401(k) Plans: Several Factors Can Diminish Retirement Savings, but Automatic Enrollment Shows Promise for Increasing Participation and Savings
Published: 2009-10-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over the past 25 years, the number of defined benefit (DB) plans has declined while the number of defined contribution (DC) plans has increased. Today, DC plans are the dominant type of employer-sponsored retirement plans, with more than 49 million U.S. workers participating in them. 401(k) plans currently cover over 85 percent of active DC plan participants and are the fastest growing type of employer-sponsored pension plan. Given these shifts in pension coverage, workers are increasingly relying on 401(k) plans for their pension income. Recently, policy makers have focused attention on the ability of 401(k) plans to provide participants with adequate retirement income and the challenges that arise as 401(k) plans become the predominant retirement savings plan for employees. As a result, GAO was asked to report on (1) challenges to building and maintaining of savings in 401(k) plans, and (2) recent measures to improve 401(k) participation and savings levels.
section_title: What GAO Found
paragraphs: There are challenges to building and saving through 401(k) plans. While low participation rates may be due, in part, to the fact that some workers participate in DB plans, there is also a large portion of workers who do not have access to an employer-sponsored retirement plan, as well as some who do not enroll in such a plan when an employer offers it. We found that for those who did participate, their overall balances were low, particularly for low-income and older workers who either did not have the means to save or have not had the opportunity to save in 401(k)s for much of their working lifetimes. There are also challenges workers face in maintaining savings in 401(k) plans. For example, 401(k) leakage--actions participants take that reduce the savings they have accumulated, such as borrowing from the account, taking hardship withdrawals, or cashing out the account when they change jobs--continues to affect retirement savings and increases the risk that 401(k) plans may yield insufficient retirement income for individual participants. Further, various fees, such as investment and other hidden fees, can erode retirement savings and individuals may not be aware of their impact. Automatic enrollment of employees in 401(k) plans is one measure to increase participation rates and saving. Under automatic enrollment, which was encouraged by the Pension Protection Act of 2006 and recent regulatory changes, employers enroll workers into plans automatically unless they explicitly choose to opt out. Plan sponsors are increasingly adopting automatic enrollment policies, which can considerably increase participation rates, with some plans' rates reaching as high as 95 percent. Employers can also set default contribution rates and investment funds. Though target-date funds are a common type of default investment fund, there are concerns about their risks, particularly for participants nearing retirement.

section_title: Letter
paragraphs: I am pleased to be here today to discuss participation and savings in  401(k) plans. While the percentage of U.S. workers participating in a  pension plan has remained around 50 percent of the private-sector  workforce, since the early 1980s pension coverage has seen a noticeable  shift away from “traditional” defined benefit (DB) plans, in which workers  typically accrue benefits based on years of service and earnings, toward  defined contribution (DC) plans in which participants accumulate  balances in personal accounts. Currently, there are more than 49 million  U.S. workers participating in employer-sponsored DC plans. Further,  401(k) plans are the fastest growing type of employer-sponsored pension  plan and currently cover over 85 percent of active DC plan participants.  Given the decline of DB plans and the growth of 401(k) plans, many  workers are increasingly relying on 401(k) plans for their pension income.
DC plans, including 401(k) plans, provide participants tax-deferred savings  vehicles, portability, and the transparency of known account balances.  However, they shift much of the responsibility of saving for retirement,  and most of the risk, to employees. Under such plans, workers must  contribute a portion of their pay and manage the investment of their plan  assets throughout their lives. As 401(k) plans become an important source  of workers’ retirement income, policymakers are focusing on the adequacy  of such plans for building and maintaining retirement savings. Overall  issues, such as workers arriving at retirement with insufficient savings to  support themselves, are a major concern, but other issues are beginning to  require attention, such as participation levels in 401(k) plans and  “leakage”—which occurs when participants tap into their savings before  retirement. In addition, issues surrounding the fees charged to 401(k) plan  participants continue to receive attention. Further, Congressional interest  in automatic enrollment, including plan features associated with automatic  enrollment, such as target-date funds (TDF), has called attention to  options for expanding retirement plan coverage.
My statement today is based on our body of work on 401(k) plans and  retirement income security. My remarks focus on (1) challenges to  building and maintaining savings in 401(k) plans and (2) recent measures  to improve participation and savings levels. We conducted our work 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.
In summary, there are various issues affecting workers’ abilities to build  and maintain savings in 401(k) plans. First, we found that participation in  DC plans was low. While low participation rates may be due, in part, to the  fact that many workers participate in DB plans, there are also some  workers who do not have access to an employer-sponsored retirement  plan or who do not take the actions required of them to enroll in such a  plan. In addition, for those who do participate, savings levels are low. We  found that low-income and older workers had particularly low savings  balances, which is not surprising given the fact that older workers may not  have had the opportunity to save in 401(k) plans for much of their working  lifetimes and low-income workers may not have the means to save.  However, the low savings levels become increasingly important as DC  plans become an important source of retirement income. Second, leakage  and fees can erode participants’ retirement savings before retirement.  Leakage can result in significant losses of potential income from the loss  of compound interest as well as the financial penalties associated with  early withdrawals. In addition, fees and conflicts of interest—such as  undisclosed compensation arrangements between pension service  providers—can also diminish retirement savings. Because the risk of  investment is largely borne by the individual participant in a 401(k) plan,  participants can be vulnerable to any decision, including those involving  conflicts of interest, that could result in higher fees or other outcomes that  can lower investment returns for participants. Recent changes in federal  law, such as provisions explicitly permitting automatic enrollment in  401(k) plans (unless a worker opts out), show promise for increasing  401(k) participation and savings. However, there are concerns about some  of the features associated with automatic enrollment, such as the common  use of target-date funds as default investments.
subsections: section_title: Background
paragraphs: Both DB and DC plans operate in a voluntary system with tax incentives  for employers to offer a plan and for employees to participate. In the past,  DC plans, such as 401(k) plans, were supplemental to DB plans. However,  over the past several decades, there has been a shift in pension plan  coverage; the number of DC plans has increased while the number of DB  plans has declined. Today, DC plans are the dominant type of private- sector employee pension. Compared to DB plans, DC plans offer workers  more control over their retirement asset management and greater  portability over their retirement savings, but also shift much of the  responsibility and certain risks onto workers. Workers generally must  elect to participate in a plan and accumulate savings in their individual  accounts by making regular contributions over their careers. Participants  typically choose how to invest plan assets from a range of options  provided under their plan and accordingly face investment risk. There are  several different categories of DC plans, but most are types of cash or  deferred arrangements in which employees can direct pre-tax dollars,  along with any employer contributions, into an account, with any asset  growth tax-deferred until withdrawal.
One option available under some 401(k) plans is automatic enrollment,  under which workers are enrolled in a 401(k) plan automatically, unless  they explicitly choose to opt out. However, automatic enrollment has not  been a traditional feature of 401(k) plans and, prior to 1998, plan sponsors  feared that adopting automatic enrollment could lead to plan  disqualification. In 1998, the Internal Revenue Service (IRS) addressed  this issue by stating that a plan sponsor could automatically enroll newly  hired employees and, in 2000, clarified that automatic enrollment is  permissible for current employees who have not enrolled. Nonetheless, a  number of considerations inhibited widespread adoption of automatic  enrollment, including remaining concerns such as liability in the event that  the employee’s investments under the plan did not perform satisfactorily,  and concerns about state laws that prohibit withholding employee pay  without written employee consent. More recently, provisions of the  Pension Protection Act of 2006 (PPA) and subsequent regulations further  facilitated the adoption of automatic enrollment by providing incentives  for doing so and by protecting plans from fiduciary and legal liability if  certain conditions are met. In September 2009, the Department of the  Treasury announced IRS actions designed to further promote automatic  enrollment and the use of automatic escalation policies.
The Employee Retirement Income Security Act of 1974 (ERISA), as  amended, defines and sets certain standards for employee benefit plans,  including 401(k) plans, sponsored by private-sector employers. ERISA  establishes the responsibilities of employee benefit plan decision makers  and the requirements for disclosing information about plans. ERISA  requires that plan fiduciaries, which generally include the plan sponsor,  carry out their responsibilities prudently and do so solely in the interest of  the plan’s participants and beneficiaries. The Department of Labor’s  (Labor) Employee Benefits Security Administration (EBSA) is the primary  agency responsible for enforcing Title I of ERISA and thereby protecting  private-sector pension plan participants and beneficiaries from the misuse  or theft of pension assets. EBSA conducts civil and criminal  investigations of plan fiduciaries and service providers to determine  whether the provisions of ERISA or other relevant federal laws have been  violated. In addition to Labor’s oversight, the Securities and Exchange  Commission (SEC) provides oversight for 401(k) investments. For  example, the SEC, among other responsibilities, regulates registered  securities including company stock and mutual funds under securities law.
section_title: Low Participation and Saving Rates Affect the Building of 401(k) Savings While Other Factors Affect Participants Ability to Maintain Retirement Savings
subsections: section_title: Challenges to Building and Maintaining 401(k) Savings
paragraphs: One issue of concern with DC plans is that participation and saving rates  have been low. In 2007, we reported that the majority of U.S. workers, in  all age groups, did not participate in DC plans with their current  employers. In fact, only about half of all workers participate in any type of  employer-sponsored retirement plan at any given time. According to data  from the Current Population Survey, about 48 percent of the total U.S.  workforce was not covered by an employer-sponsored plan in 2007.  About 40 percent worked for an employer that did not sponsor a plan, and  about 8 percent did not participate in the plan that their employer  sponsored. Certain segments of the working population have consistently  had much lower rates of employment with employers sponsoring a plan,  and lower participation rates than the working population overall, such as  lower-income workers, younger workers, workers employed by smaller  companies, and part-time workers who typically lack coverage compared  to all full-time workers.
According to our analysis of the 2004 Survey of Consumer Finances, only  62 percent of workers were offered a retirement plan by their employer,  and 84 percent of those offered a retirement plan participated.  Participation rates were even lower for DC plan participants since only 36  percent of working individuals participated in a DC plan with their current  employers at the time of our report. Although our analysis focused on DC  plans as a group, 401(k) plans make up the vast majority of DC plans. At  the household level, participation rates were also low; only 42 percent of  households had at least one member actively participating in a DC plan.  Further, only 8 percent of workers in the lowest income quartile  participated in DC plans offered by their current employer.
Participation rates are low partly because not all employers offer a  retirement plan, and even when employers offer such plans, workers may  not participate. Some small employers are hesitant to sponsor retirement  plans because of concerns about cost. In addition, DC participation rates  for the U.S. workforce may be low because some employers sponsor a DB  plan rather than a DC plan. When companies do sponsor employer plans,  some workers may not be eligible to participate in their employers’ plan  because they have not met the plan’s minimum participation requirements.  In addition, workers may choose not to enroll, or delay enrolling, in a  retirement plan for a number of reasons. For example, they may think—in  some cases, incorrectly—they are not eligible. They may also believe they  cannot afford to contribute to the plan and, for low-income workers, it  may be difficult for them to contribute. Also, some may be focused on  more immediate savings objectives, such as saving for a house. Many non- participants may not have made a specific decision, but rather fail to  participate because of a tendency to procrastinate and follow the path that  does not require an active decision.
We also found that, for workers who participated in DC plans, plan savings  were low. The median total DC account balance was $22,800 for individual  workers with a current or former DC plan and $27,940 for households with  a current or former DC plan. We reported that the account balances of  lower-income and older workers were of particular concern. For example,  workers in the lowest income quartile had a median total account balance  of only $6,400. Older workers, particularly those who were less wealthy,  also had limited retirement savings. For example, those aged 50 through 59  and at or below the median level of wealth had median total savings of  only $13,800. The median total savings for all workers aged 50 through 59  was $43,200.
We noted that the low level of retirement savings could be occurring for a  couple of reasons. Workers who participated in a plan had modest overall  balances in DC plans, suggesting a potentially small contribution toward  retirement security for most plan participants and their households. For  individuals nearing retirement age, total DC plan balances were also low,  because DC plans were less common before the 1980s and older workers  likely would not have had access to these plans their whole careers. Given  trends in coverage since the 1980s, older workers close to retirement age  were more likely than younger ones to have accrued retirement benefits in  a DB plan. In addition, older workers who rely on DC plans for retirement  income may also not have time to substantially increase their total savings  without extending their working careers, perhaps for several years.  Further, the value of the income tax deferral on contributions is smaller  for lower-income workers than for similarly situated higher-income  workers, making participation less appealing for lower-income workers.
section_title: 401(k) Leakage Erodes Retirement Savings Levels
paragraphs: In addition to somewhat small savings contributions, 401(k) participants  can take actions, such as taking loans, withdrawals, or lump-sum  cashouts, that reduce the savings they have accumulated. This “leakage”  continues to affect the retirement security of some participants.  While  participants may find features that allow access to 401(k) savings prior to  retirement desirable, leakage can result in significant losses of retirement  savings from the loss of compound interest as well as the financial  penalties associated with early withdrawals. Current law limits participant  access to 401(k) savings in order to preserve the favorable tax treatment  for retirement savings and ensure that the savings are, in fact, being used  to provide retirement income.
The incidence and amount of the principal forms of leakage from 401(k)  plans have remained relatively steady through the end of 2008. For  example, we found that approximately 15 percent of 401(k) participants  between the ages of 15 and 60 initiated at least one form of leakage in  1998, 2003, and 2006, with loans being the most popular type of leakage in  all 3 years. We also found that cashouts made when a worker changed  jobs, at any age, resulted in the largest amounts of leakage and the greatest  proportional loss in retirement savings. Further, we reported that while  most firms informed participants about the short-term costs of leakage,  few informed them about the long-term costs.
As we reported in August of 2009, experts identified three legal  requirements that had likely reduced the overall incidence and amounts of  leakage, and another provision that may have exacerbated the long-term  effects of leakage. Specifically, experts noted that the requirements  imposing a 10 percent tax penalty on most withdrawals taken before age  59½, requiring participants to exhaust their plan’s loan provisions before  taking a hardship withdrawal and requiring plan sponsors to preserve the  tax-deferred status of accounts with balances of more than $1,000 at job  separation all helped reduce 401(k) leakage. However, experts also noted  that the requirement for a 6-month suspension of all contributions to an  account following a hardship withdrawal exacerbated the effects of  leakage. Treasury officials told us that this provision is intended to serve  as a test to ensure that the hardship is real and that the participants have  no other assets available to address the hardship. However, a few outside  experts believed that this provision deters hardship withdrawals and noted  that it seems to contradict the goal of creating retirement income. One  expert noted that the provision unnecessarily prevented participants who  were able to continue making contributions from doing so. For example,  an employed participant taking a withdrawal for a discrete, one-time  purpose, such as paying for medical expenses, may otherwise be able to  continue making contributions. In our August 2009 report, we  recommended that Congress consider changing the requirement for the 6- month contribution suspension following a hardship withdrawal. We also  called for measures to provide participants with more information on the  disadvantages of hardship withdrawals.
section_title: Fees and Conflicts of Interests Can also Hinder Participants’ Ability to Maintain Retirement Savings
paragraphs: Although participants may choose to take money out of their 401(k) plans,  fees and other factors outside of participants’ control can also diminish  their ability to build their retirement savings. Participants often pay fees,  such as investment fees and record-keeping fees, and these fees may  significantly reduce retirement savings, even with steady contributions  and without leakage.  Investment fees, which are charged by companies  managing mutual funds and other investment products for all services  related to operating the fund, comprise the majority of fees in 401(k) plans  and are typically borne by participants. Plan record-keeping fees generally  account for the next largest portion of plan fees. These fees cover the cost  of various administrative activities carried out to maintain participant  accounts. Although plan sponsors often pay for record-keeping fees,  participants bear them in a growing number of plans. We previously  reported that participants can be unaware that they pay any fees at all for  their 401(k) investments. For example, investment and record-keeping  fees are often charged indirectly by taking them out of investment returns  prior to reporting those returns to participants. Consequently, more than  80 percent of 401(k) participants reported in a nationwide survey not  knowing how much they pay in fees.
The reduction to retirement savings resulting from fees is very sensitive to  the size of the fees paid; even a seemingly small fee can have a large  negative effect on savings in the long run. As shown in figure 1, an  additional 1 percent annual charge for fees would significantly reduce an  account balance at retirement.
Although all 401(k) plans are required to provide disclosures on plan  operations, participant accounts, and the plan’s financial status, they are  often not required to disclose the fees borne by individual participants.  These disclosures are provided in a piecemeal fashion and do not provide  a simple way for participants to compare plan investment options and  their fees. Some documents that contain fee information are provided to  participants automatically, whereas others, such as prospectuses or fund  profiles, may require that participants seek them out. According to  industry professionals, participants may not know to seek such  documents.
Most industry professionals agree that information about investment  fees—such as the expense ratio, a fund’s operating fees as a percentage of  its assets—is fundamental for plan participants to compare their options.  Participants also need to be aware of other types of fees—such as record- keeping fees and redemption fees or surrender charges imposed for  changing and selling investments—to gain a more complete understanding  of all the fees that can affect their account balances. Whether participants  receive only basic expense ratio information or more detailed information  on various fees, presenting the information in a clear, easily comparable  format can help participants understand the content of disclosures. In our  previous reports, we recommended that Congress consider requiring plan  sponsors to disclose fee information on 401(k) investment options to  participants, such as the expense ratios, and Congress has introduced  several bills to address fee disclosures.
SEC identified certain undisclosed arrangements in the business practices  of pension consultants that the agency referred to as conflicts of interest  and released a report in May 2005 that raised questions about whether  some pension consultants are fully disclosing potential conflicts of interest  that may affect the objectivity of the advice. The report highlighted  concerns that compensation arrangements with brokers who sell mutual  funds may provide incentives for pension consultants to recommend  certain mutual funds to a 401(k) plan sponsor and create conflicts of  interest that are not adequately disclosed to plan sponsors. Plan sponsors  may not be aware of these arrangements and thus could select mutual  funds recommended by the pension consultant over lower-cost  alternatives. As a result, participants may have more limited investment  options and may pay higher fees for these options than they otherwise  would.
Conflicts of interest among plan sponsors and plan service providers can  also affect participants’ retirement savings. In our prior work on conflicts  of interest in DB plans, we found a statistical association between  inadequate disclosure of potential conflicts of interest and lower  investment returns for ongoing plans, suggesting the possible adverse  financial effect of such nondisclosure. Specifically, we detected lower  annual rates of return for those ongoing plans associated with consultants  that had failed to disclose significant conflicts of interest. These lower  rates generally ranged from a statistically significant 1.2 to 1.3 percentage  points over the 2000 to 2004 period. Although this work was done for DB  plans, some of the same conflicts apply to DC plans as well. Problems may  occur when companies providing services to a plan also receive  compensation from other service providers. Without disclosing these  arrangements, service providers may be steering plan sponsors toward  investment products or services that may not be in the best interest of  participants.
Conflicts of interest may be especially hidden when there is a business  arrangement between one 401(k) plan service provider and a third-party  provider for services that they do not disclose to the plan sponsor. The  problem with these business arrangements is that the plan sponsor will  not know who is receiving the compensation and whether or not the  compensation fairly represents the value of the service being rendered.  Without that information, plan sponsors may not be able to identify  potential conflicts of interest and fulfill their fiduciary duty. If the plan  sponsors do not know that a third party is receiving these fees, they  cannot monitor them, evaluate the worthiness of the compensation in view  of services rendered, and take action as needed. Because the risk of 401(k)  investments is largely borne by the individual participant, such hidden  conflicts can affect participants directly by lowering investment returns.
We previously recommended that Congress consider amending the law to  explicitly require that 401(k) service providers disclose to plan sponsors  the compensation that providers receive from other service providers.  Although Congress has not changed the law, Labor has proposed  regulations to expand fee and compensation disclosures to help address  conflicts of interests.
section_title: Automatic Enrollment, One Option for Increasing 401(k) Participation and Savings, Shows Promise
paragraphs: A recent change in law to facilitate automatic enrollment shows promise  for increasing participation rates and savings. Under automatic  enrollment, a worker is enrolled into the plan automatically, or by default,  unless they explicitly choose to opt out. In addition, for participants who  do not make their own choices, plan sponsors also establish default  contribution rates—the portion of an employee’s salary that will be  deposited in the plan—and a default investment fund—the fund or other  vehicle into which deferred savings will be invested. The Pension  Protection Act of 2006 and recent regulatory changes have facilitated plan  sponsors’ adoption of automatic enrollment. In fact, plan sponsors have  increasingly been adopting automatic enrollment policies in recent years.  According to Fidelity Investments, the number of plans with automatic  enrollment has increased from 1 percent in December 2004 to about 16  percent in March 2009, with higher rates of adoption among larger plan  sponsors. Fidelity Investments estimates that 47 percent of all 401(k)  participants are in plans with automatic enrollment. Employers may also  adopt an automatic escalation policy, another policy intended to increase  retirement savings. Under automatic escalation, in the absence of an  employee indicating otherwise, an employee’s contribution rates would be  automatically increased at periodic intervals, such as annually. For  example, if the default contribution rate is 3 percent of pay, a plan sponsor  may choose to increase an employee’s rate of saving by 1 percent per year,  up to some maximum, such as 6 percent.
One of our recent reports found that automatic enrollment policies can  result in considerably increased participation rates for plans adopting  them, with some plans’ participation rates increasing to as high as 95  percent and that these high participation rates appeared to persist over  time. Moreover, automatic enrollment had a significant effect on  subgroups of workers with relatively low participation rates, such as  lower-income and younger workers. For example, according to a 2007  Fidelity Investments study, only 30 percent of workers aged 20 to 29 were  participating in plans without automatic enrollment. In plans with  automatic enrollment, the participation rate for workers in that age range  was 77 percent, a difference of 47 percentage points. Automatic  enrollment, through its default contribution rates and default investment  vehicles, offers an easy way to start saving because participants do not  need to decide how much to contribute and how to invest these  contributions unless they are interested in doing so. However, current  evidence is mixed with regard to the extent to which plan sponsors with  automatic enrollment have also adopted automatic escalation policies. In  addition, many plan sponsors have adopted relatively low default  contribution rates. While the adoption rate for automatic enrollment  shows promise, a lag in adoption of automatic escalation policies, in  combination with low default contribution rates, could result in low saving  rates for participants who do not increase contribution rates over time.
Another recent GAO report offers additional evidence about the positive  impact automatic enrollment could have on workers’ savings levels at  retirement. Specifically, we projected DC pension benefits for a stylized  scenario where all employers that did not offer a pension plan were  required to sponsor a DC plan with no employer contribution; that is,  workers had universal access to a DC plan. When we coupled universal  access with automatic enrollment, we found that approximately 91 percent  of workers would have DC savings at retirement. Further, we found that  about 84 percent of workers in the lowest income quartile would have  accumulated DC savings.
In our work on automatic enrollment, we found that plan sponsors have  overwhelmingly adopted TDFs as the default investment. TDFs allocate  their investments among various asset classes and shift that allocation  from equity investments to fixed-income and money market investments  as a “target” retirement date approaches; this shift in asset allocation is  commonly referred to as the fund’s “glide path.” Recent evidence  suggests that participants who are automatically enrolled in plans with  TDF defaults tend to have a high concentration of their savings in these  funds. However, pension industry experts have raised questions about the  risks of TDFs. For example, some TDFs designed for those expecting to  retire in or around 2010 lost 25 percent or more in value following the 2008  stock market decline, leading some to question how plan sponsors  evaluate, monitor, and use TDFs. GAO will be addressing a request from  this committee to examine some of these concerns.
section_title: Concluding Observations
paragraphs: DC plans, particularly 401(k) plans, have clearly overtaken DB plans as the  principal retirement plan for U.S. workers and are likely to become the  sole retirement savings plan for most current and future workers. Yet,  401(k) plans face major challenges, not least of which is the fact that many  employers do not offer employer-sponsored 401(k) plans or any other type  of plan to their workers. This lack of coverage, coupled with the fact that  participants in 401(k) plans sometimes spend their savings prior to  retirement or have their retirement savings eroded by fees, make it evident  that, without some changes, a large number of people will retire with little  or no retirement savings.
Employers, workers, and the government all have to work together to  ensure that 401(k) plans provide a meaningful contribution to retirement  security. Employers have a role in first sponsoring 401(k) plans and then  looking at ways to encourage participation, such as utilizing automatic  enrollment and automatic escalation. Workers have a role to participate  and save in 401(k) plans when they are given the opportunity to do so. In  addition, both employers and workers have a role in preserving retirement  savings. Government policy makers have an important role in setting the  condition and the appropriate incentives that both encourage desired  savings behavior but also protects participants. Recent government action  that has helped enhance participation in 401(k) plans is a good first step.  But action is still needed to improve disclosure on fees, especially those  that are hidden, and measures need to be taken to discourage leakage. As  this Committee and others move forward to address these issues,  improvements may be made to 401(k) plans that can help assure that  savings in such plans are an important part of individuals’ secure  retirement.
Mr. Chairman, this completes my prepared statement. I would be happy to  respond to any questions you or other Members of the Committee may  have at this time.
section_title: Contacts and Staff Acknowledgments
paragraphs: For further questions about this statement, please contact Barbara D.  Bovbjerg at (202) 512-7215 or bovbjergb@gao.gov. Individuals making key  contributions to this statement included Tamara Cross, David Lehrer,  Joseph Applebaum, James Bennett, Jennifer Gregory, Angela Jacobs,  Jessica Orr, and Craig Winslow.
section_title: Appendix I: Selected GAO Reports and Testimonies Related to 401(K) Plans
paragraphs: Retirement Savings: Automatic Enrollment Shows Promise for Some  Workers, but Proposals to Broaden Retirement Savings for Other Workers  Could Face Challenges. GAO-10-31. Washington, D.C.: October 23, 2009.
Retirement Savings: Better Information and Sponsor Guidance Could  Improve Oversight and Reduce Fees for Participants. GAO-09-641.  Washington, D.C.: September 4, 2009.  401(k) Plans: Policy Changes Could Reduce the Long-term Effects of  Leakage on Workers’ Retirement Savings. GAO-09-715. Washington, D.C.:  August 28, 2009.
Private Pensions: Alternative Approaches Could Address Retirement Risks  Faced by Workers but Pose Trade-offs. GAO-09-642. Washington, D.C.:  July 24, 2009.
Private Pensions: Conflicts of Interest Can Affect Defined Benefit and  Defined Contribution Plans. GAO-09-503T. Washington, D.C.: March 24,  2009.
Private Pensions: Fulfilling Fiduciary Obligations Can Present Challenges  for 401(k) Plan Sponsors. GAO-08-774. Washington D.C.: July 16, 2008.
Private Pensions: GAO Survey of 401(k) Plan Sponsor Practices  (GAO-08-870SP, July 2008), an E-supplement to GAO-08-774.  GAO-08-870SP. Washington, D.C.: July 16, 2008.
Private Pensions: Low Defined Contribution Plan Savings May Pose  Challenges to Retirement Security, Especially for Many Low-Income  Workers. GAO-08-8. Washington, D.C.: November 29, 2007.
Private Pensions: Information That Sponsors and Participants Need to  Understand 401(k) Plan Fees. GAO-08-222T. Washington, D.C.: October 30,  2007.
Private Pensions: 401(k) Plan Participants and Sponsors Need Better  Information on Fees. GAO-08-95T. Washington, D.C.: October 24, 2007.
Employer-Sponsored Health and Retirement Benefits: Efforts to Control  Employer Costs and the Implications for Workers. GAO-07-355.  Washington, D.C.: March 30, 2007.
Private Pensions: Increased Reliance on 401(k) Plans Calls for Better  Information on Fees. GAO-07-530T. Washington, D.C.: March 6, 2007.
Employee Benefits Security Administration: Enforcement Improvements  Made but Additional Actions Could Further Enhance Pension Plan  Oversight. GAO-07-22. Washington, D.C.: January 18, 2007.
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.: November 16, 2006.
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