Millions of 403(b) plan participants across the country are paying widely varying fees and choosing from vastly different investment menus, according to a new study.
Clients predominantly from schools, universities, healthcare professions, religious organizations and certain other public employees or nonprofit workers are paying recordkeeping and administrative fees of between .0008% and 2.01% and investment management fees ranging from .01% to 2.37%,
The findings come after another report from the government watchdog in December cited
Most 403(b) assets come under the “weak state regulation” of insurance regulators rather than federal oversight because much of the holdings are in annuities, according to Chris Tobe, an industry critic and consultant who
“The GAO’s 403(b) report compiles a lot of information that shows how dysfunctional the 403(b) market is. But a lack of understanding of profits in the industry has led to misleading at best data on fees,” he said in an email, estimating that the figures “severely” underestimates the fees charged to plan participants by 50% or more.
Representatives for the Investment Company Institute, a trade organization for asset managers whose research is cited in the GAO study, said no one was available to discuss the report. Representatives for the National Tax-Deferred Savings Association, another industry trade group for 403(b) and 457(b) plan providers, didn’t respond to requests for comment.
There is no comprehensive data available about 403(b) plans and fees, especially for non-ERISA plans that don’t file annual reports with the Labor Department, the GAO’s Nguyen said in an email response to Tobe’s remarks. The government watchdog received a total of 45 responses to the surveys it sent out to large firms in the marketplace, and it also found administrative data from one state that keeps a registry of 403(b) investment options, she noted. The investment fees for those 403(b) plans stretched from .02% all the way to 3.74%.
“Given the lack of information, we conducted non-generalizable surveys of both ERISA and non-ERISA plan sponsors and service providers about 403(b) fees,” Nguyen said. “Some of the 403(b) plan sponsors we surveyed reported they did not know the amount of fees associated with their plan’s investment options.”
Like the discussion of ERISA rules governing 401(k) rollovers, the 403(b) plans span several kinds of regulators and financial firms including wealth managers, but also insurers and asset managers. ERISA doesn’t apply to plans offered by public schools, colleges and universities, or to those of religious organizations, but the 403(b) plans of most tax-exempt employers in the private sector do receive those protections. Besides the state insurance commissioners, the Department of Labor’s Employee Benefits Security Administration, the SEC and the IRS excercise a degree of supervision over the plans, according to the GAO’s report.
To see the key takeaways from the study, scroll down our slideshow. For a roundup of other notable industry news over the past week,
