional” products often have 

lower fees than other “retail” investments. 

• Other investment products are available to all types of investors, but offer 

lower fees for higher volume investments. For example, mutual funds 

often provide “breakpoints”—the designated dollar amounts at which 

management fees are reduced—for investors with higher volume. 

• For annuity products, sponsors with pooled assets can negotiate terms 

and fees for group variable annuities that individuals typically cannot. 

• Record-keeping service providers are likely to charge less per participant 

for a group of participants than for individual participants because pooling 

assets results in “economies of scale,” or efficiencies gained through 

higher volume. 

Sponsors can also issue a request for proposal (RFP) to lower costs and 

decrease fees charged to participants. In response to an RFP, vendors 

submit bids describing their services and fees to the sponsor. Sponsors 

may then choose vendors who meet their participants’ needs and may 

choose vendors with lower fees. For example, one expert told us that a 

statewide plan reduced total participant fees significantly because they 

issued an RFP and chose service providers with lower fees. 

 

18Institutional shares are only sold to larger investors, including 401(k) plans. 

Page 19 GAO-09-641 Retirement Savings
 

Some sponsors may take actions that increase fees, such as offering 

optional features. For example, to provide participants with the option of 

taking out a loan against plan assets, sponsors may incur compliance and 

administrative costs associated with making sure loan amounts do not 

exceed limits set by IRS. These costs can be passed on to participants. 

Sponsors may also pass on higher investment costs to participants if an 

investment option has additional features. For example, service providers 

may charge an additional fee to give participants the option to convert a 

401(k) plan account balance into a retirement annuity. 

Lower fees benefit plan participants because they can significantly 

increase long-term retirement savings. As shown in figure 1, even a 

relatively small annual fee taken from a worker’s assets represents a large 

amount of money had it been reinvested over time. Fees are one of many 

factors—such as the historical performance and risk for each investment 

option—participants should consider in making their investment 

decisions. 

Page 20 GAO-09-641 Retirement Savings
 

Figure 1: Effect of a 1-Percentage Point in Higher Annual Fees on a $20,000 DC Plan 

Balance Invested over 20 Years 

Source: GAO analysis.

20,000

30,000

40,000

50,000

60,000

70,000

80,000

21 3 987654 121110 13 20191817161514

Account balance in dollars

Accumulated account balance with 0.5 percent charge for fees

Accumulated account balance with 1.5 percent charge for fees

Year

Some Plan Sponsors Take 

Fewer Actions to Decrease 

Fees Than Sponsors of 

Other DC Plans 

DC plan experts told us that compared to 401(a), 401(k), and 457(b) 

governmental plans, sponsors of 403(b) plans generally take fewer actions 

to decrease fees for participants. The 403(b) plan sponsors often establish 

a direct one-on-one relationship between the service provider and the 

participant, which means sponsors’ main responsibility is to send 

contributions from employees’ paychecks to investment service providers. 

This one-on-one relationship between participant and service provider 

keeps sponsors’ involvement to a minimum, limiting the ability to reduce 

fees. 

Sponsors of some 403(b) plans often take fewer actions to decrease 

participants’ fees for at least two reasons, according to experts we 

interviewed. First, many sponsors of 403(b) plans are public schools and 

tax-exempt organizations, and experts told us they may not have the 

Page 21 GAO-09-641 Retirement Savings
 

resources to hire plan administrators who are retirement plan specialists. 

Instead, the staff who administer these plans are often responsible for 

payroll or other administration and may lack guidance on ways sponsors 

can reduce participants’ fees. Second, for many state and local 

governments, 403(b) plans are a secondary retirement benefit to a DB 

plan. Experts told us that sponsors may not feel as motivated to play an 

active role in these plans since the 403(b) plan is supplemental. 

For some governmental 403(b) plans, sponsors’ ability to decrease fees for 

participants is limited by certain state laws. As we noted earlier, one 

expert told us that a handful of states, including California and Texas, 

have laws that limit state and local government 403(b) plan sponsors’ 

ability to narrow the list of service providers offered to participants. 

Instead, sponsors must generally give any qualified service provider a 

“payroll slot,” or an opportunity for participants to choose that service 

provider to receive contributions withdrawn from their paycheck. These 

requirements limit sponsors’ ability to pool assets, negotiate with service 

providers, or conduct RFPs. 

In contrast to 403(b) plans, other plans are often structured to require 

more sponsor actions. First, with some exceptions, sponsors of 401(a), 

401(k), and 457(b) governmental plans are generally required by law to set 

participants’ assets aside in a trust or other type of entity established to 

hold participants assets. As a result, sponsors are generally responsible for 

seeing to it that participants’ funds are accounted for, and the trust 

provides a pool of assets that facilitates negotiating with service providers. 

Second, plans subject to Title I of ERISA (including some 403(b) plans) are 

required to name fiduciaries for their plans, and this role is often filled by 

plan sponsors or service providers. The law requires fiduciaries to act in 

the sole interest of participants and beneficiaries. In addition, Labor has 

interpreted the law as requiring fiduciaries to assess the reasonableness of 

fees charged to participants. Sponsors of plans not subject to Title I of 

ERISA—like plans sponsored by state and local governments—are not 

required to do so, unless state laws impose such duties. 

IRS’s New 403(b) 

Regulations May 

Encourage Sponsor 

Action, but Its Effect on 

Fees Is Unclear 

Some 403(b) plan sponsors may take more action as a result of the IRS’s 

403(b) regulations that generally became applicable in January 2009, but 

the effect of this regulation on fees is unclear. Before these regulations, 

many sponsors established a one-on-one relationship between participants 

and service providers. IRS held participants responsible for qualification 

requirements such as certifying that they had not exceeded loan 

limitations. According to IRS officials, sponsors often did not track all 

Page 22 GAO-09-641 Retirement Savings
 

participants’ assets. Instead, experts told us that sponsors’ main 

responsibility was sending contributions from participants’ paychecks to 

investment service providers. However, under the new regulations, when 

participants want to exchange one 403(b) contract for another 403(b) 

contract under the same plan, sponsors must agree to share information 

about the participants with the service provider of the new 403(b) 

contract.19 Plan sponsors have other duties under the new regulations as 

well, such as maintaining a plan document that outlines all the material 

provisions of the plan. 

Given these changes, 403(b) plan experts disagree about the new 

regulations’ effect on fees charged to participants. Some experts believe 

fees will increase because of additional compliance costs to cover the 

expense of services like creating a plan document. To create a plan 

document, sponsors may need more administrative and legal assistance, 

the costs of which could be passed on to participants. Other experts said 

the new requirements will lead to lower fees for participants because they 

give sponsors an incentive to narrow the range of investment options. One 

expert noted that the administrative burdens of keeping track of all of 

participants’ funds has induced sponsors to reduce the number of 

investment service providers available to participants to limit recordkeeping activities.20 To limit the number of service providers, sponsors are 

likely to conduct RFPs and to consider costs in their decisions. Also, 

limiting service providers may reduce the number of times participants 

transfer their funds, reducing sales loads, surrender charges, or other fees 

associated with buying and selling investment options. 

 

19This includes information necessary for the contract to satisfy various legal provisions, 

such as whether participant loans from plan assets exceed certain limits. 

20States with “any willing provider” laws are generally unable to reduce the number of 

service providers available to participants. 

Page 23 GAO-09-641 Retirement Savings
 

Participants Receive 

Different Fee 

Information 

Depending on ERISA 

Coverage and 

Regulator, Limiting 

Participants’ Ability to 

Compare Investment 

Options 

Participants Receive 

Different Fee Information 

Depending on ERISA 

Coverage 

Participants in DC plans subject to Title I of ERISA receive different fee 

disclosure documents than participants in non-Title I plans. ERISA 

requires sponsors, including employers who sponsor SEP or SIMPLE IRAs, 

to disclose certain documents to participants that may contain fee 

information. Sponsors must provide all participants with a summary plan 

description, account statements, and the summary annual report. As we 

previously reported, these documents may, but are not required to, 

disclose information on fees borne by individual participants, as shown in 

table 8.21

Table 8: Required Disclosure Documents to All Participants in Plans Subject to Title I of ERISA 

Disclosure document Document purpose Information on fees 

Summary plan description To explain to participants how the plan operates. May contain information on how various fees such 

as investment, record-keeping, and loan fees are 

charged to participants, but not required by ERISA 

to do so. 

Account statement To show the account balance due to a participant. Typically identifies fees, such as for loans, which 

are directly attributable to an account during a 

specific period. Also, may show investment and 

record-keeping fees, but not required by ERISA to 

do so. 

Summary annual report To disclose the financial condition of the plan to 

participants. 

Contains total plan costs incurred by plan 

participants during the year. 

Source: GAO analysis. 

 

21GAO-07-21. 

Page 24 GAO-09-641 Retirement Savings
 

As we found in our report on 401(k) plan fees, the fee information that 

ERISA requires sponsors to disclose is limited and does not provide 

participants with an easy comparison of fees for different investment 

options.22 Disclosure documents may contain information on the total fees 

charged to participants, but may not clearly list all types of fees in a 

manner that facilitates comparison of investment options. As a result, 

participants may pay more than they would if they had clearer 

information. 

For those plans not subject to Title I of ERISA, sponsors are not federally 

required to disclose fee information at all, although state laws may require 

them to do so. Experts told us that some, but not all, states established 

ERISA-like laws that include fee disclosure requirements. For example, 

Florida does not require all local government sponsors to disclose fee 

information to participants. Also, a retirement official in Minnesota told us 

that state law requires the sponsor of a state 457(b) governmental plan to 

make participants aware of fees that they pay, but statutes do not require 

similar fee disclosure for school districts’ 403(b) plans. Similarly, Florida 

requires fee disclosure for state and local government 401(a) plans but not 

for 403(b) plans. As a result, participants in different state and local 

government plans within Florida may receive different information about 

the fees they pay. 

Experts and sponsors also told us that sponsors of plans not subject to 

Title I of ERISA sometimes provide participants with information on fees, 

even though they are not required to do so. For example, sponsors may 

distribute prospectuses or fund profiles when employees become eligible 

for the plan even though they are not required by ERISA or state law to do 

so. DC plan experts told us that state and local government sponsors do 

this because they are accustomed to transparency, and because they feel 

responsible for helping their participants understand fees. 

Participants also Receive 

Different Fee Information 

Depending on the 

Regulator 

Participants receive different fee information based on the regulator of the 

product in which they invest. SEC regulates fee disclosure for some 

retirement plan investment options, such as mutual funds, and variable 

annuity products, and requires investment service providers to disclose 

fees in a prospectus, a document that details investment strategy and 

 

22GAO-07-21. 

Page 25 GAO-09-641 Retirement Savings
 

fees.23 SEC requires require that a prospectus be provided to the purchaser 

of a security, such as a mutual fund. When the sponsor of a DC plan 

purchases shares of a mutual fund for participant accounts, the sponsor 

receives the prospectus. SEC regulations do not govern plan sponsors and, 

therefore, do not require sponsors to provide a prospectus to retirement 

plan participants. 

We found that some service providers that are regulated by SEC give the 

prospectus to both the sponsor and the participant when the purchaser is 

the sponsor. Service providers also said they disclose fees in various other 

documents because they feel it is the right thing to do. For example, 

several service providers told us that their company makes fee information 

available to participants on their Web site and on fact sheets because they 

felt that transparency was constructive. 

State insurance agencies also regulate fee disclosure for insurance 

products and may require disclosures that list the fees that participants 

pay. The National Association of Insurance Commissioners (NAIC) 

developed model disclosure regulations, which each state can choose to 

adopt. The regulations require that fixed annuity providers list the specific 

dollar amounts or percentage charges with explanations, as well as total 

amounts charged. According to NAIC, 27 states have adopted the NAIC 

Annuity Disclosure Model Regulation or have related state activity.24 For 

example, one state specifically requires insurers to give prospective 

purchasers a buyer’s guide to annuities and a contract summary as 

provided in the NAIC model regulation.25

However, other states have different fee disclosure requirements; 

therefore participants in different states may receive different information 

on fees. For example, while service providers must be licensed by each 

 

23The prospectus also contains fund information such as the investment objectives or goals, 

strategies for achieving those goals, risks of investing in the fund, expenses, and past 

performance. 

24According to NAIC, states can adopt the model in its entirety in a uniform and 

substantially similar manner with minor variations in style and format. Examples of related 

state activity include: an older version of the NAIC model, portions of the NAIC model, 

legislation or regulation derived from other sources, bulletins, and administrative rulings. 

25The buyers’ guide describes fees that purchasers may or may not pay and the disclosure 

document must list products’ specific charges and fees with an explanation of how they 

apply. 

Page 26 GAO-09-641 Retirement Savings
 

state where it sells insurance products, at least one state does not require 

specific fee disclosures to some participants.26

California and Texas have more stringent disclosure requirements than the 

federal government. These states require specific disclosure of all fees for 

service providers licensed to sell products to participants in public 403(b) 

plans. California and Texas established online registries with fees 

disclosed in a consistent format to facilitate comparison of 403(b) service 

providers’ fees. Licensed service providers must submit fees and other 

information to the registry to sell investment products to participants in 

the states’ school systems. Both states organize the information from 

service providers to provide fee information in a standardized format. 

Service providers listed in California’s registry must disclose all direct and 

indirect fees charged to participants such as surrender fees, management 

fees, and annual fees. For example, in California, participants may 

compare fees of up to three similar investment products at one time. 

California’s Web site, www.403bcompare.com, allows any user to view and 

compare fees of selected products from multiple vendors side by side. 

Similarly, licensed service providers in Texas must disclose all fees they 

charge in the online registry, including both investment and administrative 

fees. These registries help sponsors and participants of 403(b) plans 

compare service providers’ fees and other characteristics, which may 

facilitate choosing products with lower fees. 

As shown in table 9, different regulators require different information to 

be disclosed. As a result, DC plan participants and IRA account owners 

may receive different information because of the entity that regulates the 

plan or the investment product.27

 

26Participants in some plans may invest in products not registered with SEC or state 

insurance regulators, such as collective investment funds (CIF), which are overseen by 

bank regulators. The Office of the Comptroller of the Currency (OCC), for example, 

requires banks administering a CIF to disclose fees and expenses in a written plan and an 

annual financial report, in addition to other applicable state requirements. 

27For individual IRA account owners who invest in products for which an amount is not 

guaranteed over a period of time, and the growth rate cannot be reasonably projected, IRS 

generally requires the trustee of an individual IRA to disclose each type of fee, and the 

amount of each fee (based on hypothetical assumptions) to the account owner—including 

trustee fees and other administrative fees—before the account is opened. 

Page 27 GAO-09-641 Retirement Savings
 

Table 9: Required Fee Disclosure Information, by Regulator 

Regulator Required fee disclosure information 

ERISA ERISA requires sponsors to provide participants with summary 

plan description, account statement, summary annual report, 

which may include information about fees such as investment 

fees, record-keeping fees, and total plan costs. 

State and local 

governments 

For sponsors of public DC plans, state and local government 

requirements vary. For example, one state requires certain 

sponsors to provide a quarterly statement that lists out all fees, 

while another state requires no fee disclosures for certain 

plans. 

SEC The prospectus contains a fee table with general fee 

information associated with the product, such as the expense 

ratio, which explains total fees reported as a percentage of the 

fund’s assets. The prospectus does not contain certain fees 

charged by the plan such as transactional fees. 

State insurance 

regulators 

States’ insurance department requirements vary. According to 

NAIC, some states have adopted NAIC’s model disclosure 

regulations, which requires specific dollar amounts or 

percentage charges and fees listed with an explanation of how 

they apply. States who have not adopted NAIC’s model 

regulations may have different disclosure requirements. 

Source: GAO analysis. 

Moreover, because of the different disclosure requirements, participants in 

DC plans and IRAs can invest in similar products but receive different 

information on fees. This may be confusing to participants who want to 

compare fees of different investment products to make an investment 

choice. For example, as shown in figure 2, under ERISA, participants must 

receive a summary plan description, an account statement, and a summary 

annual report, regardless of the product in which they are invested. But a 

participant who is invested in the same type of product in a plan not 

subject to Title I of ERISA may not receive any information from either the 

service provider or the sponsor. On the other hand, the participant may 

receive information from both the service provider and the sponsor, but 

the fee information may be in different formats, making it difficult for the 

participant to compare investment products. 

Page 28 GAO-09-641 Retirement Savings
 

Figure 2: Oversight of Fee Information Disclosed to Retirement Plan Participants 

Mutual fund 

or variable 

annuity for 

an

individual 

Sources: GAO; images, Art Explosion.

Service

provider

Investment

products

Mutual fund 

or variable 

annuity for 

a group 

unclear what 

participants

receive

Info required 

by states

varies

Service

provider

Prospectus

Participants

IRA

DC plan or 

employer-sponsored 

IRA sponsor

SEC

ERISA

sponsor

Info required 

by states

varies

Fixed 

annuity

Service

provider

Non-ERISA

sponsor

unclear what 

participants

receive

ERISA

sponsor

Non-ERISA

sponsor

States

1

2

3

1 2 3

1 2 3

Summary plan description

Account statement

Summary annual report

Prospectus

Prospectus

Page 29 GAO-09-641 Retirement Savings
 

Oversight of Fees and 

DC Plans Will Likely 

Improve with Recent 

Regulations, but IRS 

and Labor Still Lack 

Information That 

Could Strengthen 

Oversight 

Labor and IRS Oversee Fee 

Disclosure and DC Plans, 

and Recent Regulations on 

Fee Disclosure and 403(b) 

Plans Are Likely to 

Improve Oversight 

Labor is charged with overseeing the statutorily required disclosures—

which may include fee information—to participants of certain DC plans, 

while IRS oversees tax laws that apply to all DC plans. Both have recently 

issued or proposed regulations that are likely to improve oversight. Under 

ERISA, Labor is responsible for enforcing the requirements that plan 

fiduciaries ensure that fees paid with plan assets are reasonable and for 

necessary services. Labor does this in a number of ways, including 

collecting information on fees from plan sponsors, investigating 

participants’ complaints or referrals from other agencies on questionable 

plan practices, and conducting outreach to educate plan sponsors about 

their responsibilities. In addition, Labor makes available a checklist with 

its annual filing instructions to help plan sponsors follow ERISA 

requirements, such as providing participants with certain documents like 

the summary plan description. While the checklist is not submitted to 

Labor, agency officials stated that it selects plans for investigation because 

of some indication that an ERISA violation may have occurred or may be 

about to occur, a process Labor calls “targeting.” For example, we 

reported that Labor targeted 3,400 cases for review in 2005 as a result of 

various source leads, such as participant complaints, computer targeting, 

and other agency referrals.28

Labor proposed regulations in July 2008 to improve oversight of DC plans 

subject to Title I of ERISA. These regulations are designed to improve fee 

 

28GAO, Employee Benefits Security Administration: Enforcement Improvements Made 

but Additional Actions Could Further Enhance Pension Plan Oversight, GAO-07-22 

(Washington, D.C.: Jan. 18, 2007). 

Page 30 GAO-09-641 Retirement Savings
 

disclosure to participants by requiring sponsors to provide participants 

with the actual amounts individuals were charged for administrative 

services, on a quarterly basis.29 Sponsors would be required to disclose 

investment fees at least annually to participants in a chart or similar 

format to facilitate comparison of fees among investment options. These 

regulations apply only to plans subject to Title I of ERISA disclosure 

provisions, such as many 401(a), 401(k), some 403(b) plans, and some 

employer-sponsored IRAs. We have previously suggested that Congress 

amend ERISA to require all sponsors to disclose fees in a way that 

facilitates comparison among investment options.30

While IRS generally does not have responsibility for enforcing laws 

regarding fees and fee disclosure for DC plans, IRS oversees DC plans’ 

compliance with the tax code. All DC plans allow a tax deduction or 

deferral for plan sponsors or participants. IRS makes sure that 

contributions are eligible for a tax deferral or deduction by analyzing 

features of retirement plans. IRS issued final regulations in 2007 that made 

significant changes to improve IRS oversight of all 403(b) plans. The 

regulations require sponsors to maintain a plan document that outlines the 

provisions of the plan, and manage the plan in accordance with the 

document. While previously sponsors had to provide certain information 

in writing, they were not generally required to maintain a formal plan 

document. 

Labor Lacks Specific 

Authority to Collect 

Information to Help 

Ensure That Safe Harbor 

403(b) Plans Protect 

Participants’ Interests 

Labor lacks the specific authority to require sponsors of safe harbor 

403(b) plans to submit information that would help ensure that 

participants’ interests are protected. Labor oversees many DC plans 

sponsored by tax-exempt organizations that are subject to Title I of ERISA. 

However, Labor has defined a safe harbor for certain 403(b) plans that 

may operate outside of Title I. Under Labor’s safe harbor regulations, 

403(b) plans are defined as not having been “established or maintained by 

an employer” under ERISA if certain conditions are met. For example, in 

order to remain under the safe harbor, sponsors must generally limit their 

 

29These regulations are currently being reviewed by the new administration. 

30GAO-07-21, p. 29. 

Page 31 GAO-09-641 Retirement Savings
 

involvement in the plan.31 Plan sponsors make the decision to operate their 

403(b) plans under the safe harbor, independent of Labor. 

We found that Labor cannot identify safe harbor plans and therefore has 

no assurance that it is able to systematically enforce laws for 403(b) plans 

that may be operating outside of the safe harbor. Under ERISA, DC plans 

are required to file an annual report with Labor.32 However, Labor 

currently does not have the authority to require that safe harbor plans 

provide similar information. Labor does have the authority to investigate 

any 403(b) plan of a tax-exempt employer to determine if the plan is 

covered by Title I of ERISA and may have reason to target safe harbor 

403(b) plans for enforcement actions because sponsors may engage in 

activities that take them out from under the safe harbor and make them 

subject to Title I. For example, sponsors that act as fiduciaries are 

required to follow requirements that protect participants’ interests, such as 

seeking reasonable fees for plan participants and avoiding conflicts of 

interest. However, Labor has no way to systematically assess whether or 

not sponsors of 403(b) safe harbor plans are acting as plan fiduciaries. As 

a result, Labor cannot ensure that participants’ interests are protected. 

Because Labor is unable to identify safe harbor plans, it has no assurance 

that it is able to include all 403(b) plans subject to Title I of ERISA in its 

enforcement efforts. 

 

31Sponsor involvement must be limited to certain activities that facilitate the operation of 

the plan. Other safe harbor conditions are: plan participation must be “completely 

voluntary” for employees; rights under the plan are enforceable solely by employees (or a 

beneficiary of an employee); and the sponsor must not receive compensation or 

consideration for offering the plan, other than reasonable compensation to cover certain 

expenses. 

32On this form—Form 5500 Annual Return/Report of Employee Benefit Plan—most 

sponsors report information like the number of participants, as well as details on the plan’s 

financial condition and investments. 

Page 32 GAO-09-641 Retirement Savings
 

IRS and financial regulators have not always shared information with one 

another to use resources effectively and help enforce a rule requiring 

reasonable fees. In our discussions with IRS officials, they said that IRS 

agents who find evidence of legal violations are not obligated to share 

information with financial regulators.33 However, providing such 

information would help in overseeing service providers of DC plans. 

Various service providers such as investment companies and recordkeepers work with DC plans and participants and IRS agents are in a 

position to potentially find that some service providers have violated 

financial regulations. 

Lack of Information 

Sharing between IRS and 

Financial Regulators 

Limits Oversight of Service 

Providers 

Currently, IRS is under no obligation to report service providers’ conduct 

to the proper financial regulators. No formal agreement is in place—such 

as a memorandum of understanding (MOU)—to guide coordination 

efforts, a practice we have identified as effective in prior work.34 Financial 

regulators, such as the Federal Reserve Board and SEC, have established 

an MOU to facilitate their oversight of financial services firms. Without 

MOUs, IRS agents have no obligation to report violations, and without 

such reporting the potential for service providers withholding information 

from plan participants increases. An MOU—and corresponding changes to 

agents’ guidance—could provide a means for agents to report violations, 

and such reporting could reduce the likelihood of service providers 

withholding information from plan participants. Such reporting could also 

provide an additional means by which to enforce a rule requiring 

reasonable fees. 

IRS Does Not Collect 

Enough Information to 

Easily Enforce 457(b) 

Plans’ Contribution Limits 

IRS’s does not collect enough information to easily enforce certain limits 

on participants’ contributions to 457(b) plans, which could lead to 

excessive income tax deferrals. Some, but not all, DC plans have “catchup” provisions that allow older participants to defer additional income. 

 

33I.R.C. § 6103 prohibits IRS from disclosing returns and return information unless a 

specific exception applies. However, there may be instances in which information, not 

considered a “return or return information” under §6103, could be disclosed without 

violating that statute. 

34We have reported that agencies can strengthen their commitment to work collaboratively 

by articulating their agreements in formal documents, such as a memorandum of 

understanding, interagency guidance, or an interagency planning document, signed by 

senior officials in the respective agencies. See GAO, Results-Oriented Government: 

Practices That Can Help Enhance and Sustain Collaboration among Federal Agencies, 

GAO-06-15 (Washington, D.C.: Oct. 21, 2005), p. 11. 

Page 33 GAO-09-641 Retirement Savings
 

Older participants may wish to set aside more money than younger 

participants as they near retirement. In 2009, participants age 50 and over 

in 401(k), 403(b), and 457(b) governmental plans are permitted to 

contribute an additional $5,500 over the normal contribution limit of 

$16,500. Participants age 50 and over in 457(b) tax-exempt plans are not 

permitted to make additional catch-up contributions.35

Although there are two distinct types of 457(b) plans—governmental plans 

and tax-exempt plans—IRS cannot easily differentiate between 

participants in these plans to evaluate whether or not they are 

appropriately complying with catch-up contribution limits. IRS identifies 

plan participants in various retirement plans from information provided on 

the W-2 form that reports income tax deferrals. To identify a participant’s 

contributions to a specific plan: 

• Employers submit a Form W-2 for each participant in the plan, reporting 

annual contributions to the retirement plan, among other things. 

• Form W-2 asks employers to identify the type of plan in which the 

participant is enrolled by listing the code representing the plan in box 12, 

along with the amount deferred, as shown in Figure 3. 

 

35In addition to these age 50 catch-up provisions, “special” catch-up provisions apply to 

both 457(b) tax-exempt and 457(b) governmental plans. For both governmental and taxexempt 457(b) plans, for participants who are 3 years or less away from the year of normal 

retirement age, the plan ceiling is limited to the lesser of $33,000 or $16,500 plus the sum of 

any amounts in which the participant did not contribute up to the annual limit in prior 

years. 

Page 34 GAO-09-641 Retirement Savings
 

Figure 3: IRS Form W-2, Wage and Tax Statement, with Emphasis on Box 12, for 

Retirement Plan Contributions 

Source: IRS.

• The instructions for the W-2 form list a single letter code (“G”), to 

represent deferrals to a 457(b) plan, as shown in figure 4. 

Figure 4: Form W-2 Instructions 

Source: IRS.

G–Elective deferrals and employer contributions (including 

nonelective deferrals) to a section 457(b) deferred 

compensation plan

Page 35 GAO-09-641 Retirement Savings
 

We found that the W-2 code identifying 457(b) plans has not been changed 

for several years, and therefore the IRS does not have enough information 

to easily determine whether catch-up contributions are made 

appropriately. In 2002, section 457 was amended, allowing 457(b) 

governmental plan participants age 50 and over the opportunity to 

contribute $5,500 in catch-up contributions. These contributions are not 

permitted for participants of 457(b) tax-exempt plans. However, the code 

on the W-2 form for these two plans remained the same. 

Instead of relying on the W-2 form to systematically differentiate between 

participants in the two types of 457(b) plans, IRS agents rely on 

experience gained on the job to make distinctions. IRS agents seeking to 

enforce the different 457(b) catch-up contributions rules have to make a 

judgment to decide if the catch-up contributions are permitted. IRS 

officials explained that efforts to link the participant information to the 

type of sponsor is burdensome. IRS agents have to confirm the type of 

organization that sponsored the plan and then determine if the participant 

could make the extra contribution. For example, one IRS agent told us 

that the agent could contact the plan sponsor and ask for documentation 

of its tax-exempt or government status.36

As a result of IRS’s inability to easily differentiate between 457(b) plan 

participants, the federal government may be losing tax revenue. For 

example, a 457(b) tax-exempt plan participant could erroneously make a 

catch-up contribution. Normally, the participant’s contributions over the 

normal limit ($16,500) would be subject to income tax, for which the 

highest income tax bracket was 35 percent in 2008. However, if a 

participant made the maximum catch-up contribution of $5,500 and did 

not pay income taxes, he or she would avoid paying 35 percent of $5,500. 

The federal government would lose $1,925 in tax revenue for that year. 

 

36We have reported that IRS can efficiently resolve errors of this sort on taxpayer 

submissions using math error authority (MEA). Where possible, IRS uses MEA to correct 

certain errors before interest is owed by the taxpayer. IRS is granted MEA in 26 U.S.C. § 

6213(b). It can only be used for certain purposes specified by Congress in 26 U.S.C. § 

6213(g)(2). For more information, see GAO, Tax Administration: IRS’s 2008 Filing 

Season Generally Successful Despite Challenges, although IRS Could Expand 

Enforcement during Returns Processing, GAO-09-146 (Washington, D.C.: Dec. 12, 2008). 

Page 36 GAO-09-641 Retirement Savings
 

American workers participating in DC plans may not receive clear 

information on the fees that they pay, even though relatively small fees 

imposed annually can significantly affect retirement savings over the 

course of a career. In our previous work, we suggested that Congress 

consider amending the law to require fees to be disclosed to participants 

in 401(k) plans in a way that facilitates comparison of investment options, 

and our current work suggests that participants in all types of plans could 

benefit from enhanced disclosure. Labor has proposed regulations that 

address this concern, but we continue to believe that a change in the law is 

necessary to ensure that improved fee disclosure will be broadly available 

to all participants. 

Conclusions 

Although ERISA requires sponsors to disclose some fee information to 

participants, disclosure requirements for plans not subject to Title I of 

ERISA are less consistent. Depending on the service provider, the sponsor, 

and the state, participants in these plans may receive fee information from 

different entities, in different formats, or may receive no fee information at 

all. Some states have taken approaches to fee disclosures that are already 

helping participants to compare fees across investments. These 

approaches may provide a model not only for federal oversight, but also 

for other states as both works to enhance disclosure of DC plan fees. 

While sponsors of some plans often take actions such as pooling assets to 

obtain pricing advantages, sponsors of 403(b) plans often do not. As a 

result, participants in 403(b) plans can end up paying higher fees than 

participants in other DC plans. If guidance were provided to all sponsors 

of DC plans about what role they can have in reducing fees, sponsors 

would be more likely to understand the actions they can take to help 

participants ensure they have adequate retirement savings. Given its 

responsibility to oversee plan fiduciaries, Labor has the expertise to 

develop such guidance, but it does not have authority over plans not 

subject to Title I of ERISA. IRS is in a better position to reach out to all 

sponsors. Collaboration between IRS and Labor can ensure that DC plans 

subject to Title I of ERISA and other plans are reached. 

Both Labor and IRS have particular responsibilities for overseeing DC 

plans, and in Labor’s case, making sure that plan sponsors ensure the 

reasonableness of fees charged is an especially important responsibility. 

However, steps must be taken to improve each agency’s oversight of DC 

plans to ensure that not only are DC plan participants’ retirement savings 

adequately safeguarded, but also that there is no absence of oversight for 

entities involved in the DC plan market. Therefore, while Labor is 

responsible for administering the statutory provisions that safeguard the 

Page 37 GAO-09-641 Retirement Savings
 

interests of participants, these interests may be vulnerable if Labor does 

not have the specific authority to require that all 403(b) plan sponsors that 

fall outside of safe harbor rules systematically identify themselves. 

Without such authority, Labor cannot easily identify sponsors who may be 

covered by Title I of ERISA, which is designed in part to protect workers’ 

retirement savings. In addition, IRS has a role to play in ensuring that the 

government receives the appropriate tax revenue. However, if IRS cannot 

easily determine whether participants in certain plans are improperly 

deferring income, then the federal government could be missing tax 

revenue if participants exceed deferral limits. Finally, encouraging 

regulators to share information on service providers’ violations they have 

found in the normal course of reviewing plans with other regulators is 

likely to help ensure that all DC plan participants’ retirement savings are 

protected. With a formal mechanism, such as an MOU, to share 

information with other regulators when potential violations are found, 

regulators are less likely to miss opportunities to enforce financial 

regulations designed to protect investors. Such an MOU would be 

appropriate for limited occasions when information on service providers 

can be shared without revealing protected taxpayer information. 

Congress should consider amending ERISA to require sponsors to disclose 

fee information on each investment option in the plan to participants in a 

consistent way that facilitates comparisons among the options not only for 

401(k) plans, as we have previously suggested, but for all DC plans subject 

to Title I of ERISA. In addition, to help ensure participants in all DC plans 

receive consistent fee disclosure, Congress may wish to consider state 

approaches for fee disclosure to participants in non-Title I plans as models 

for federal requirements for ERISA plans. 

Matters for 

Congressional 

Consideration 

Given the absence of direct oversight of safe harbor 403(b) plans, 

Congress may wish to consider giving Labor the specific authority to 

collect information to systematically monitor safe harbor plans, which will 

allow Labor to determine whether any safe harbor 403(b) plans are 

operating outside the safe harbor guidelines and are subject to Title I of 

ERISA. 

Page 38 GAO-09-641 Retirement Savings
 

To encourage plan sponsors to take actions that result in participants 

paying lower fees, we recommend that the Commissioner of Internal 

Revenue, together with the Secretary of Labor, provide guidance designed 

for sponsors of all types of DC plans to suggest ways sponsors can costeffectively decrease participants’ fees. 

To be able to provide improved oversight and ensure participants are not 

violating tax deferral limits, the Commissioner of the Internal Revenue 

Service should collect information to allow them to easily differentiate 

between types of 457 plans. 

To help ensure that information about service providers’ violations is 

shared with financial regulators, we recommend that the Commissioner of 

the Internal Revenue Service work with financial regulators to establish a 

formal memorandum of understanding. Such a memorandum would help 

instruct agents and would be appropriate for limited occasions when 

information on service providers can be shared without revealing 

protected taxpayer information. In addition, the agencies should 

periodically review and update the memorandum, as appropriate. 

We provided a draft of this report to the Secretary of Labor, the Secretary 

of the Treasury, and the Chairman of the Securities and Exchange 

Commission. We obtained written comments from the Assistant Secretary 

of Labor and from the Deputy Commissioner of the Internal Revenue 

Service, which are reproduced in appendixes II and III. Treasury, IRS, 

SEC, and Labor also provided technical comments, which were 

incorporated in the report where appropriate. 

Recommendations 

Agency Comments 

and Our Evaluation 

Labor agreed with our recommendations. They noted that excessive fees 

can undermine long-term retirement savings for plan participants and 

described how two proposed regulations would give plan fiduciaries more 

responsibility for understanding plan fees and improve fee disclosure for 

participants. We agree that Labor’s proposed regulations will assist plans 

sponsors in understanding their responsibilities for plan fees, but note that 

neither regulation has been made final. Labor also noted that it has 

produced guidance for plan sponsors on a variety of issues to help them 

understand their responsibilities under ERISA. However, this guidance is 

often focused on 401(k) plans, whereas all plans are likely to benefit from it. 

IRS agreed with our recommendations to work with Labor to provide 

guidance to sponsors of all types of plans to help reduce participants’ fees, 

as well as to collect enough information to distinguish between different 

Page 39 GAO-09-641 Retirement Savings
 

types of 457 plans. With regard to establishing an MOU to facilitate 

information-sharing with financial regulators, IRS said that it will 

cooperate in situations we described. However, IRS also said that its 

method of doing so is sufficient. IRS described sharing information with 

another federal regulator without the use of an MOU, while complying 

with rules that protect the confidentiality of taxpayer and tax return 

information. As noted, IRS has been diligent in observing regulations 

protecting taxpayer information, and we agree that carefully structured 

cooperation is important. However, we continue to believe that an MOU is 

the best means for formally articulating such cooperation especially given 

the variety of entities involved in DC plan administration that cross 

regulatory boundaries. Just as IRS has established MOUs with other 

federal agencies such as Labor to share information, we believe that an 

MOU would be useful to guide coordination efforts with financial 

regulators to ensure that IRS agents know what is expected of them. 

Unless you publicly announce its contents earlier, we plan no further 

distribution until 30 days after the date of this report. At that time, we will 

send copies of this report to the Secretary of the Treasury, Commissioner 

of Internal Revenue, the Secretary of Labor, the Chairman of the Securities 

and Exchange Commission; appropriate congressional committees; and 

other interested parties. In addition, the report will be available at no 

charge on GAO’s Web site at http://www.gao.gov. 

If you have any questions concerning this report, please contact me at 

(202) 512-7215 or bovbjergb@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made significant contributions to this report 

are listed in appendix V. 

Sincerely yours, 

Barbara D. Bovbjerg 

Director, Education, Workforce, and 

 Income Security Issues 

Page 40 GAO-09-641 Retirement Savings
Appendix I: Objectives, Scope, and 

Methodology 

Page 41 GAO-09-641 

Appendix I: Objectives, Scope, and 

Methodology 

The objectives of this report were to examine: (1) how the types of fees 

charged to participants and investments of various defined contribution 

(DC) plans differ; (2) how DC plan sponsor actions affect participant fees; 

(3) how fee disclosure requirements vary; and (4) how effective is the 

oversight of DC plans. 

nd IRAs, we reviewed a report that 

 and private sources. We reviewed “The U.S. 

Retirement Market, 2008,” Research Fundamentals, vol. 18, no. 5 

(Washington, D.C.: Investment Company Institute, June 2009). Total IRA 

market assets are derived from tabulations of total IRA assets provided by 

the IRS Statistics of Income (SOI) Division for tax years 1989, 1993, 1996–

2002, and 2004. These tabulations are based on a sample of IRS returns. 

Total assets for 401(k) plans, 403(b) plans, and 457 plans are based on data 

from the Federal Reserve Board, the National Association of Government 

Defined Contribution Administrators, and American Council of Life 

Insurers. The Investment Company Institute (ICI) is a national association 

of U.S. investment companies, including mutual funds, closed-end funds, 

exchange-trade funds, and unit investment trusts. Its research department 

collects and disseminates industry statistics, and conducts research 

studies relating to issues of public policy, economic and market 

developments, and shareholder demographics. 

We obtained different sets of data from the Internal Revenue Service (IRS) 

on the general characteristics of DC plans, such as number of plans. 

• First, we obtained one set of data from IRS’s Tax Exempt and Government 

Entities Division (TEGE). The 401(k), 403(b), and 457(b) plan and 

participant information was taken from a database that compiles 

information from all W-2 documents submitted to IRS. The data have some 

limitations. For 2007, this database collected W-2 forms from 92 percent all 

taxpayers who filed a W-2 that year. The other 8 percent represent 

taxpayers who file their forms late or amend returns. IRS also explained 

that some plans in which no individual made a contribution in a single year 

may not be represented in the count, but it is likely that few such plans 

exist. In addition, no data was available for 401(a) plans, or 457(f) plans. 

Because we used the data to illustrate the relative assets and contributions 

of DC plans, we found it reliable for our purposes. 

• We reviewed the IRS’s Compliance Data Warehouse (CDW) Information 

Returns Master File (IRMF) for tax year 2006. CDW is a widely used 

database consisting of sensitive but unclassified taxpayer data from 

various data sources. The IRMF we received was extracted on May 15, 

To identify total assets for DC plans a

analyzed data from federal

 Retirement Savings 
Appendix I: Objectives, Scope, and 

Methodology 

Page 42 GAO-09-641 Retirement Savings

2009. We assessed these data and determined that they were sufficiently 

reliable for the purposes of this report. 

We also reviewed data from IRS’s Statistics of Income (SOI) individual

files for tax year 2006. S

•

OI is also a widely used database consisting of a 

sample selected before audit of the income tax returns. Since the 

ns 

f each 

vice 

 subject to ERISA. We 

also reviewed the requirements for California and Texas’s Web sites that 

nt 

ious 

estimates we provide using these data sources are based on samples, they

involve margins of error. Unless otherwise noted, population estimates’ 

margins of error do not exceed 3.54 percentage points; contributio

estimates’ margins of error are a maximum of plus or minus 4.1 percent. 

We assessed these data and determined that they were sufficiently reliable 

for the purposes of this report. 

To explain how the types of fees charged to participants and investments 

of various DC plans differ, we interviewed 6 plan sponsors and 11 

investment service providers who interact with different DC plans to 

understand how fees may vary among plans. We also consulted with four 

legal experts on the differences among plans, as well as associations 

representing different types of plan sponsors, and service providers, and 

one union representing participants and sponsors. We obtained guidance 

from IRS and Department of Labor (Labor) explaining the features o

type of plan. We conducted a search of the literature, including academic 

and industry sources. We compared plan differences and similarities, and 

reviewed tax law and regulations on deferred compensation plans. 

To determine how DC plan sponsor actions affect participant fees, we 

conducted a search of the literature, including GAO’s prior work, and 

consulted with several industry experts on retirement plans, as well as 

associations representing different types of plan sponsors, and ser

providers, and experts on investment products, such as regulators, and 

researchers. We also consulted with representatives from 11 different 

investment service providers and 6 plan sponsors. 

To outline how fee disclosure requirements vary by plan, we conducted a 

search of the literature, and reviewed the Employee Retirement Income

Security Act of 1974 (ERISA), other laws, and the Internal Revenue Code.

We reviewed disclosure laws in Florida and Minnesota to examine if state 

laws outlined disclosure requirements for plans not

provide fee disclosure information to certain participants. We reviewed 

disclosure regulations related to retirement plans as well as investme

products to compare information required to be disclosed across var

DC plans and investment products. 
Appendix I: Objectives, Scope, and 

Methodology 

We interviewed officials from the Securities and Exchange Commission 

(SEC), Financial Industry Regulatory Authority, National Association of 

Insurance Commissioners and state insurance regulators. We reviewed 

t 

utual 

al 

 DC plan oversight, we interviewed 

d 

ve 

model disclosure for annuity products and SEC requirements for produc

disclosure. In addition, we interviewed and sought information from 

investment services providers, such as insurance companies and m

funds providers, who interact with retirement plans to describe plan fees 

and disclosure practices. We analyzed 11 service providers’ responses to

structured questions on fees and disclosure. We consulted with nation

experts, such as industry associations and experts. 

To describe the effectiveness of

officials from IRS and Labor to discuss plan oversight and topics related to 

reporting and compliance. We reviewed Title I and II of ERISA and 

reporting requirements associated with various DC plans. We examine

Form 5500 with selected schedules and reviewed secondary legal 

documents such as W-2 forms, instructions, as well as guidance provided 

by Labor on 403(b) plans and 457 plans. 

We conducted this performance audit from June 2008 through September 

2009 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 belie

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. 

Page 43 GAO-09-641 Retirement Savings
Appendix II: Comments from the Internal 

Revenue Service 

Page 44 GAO-09-641 

Appendix II: Comments from the Internal 

Revenue Service 

 Retirement Savings 
Appendix II: Comments from the Internal 

Revenue Service 

Page 45 GAO-09-641 Retirement Savings
Appendix II: Comments from the Internal 

Revenue Service 

Page 46 GAO-09-641 Retirement Savings
Appendix II: Comments from the Internal 

Revenue Service 

Page 47 GAO-09-641 Retirement Savings
Appendix III: Comments from the Department 

of Labor 

Page 48 GAO-09-641 

Appendix III: Comments from the 

Department of Labor 

 Retirement Savings 
Appendix III: Comments from the Department 

of Labor 

Page 49 GAO-09-641 Retirement Savings
Appendix IV: Characteristics of DC Plans and 

IRAs 

Page 50 GAO-09-641 

Appendix IV: Characteristics of DC Plans and 

IRAs 

DC plans together have about the same amount of estimated assets as all 

types of IRA accounts, as shown in table 10. At the end of 2008, assets for 

DC plans were estimated at $3 billion, while for IRAs, total estimated 

assets were about $3.6 billion. 401(k) plans have significantly more assets 

than 403(b) plans or 457 plans. 

Table 10: Estimated Total Assets for DC Plans and IRAs, 2008

(Dollars in billions) 

 Total assets

401(k) $2,350

403(b) 572

457(b) governmental and tax-exempt 140

Traditional IRAs 3,221

Roth IRAs 165

SEPa180

SIMPLE 44

Source: ICI. 

Note: Data on 401(a) and 457(f) plans are not available. Data in this table are estimated and should 

not be compared to the data in other tables. 

a

Asset estimates for SEP plans include figures for Salary Reduction-SEP (SAR-SEP) plans. The 

Small Business Job Protection Act of 1996 prohibited the formation of new SAR-SEP IRAs after 

December 31, 1996. 

Table 11 shows estimated contributions to different types of DC plans in 

2007. Participants and sponsors made significantly more contributions to 

401(k) plans than other types of DC plans. 

Table 11: Estimated Contributions to DC Plans, 2007 

(Dollars in billions) 

 Contributions 

401(k) $165

403(b) 28

457(b) governmental and tax-exempt 13

Source: IRS. 

Note: Data on 401(a) and 457(f) plans are not available. The data in this table were provided by IRS 

and come from a database that contains data taken from annual Form W-2 filings. The data are 

estimated and should not be compared to the data in other tables. See appendix I for further 

discussion of this issue. 

 Retirement Savings 
Appendix IV: Characteristics of DC Plans and 

IRAs 

Page 51 GAO-09-641 Retirement Savings

Although table 10 shows that total assets for traditional IRAs are 

significantly greater than assets for other types of IRAs, estimated 

contributions for 2006 are less disparate, as shown in table 12. Traditio

IRAs often receive rollovers from DC plans; therefore their assets are 

greater. 

nal 

Table 12: Estimated Contributions to Individual IRA Accounts, SEP, and SIMPLE 

Accounts, 2006 

(Dollars in billions) 

 Contributions

Traditional IRA $18

Roth IRA 19

SEP 15

SIMPLE 9

Source: IRS. 

ata came from IRS’s Compliance Data Warehouse and IRS’s 

ed, and should not be compared to the data in other table

 of this issue. 

ber of individuals who own IRA 

oth IRAs have significantly more account owners than 

articipants in employer-sponsored IRAs. 

Note: This d

data are estimat

Statistics of Income. The 

s. See appendix I for further 

discussion

Table 13 shows the estimated num

accounts and contribute to employer-sponsored IRAs. Individual 

traditional and R

p

Table 13: Estimated Number of Individual IRA Account Owners and Individuals 

Contributing to Employer-Sponsored IRAs, 2006 

Number of account owners

 (thousands) 

Traditional IRA 5,414

Roth IRA 6,843

SEP 1,559

SIMPLE 2,088

Source: IRS. 

Note: This data came from IRS’s Compliance Data Warehouse and IRS’s Statistics of Income. The 

data are estimated and should not be compared to the data in other tables. See appendix I for further 

discussion of this issue. 
Appendix V: GAO Contact and Staff 

Acknowledgments 

Page 52 GAO-09-641 

Appendix V: GAO Contact and Staff 

 Retirement Savings 

Barbara D. Bovbjerg (202) 512-7215 or bovbjergb@gao.gov

In addition to the contact named above, Tamara Cross, Assistant Direc

Anna Bo

Acknowledgments 

GAO Contact 

tor; 

nelli; Kenrick Isaac; William King; Jillena Roberts; John W. 

Wheeler, Jr.; Jaime Allentuck; Susan Baker; Alex Galuten; Mimi Nguyen; 

Staff 

Acknowledgments 

(130868) 

Jessica Orr; Walter Vance; and Najeema Washington made important 

contributions to this report. 
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