According to a new study, millions of 403(b) plan participants across the country pay widely varying fees and choose from vastly different investment menus.
Customers primarily from schools, universities, healthcare professions, religious organizations, and certain other public employees or non-profit workers pay record keeping and administration fees of between 0.0008% and 2 .01% and investment management fees ranging from 0.01% to 2.37%, according to to an April 4 study of 403(b) plans by the US Government Accountability Office. Although 403(b) defined contribution plans have assets of $1.3 trillion“Little is known about the investment options and fee structures of these plans – features that can affect the growth of participants’ retirement savings,” Tranchau “Kris” T. Nguyen, author and GAO Director of Education, Workforce and Income Security, writes in the report.
The findings come after another report by the government watchdog in December cited gaps in SEC oversight of FINRA and amid growing debate over adapting the fiduciary standard of 401(k) Rollover Employee Retirement Income Security Act. TIAA-CREF Individual & Institutional Services agreed to pay $97 million last year to settle regulatory matters alleging that it failed to disclose conflicts of interest in its turnover recommendations. Plan sponsors often work with financial advisors or other wealth managers to offer their retirement plans, so 403(b) participants represent a large but complex client base.
According to Chris Tobe, an industry critic and consultant who author a book called “Kentucky Fried Pensions”. The range of fees uncovered in the report actually omits “hidden annuity fees” and “the controversial practice of revenue sharing” that explains the low costs of large 403(b) plans, Tobe said.
“The GAO’s 403(b) report compiles a wealth of information that shows just how dysfunctional the 403(b) market is. But a lack of understanding of profits in the industry has led to misleading data on fees at best,” he said in an email, saying the numbers “seriously” underestimate the fees charged to consumers. plan members by 50% or more.
Representatives from the Investment Company Institute, a professional organization for asset managers whose research is cited in the GAO study, said no one was available to discuss the report. Representatives of the National Tax-Deferred Savings Association, another industry trade group for 403(b) and 457(b) plan providers, did not respond to requests for comment.
There is no comprehensive data available on 403(b) plans and fees, especially for non-ERISA plans that do not file annual reports with the Labor Department, GAO’s Nguyen said in a response by email to Tobe’s remarks. The government watchdog received a total of 45 responses to surveys it sent to major companies in the market, and it also found administrative data from a state that maintains a registry of 403 investment options ( b), she noted. Investment fees for these 403(b) plans have increased from 0.02% to 3.74%.
“Given the lack of information, we conducted non-generalizable surveys of ERISA and non-ERISA plan sponsors and service providers about 403(b) fees,” Nguyen said. “Some of the 403(b) plan sponsors we interviewed said they didn’t know the amount of fees associated with their plan’s investment options.”
Like the discussion of ERISA rules governing 401(k) rollovers, 403(b) plans span multiple types of regulators and financial companies, including wealth managers, but also insurers and asset managers. ERISA does not apply to plans offered by public schools, colleges and universities, or those of religious organizations, but the 403(b) plans of most tax-exempt private sector employers have these protections. . In addition to state insurance commissioners, the Department of Labor’s Benefits Security Administration, the SEC and the IRS exercise some control over the plans, according to the GAO report.
To see the key findings of the study, scroll through our slideshow. For a roundup of other notable industry news over the past week, Click here.