Specifically, the GAO recommends that the DoL:
- provide additional guidance and require all indirect compensation be disclosed on the Schedule C,
- coordinate the implementation of its new Form 5500 requirements with the publication of its 408(b)(2) regulation; and
- require that asset-based fees be explicitly reported.
The office said the DoL has not provided sufficient
guidance for sponsors and providers to accurately determine what elements of
compensation qualify as eligible indirect compensation (fees or expense
reimbursements charged to investment funds and reflected in the value of the
investment). Therefore, interpretations have been left up to sponsors and
providers and may result in a range of reporting practices, causing the
Department to receive inconsistent and incomplete data.
The report noted that in addition to the new Form 5500
requirements, the DoL has proposed another regulation on service provider fee
disclosure (its 408(b)(2) regulation), but it has not yet been finalized. According
to the report, sponsors and service providers GAO talked with stressed the
importance of coordinating this initiative with the new Form 5500 requirements,
as doing so may reduce the burden and the cost to service providers of making
changes to their data gathering and reporting systems and clarify for plan
sponsors the information they need to understand and compare the fees charged
by various service providers.
The GAO said that in its discussions with Labor
officials, they agreed there was a need to coordinate the two regulations, and
said that although they are working to finalize the proposed 408(b)(2)
regulation, it is uncertain when it will be published.
In addition, the GAO noted that it previously reported
that the information provided to Labor on the Form 5500 has limited use for
effectively overseeing fees paid by 401(k) plans because it does not explicitly
list all of the fees paid from plan assets. As an example, the report said plan
sponsors are not required to explicitly report asset-based fees that are netted
from an investment fund’s performance, even though they receive this
information for each of the mutual funds they offer in the 401(k) plan. So the
GAO concluded that despite the changes to the Form 5500, the new information
provided may not be very useful to the DoL, plan sponsors, and others.
According to the report, the DoL generally agreed with the
GAO’s recommendations, although it proposes evaluating the data after reporting
begins to determine how best to address indirect compensation.
The GAO report is here.