GAO-22-104439, DEFINED CONTRIBUTION PLANS: 403(b) Investment Options, Fees, and Other Characteristics Varied

DEFINED

CONTRIBUTION

PLANS

403(b) Investment

Options, Fees, and

Other Characteristics

Varied

Report to the Chairman, Committee on

Education and Labor, House of

Representatives

March 2022

GAO-22-104439

United States Government Accountability Office

Highlights of GAO-22-104439, a report to the

Chairman, Committee on Education and

Labor, House of Representatives

March 2022

DEFINED CONTRIBUTION PLANS

403(b) Investment Options, Fees, and Other

Characteristics Varied

What GAO Found

Total assets held by 403(b) plans—retirement savings plans for certain public

sector and tax-exempt sector employees—amounted to more than $1.1 trillion in

2020, according to industry data, and other characteristics varied. Industry data

show that about half of these assets were held in plans covered by the Employee

Retirement Income Security Act of 1974, as amended, (ERISA), which are

generally required to submit an annual filing known as the Form 5500. ERISA

403(b) assets grew from 2010 to 2019, the most recent year for which 5500 data

are available, while the number of plans declined, as shown in the figure.

Number of 403(b) ERISA Plans and Value of Plans’ Assets, by Sector, 2010-2019

According to industry experts and 5500 data, these trends likely resulted from

consolidation of firms in the health care sector, which represents a large portion

of plan assets. The vast majority—93 percent—of ERISA 403(b) plans were the

employer’s sole or primary retirement plan. While less information is available for

403(b) plans not covered by ERISA (non-ERISA plans), which do not file a Form

5500, of the 21 plan sponsor respondents to GAO’s survey, most stated their

plans were supplemental to another retirement savings plan offered by the

employer. Available data also show that the number of investment options, which

may be annuities or mutual funds, offered by 403(b) plans varied but were

generally higher than the number offered by 401(k) plans in the private sector.

Fees for 403(b) plans varied widely according to GAO’s survey of ERISA and

non-ERISA plan sponsors and service providers, as well as Form 5500 data. For

example, plans that GAO surveyed reported record keeping and administrative

service fees ranging from 0.0008 percent of plan assets to 2.01 percent of plan

assets. In addition, fees for investment options offered by the plan ranged from

0.01 percent to 2.37 percent among plans GAO surveyed. Prior GAO work has

shown that even seemingly small fees can significantly reduce participants’

retirement savings over time. Available data also show that large 403(b) plans

had lower administrative fees than smaller ones. In GAO’s survey, university,

state-sponsored, and plan sponsors with $1 billion or more in assets reported

taking multiple steps to reduce fees, while other sponsors more often reported

not having information that would help them monitor fees. For example, five

public school district plan sponsors reported that they did not know expense

ratios, which are measures of how much of a fund's assets are used for

administrative and other operating expenses, for investment options offered by

their plan that would also allow them to monitor fees.

View GAO-22-104439. For more information,

contact Tranchau (Kris) T. Nguyen at

(202) 512

-7215 or nguyentt@gao.gov.

Why GAO Did This Study

Millions of teachers and other

employees of public schools,

universities, and

tax-exempt

organizations rely on savings they

accumulate in 403(b) plans to provide

income security in retirement. Like

401(k) plans, 403(b) plans are

account

-based defined contribution

plans sponsored by employers, and

individuals who participate in the plans

make investment decisions and bear

the investment risk. Private sector

employer

-sponsored retirement plans

are generally subject to ERISA

requirements intended to protect th

interests of plan participants. However,

some 403(b) plans are not covered by

ERISA. This report addresses

(1) the

number and characteristics of 403(b)

ans; and (2) fees charged to 403(b)

plan participants.

For this report, GAO

analyzed plan-

level char

acteristics—including the

number of participants, the amount of

plan assets, and available information

on plan investment offerings from 2010

through 2019

—the most recent year

for which data are available

—from the

Department of Labor’s

(DOL) Form

5500 data

base as well as available

industry data. GAO analyzed

individual

-level data from the Health

and Retirement Study (HRS) of

respondents

over age

50 who reported

participating in 403(b) plans. GAO also

analyzed information on plan

characteristics and fees fro

m non-

generalizable surveys

GAO conducted

of 403(b) plan sponsors and 403(b)

service providers (a total of 45 survey

responses), and interviewed

DOL and

other U.S. agency officials,

industry

stakeholders

, and experts identified as

being knowledgeable about

403(b)

plans.

Page i GAO-22-104439 Defined Contribution Plans

Letter 1

Background 5

Available Data Show That Total 403(b) Plan Assets Have

Increased since 2010 and Other Characteristics, such as Plan

Participation, Varied Among Plans 13

Fees for 403(b) Plans Varied Widely, and Some Plans Reported

They Lacked Knowledge of Investment Fees 30

Agency Comments 51

Appendix I Objectives, Scope, and Methodology 53

Appendix II Detailed Findings from Analysis of Health and Retirement Study Data 63

Appendix III Detailed Data on Fees from Surveys of 403(b) Plan Sponsors and

Service Providers 70

Appendix IV Reported Surrender Fees and Short-Term Trading Fees by 403(b)

Plan Sponsors and Service Providers Surveyed 77

Appendix V GAO Contact and Staff Acknowledgements 80

Tables

Table 1: Examples of Administrative and Investment Fees That

May Be Charged in 403(b) Plans 8

Table 2: Extent to Which Service Providers Surveyed by GAO

Reported 403(b) Plan Clients Offered Annuities and/or

Mutual Funds 28

Table 3: Investment Offerings and Knowledge of 403(b) Asset

Allocation Reported by the Eight Public School District

Plans That Responded to GAO’s Survey 29

Table 4: Percentage of ERISA 403(b) Plans Reporting Paying

Fees of $5,000 or More , by Fee Category 43

Contents

Page ii GAO-22-104439 Defined Contribution Plans

Table 5: Retirement Plan Participant Counts, Assets, Numbers of

Plan Investment Options, and Range of Fees and

Expenses for Plan Sponsors Surveyed by GAO 70

Table 6: 403(b) Retirement Plan Participant Counts, Total Assets,

and Range of Fees and Expenses for 403(b) Service

Providers Surveyed by GAO 74

Table 7: Summary of Surrender Fee Information Obtained From

Plan Sponsor Survey Respondents 77

Table 8: Summary of Surrender and Short-Term Trading Fee

Information Obtained From 403(b) Service Provider

Survey Respondents 78

Figures

Figure 1: The Type of Employer and Extent of the Employer’s

Involvement in the Plan Can Determine Whether a 403(b)

Plan Is Subject to ERISA 10

Figure 2: Number of 403(b) ERISA Plans and Value of ERISA

Plans’ Assets, by Sector, 2010-2019 15

Figure 3: Reported Number of Investment Options Offered by

403(b) Plan Sponsors Surveyed by GAO 24

Figure 4: Trends in ERISA 403(b) Plans Offering Annuities Only,

Mutual Funds Only, or Both Annuities and Mutual Funds,

by Asset Value, 2010-2019 27

Figure 5: Reported Ranges and Calculated Medians of Expense

Ratios for Investment Options for Plan Sponsors

Surveyed by GAO 33

Figure 6: Illustrative Examples of Surrender Fees on a

Hypothetical Participant’s Account Balance, with an Initial

Account Balance of $10,000 39

Figure 7: ERISA 403(b) Plans Reporting No Direct Administrative

Fees, 2019 42

Figure 8: Reported Average Direct Fee Amounts as a Percentage

of Assets Paid by 403(b) ERISA Plans for Administrative

Services, by Plan Size in Terms of Number of

Participants, 2019 45

Figure 9: Median Expense Ratios as a Percentage of Assets Paid

by 403(b) Plan Sponsors, by Plan Size in Terms of Total

Assets, from Example Plans Provided by 403(b) Service

Providers 47

Page iii GAO-22-104439 Defined Contribution Plans

Figure 10: Estimated Percentage of Individuals Who Reported

Having a 403(b) or 401(k) Account as Their Only Plan,

Primary Plan, or Supplemental Plan, 2016 64

Figure 11: Estimated Percentage of Individuals Who Reported

Having a 403(b) or 401(k) Account, by Employer’s

Sector, 2016 64

Figure 12: Estimated Percentage of Individuals Who Reported

Having a 403(b) or 401(k) Account, by Gender, 2016 65

Figure 13: Estimated Percentage of Individuals Who Reported

Having a 403(b) or 401(k) Account, by Race, 2016 66

Figure 14: Estimated Percentage of Individuals Who Reported

Having a 403(b) or 401(k) Account, by Age, 2016 66

Figure 15: Estimated Percentage of Individuals Who Reported

Having a 403(b) or 401(k) Account, by Education Level,

2016 67

Figure 16: Estimated Percentage of 403(b) Retirement Accounts’

Respondents Reported Household Assets, Compared to

401(k) Account Holders, 2016 68

Figure 17: Estimated Percentage of 403(b) Retirement Accounts’

Respondents Reported Earnings, Compared to 401(k)

Account Holders, 2016 68

Page iv GAO-22-104439 Defined Contribution Plans

Abbreviations

DOL Department of Labor

EBSA Employee Benefits Security Administration

ERISA Employee Retirement Income Security Act of 1974, as

amended

HRS Health and Retirement Study

ICI Investment Company Institute

IRC Internal Revenue Code

IRS Internal Revenue Service

NAICS North American Industry Classification System

NTSA National Tax-Deferred Savings Association

TPA third-party administrator

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Page 1 GAO-22-104439 Defined Contribution Plans

441 G St. N.W.

Washington, DC 20548

March 4, 2022

The Honorable Robert C. “Bobby” Scott

Chairman

Committee on Education and Labor

House of Representatives

Dear Chairman Scott:

Millions of teachers and other employees of public schools, universities,

and tax-exempt organizations rely on savings they accumulate in 403(b)

plans to provide income security in retirement. Like 401(k) plans offered

by many private sector employers, 403(b) plans are account-based

defined contribution plans sponsored by employers, and individuals who

participate in the plans make investment decisions and bear the

investment risk.

Currently, 403(b) plans are estimated to hold more than

$1 trillion in assets.

However, little is known about these plans’

investment options and fee structures—features that can affect how much

participants’ retirement savings will grow.

Certain aspects of 403(b) plans’ regulation differ from 401(k) and other

defined contribution plans in key ways. While 401(k) plans are covered by

the Employee Retirement Income Security Act of 1974, as amended

(ERISA), only some 403(b) plans are covered by ERISA (ERISA plans).

For example, 403(b) plans offered by state or local governments, such as

public school districts or public universities are not covered by ERISA.

A defined contribution plan is an employer-sponsored account based retirement plan,

such as a 401(k) plan, that allows individuals to accumulate tax-advantaged retirement

savings in an individual account based on employee and/or employer contributions, and

the investment returns (gains and losses) earned on the account. While 401(k) plans can

be offered by private sector employers, 403(b) plans can be offered by private sector tax-

exempt employers or certain public school employers. A defined benefit plan is an

employer-sponsored retirement plan that typically provides a lifelong stream of payments

beginning at retirement, based on a formula specified in the plan that takes into account

factors such as the employee’s salary, years of service, and age at retirement. See GAO,

The Nation’s Retirement System: A Comprehensive Re-evaluation Is Needed to Better

Promote Future Retirement Security, GAO-18-111SP (Washington, D.C.: Oct. 18, 2017).

See Investment Company Institute, The U.S. Retirement Market, Third Quarter 2021. ICI

is an association representing regulated funds globally, including mutual funds, in the

United States, and similar funds offered to investors in jurisdictions worldwide. By

contrast, the Department of Labor has estimated that in 2019 there were 91 million

participants and $6.2 trillion in 401(k) plans. See the Department of Labor, Private

Pension Plan Bulletin: Abstract of 2019 Form 5500 Annual Reports (September 2021).

Letter

Page 2 GAO-22-104439 Defined Contribution Plans

ERISA establishes minimum standards and requirements intended to

protect plan participants and beneficiaries in most private sector

employer-sponsored retirement plans. 403(b) plans not covered by

ERISA (non-ERISA plans) are not subject to ERISA’s fiduciary

requirements, although these plans may be subject to state consumer

protection laws or other state-specific fiduciary laws.

This report addresses (1) the number and characteristics of ERISA and

non-ERISA 403(b) plans; and (2) fees charged to 403(b) plan

participants.

To describe the number and characteristics of 403(b) plans, we first

analyzed plan-level characteristics—including the number of participants,

the amount of plan assets, and available information on plan investment

offerings for ERISA 403(b) plans from 2010 through 2019, the most

recent year for which data are available—from the Department of Labor

(DOL)’s Form 5500 Private Pension Plan data. DOL’s Form 5500

Database captures information from ERISA-covered retirement plans—

including ERISA 403(b) plans—on the number of plan participants, assets

held by the plan, and fees paid by the plan, among other things. To

identify 403(b) plans, we used self-reported plan type information as well

as a string search on the name of the plan. For the purposes of this

report, we generally defined the largest plans as those with $1 billion or

more in assets, unless otherwise indicated. We defined small plans as

those with either 99 or fewer participants, $1 million or less in assets, or

as otherwise indicated. We also, where feasible, compared our results for

403(b) plans with those of 401(k) plans, which according to DOL data are

the largest type of defined contribution plan by assets and number of

participants. We reviewed documentation about how Form 5500 data are

collected and conducted electronic data tests for completeness and

accuracy, and contacted knowledgeable officials with specific questions

about the data. We determined that the data for the variables we used

were sufficiently reliable for the purposes of our reporting objectives.

Second, we analyzed individual-level data from the Health and

Retirement Study (HRS) of respondents over age 50 who reported having

a retirement benefit in ERISA or non-ERISA 403(b) plans from 2010

through 2016—the most recent year for which complete weighted data

are available—including their household assets, education, and the

Page 3 GAO-22-104439 Defined Contribution Plans

industry in which they are employed.

We reviewed technical

documentation, conducted electronic data tests for completeness and

accuracy, and contacted knowledgeable experts with specific questions

about HRS data. We determined that the data for the variables we used

were sufficiently reliable for the purposes of reporting on the estimated

number of individuals who reported participating in an ERISA or non-

ERISA 403(b) retirement plan,

the extent to which the 403(b) plan was

the participant’s primary retirement plan or supplemental retirement plan,

and the selected demographic characteristics of these individuals. In

addition, we examined available data on ERISA and non-ERISA 403(b)

plans from industry publications and third-party research. We also

included relevant information obtained by our surveys, as described

below.

To provide available information on what is known about fees charged to

403(b) plan participants, especially those in non-ERISA plans, we

surveyed five selected key populations: four sets of 403(b) plan sponsors,

as well as one set of 403(b) service providers.

We received 26 survey

responses from plan sponsors and 19 survey responses from service

providers, for a combined total of 45 survey responses overall. We

conducted the surveys from May to November 2021 and obtained the

following response rate from our populations:

Since HRS respondents are asked only about the retirement accounts at their current

job, the survey may not capture information regarding respondents’ retirement accounts

from previous jobs or from retirees.

This question is only asked of those individuals who are currently employed; therefore,

our results reflect the estimated population of current employees over age 50 and their

spouses who have a retirement benefit, and does not reflect the more general population

of currently employed or retired individuals aged 50 or older.

Our plan sponsor survey respondents comprised five ERISA and 21 non-ERISA plans.

For more information on how we identified 403(b) plans and service providers to survey

and our response rates, see appendix I.

Page 4 GAO-22-104439 Defined Contribution Plans

• Nine of 14 state-sponsored 403(b) plans identified and compiled in a

list published by the National Tax-Deferred Savings Association

(NTSA);

• Five of 11 of the largest 403(b) plan sponsors, as identified by

Pensions and Investments;

• Five of 15 small 403(b) plan sponsors, as identified by a random

sample of plans from DOL’s 5500 filings of 99 or fewer participants

and plans from the Form 5500 filings with $1 million or less in total

assets;

• Seven of 26 K-12 school districts, including five of the 10 largest

districts as measured by the number of students in the district and

selected by a certainty sample; as well as one of the 20 districts

randomly selected out of the remaining districts in 50 states plus the

District of Columbia, as measured by number of students in the district

by the National Center for Education Statistics; as well as one other

provider of services to a set of multiple school districts within one

certain county that we included and counted as a school district; and

• Twelve of 18 companies who serve as major vendors or record

keepers, or third-party administrators, as identified by Pensions and

Investments or as identified as key 403(b) plan vendors or record

keepers in our interviews with experts. We also included seven other

The National Tax-Deferred Savings Association is an industry group whose members

include 403(b) and 457 plan sponsors and service providers. Three states on NTSA’s list

have discontinued their plans in the last 3 years. One of the state’s that discontinued its

plan completed a survey, and we included this response in our analysis. We excluded the

other two states from our count of those surveyed. In addition, two additional ongoing

state-sponsored plans, which we included in our count of those surveyed, did not respond

to our survey.

Pensions and Investments is a news publication written for pension, portfolio, and

investment management executives in the institutional investment market. Each year it

publishes a list of the largest 403(b) plan sponsors. We examined its 2019, 2020, and

2021 lists; when combined, it totaled 11 distinct plan sponsors. We also excluded one

sponsor that appeared on the list of state sponsored plans to avoid double counting.

We initially randomly selected 20 small plans—10 with 99 or fewer participants and 10

with $1 million or less in total assets according to Form 5500 data—however, we excluded

six for various reasons (for example, plans that had apparently been terminated since the

2018 Form 5500 filing), as detailed in appendix I. We obtained responses from 5 of the 15

small plans we surveyed.

Page 5 GAO-22-104439 Defined Contribution Plans

respondents, who operate as record keepers, third-party

administrators, vendors, or consultants for 403(b) plans.

We received 26 survey responses from plan sponsors and 19 survey

responses from service providers, for a combined total of 45 survey

responses overall. In addition, we analyzed available information on fees

from DOL’s Form 5500 data and conducted semi-structured interviews of

stakeholders and experts. These stakeholders and experts included

representatives of industry associations, research organizations, and

service providers to 403(b) plans we identified as being knowledgeable

about 403(b) plans based on their published research or other

documentation or based on referrals from other organizations we

interviewed. For more detailed information on our scope and

methodology, see appendix I.

We conducted this performance audit from July 2020 through March 2022

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.

Retirement plans established under 26 U.S.C. § 403(b) are commonly

referred to as 403(b) plans.

These plans are often sponsored by public

schools and certain tax-exempt organizations. A 403(b) plan allows

participants—including employees of tax-exempt organizations;

employees of public schools, including K-12 schools, public colleges, and

universities; and certain ministers—to defer a portion of their salaries to

be held in the participants’ individual account within the plan. Employers

may also contribute to the plan for employees. After regulations became

For the purposes of this report, we refer to all such record keepers, third-party

administrators, vendors, and others who provide administrative services to a plan as

403(b) service providers.

For purposes of this report, references to 403(b) plans include annuity arrangements

under Internal Revenue Code (IRC) section 403(b)(1) and custodial account

arrangements under IRC section 403(b)(7). 403(b) plans also include retirement income

accounts maintained for employees of certain church-affiliated organizations under IRC

403(b)(9).

See 26 U.S.C. § 403(b)(1)(A)(i) referencing “an employer described in section 501(c)(3)

which is exempt from tax under section 501(a).” References in this report to “tax-exempt

organizations” are to these organizations described in 26 U.S.C. § 501(c)(3).

Background

Page 6 GAO-22-104439 Defined Contribution Plans

effective in 2009, 403(b) plans generally transitioned from primarily

individual employee-controlled accounts to more formally developed

plans.

Some 403(b) plans are a participant’s primary retirement

account, in that the 403(b) account is the participant’s sole retirement

savings account or has the highest balance among the individual’s other

defined contribution retirement accounts and the individual did not have a

defined benefit plan.

Other plans are supplemental, in that the 403(b)

account is not the participant’s primary source of retirement savings.

Sponsors of 403(b) plans may hire a variety of service providers to handle

one or more aspects of managing the plan, including the following:

• Plan administrators: Plan administrators run the 403(b) plan on a day-

to-day basis, assuring that the plans comply with relevant

requirements concerning eligibility and participation, and conducting

periodic reviews of the plan and its assets, among other things. Plan

sponsors can perform some or even all of these functions themselves,

but may hire a third-party administrator for some or all of the above

functions. Administrators may also hire investment advisors to assist

them with selecting investment options.

• Vendors: Vendors are entities that provide investment options—

generally either annuity contracts or mutual funds.

• Record keepers: Record keepers are generally in charge of

processing participants’ enrollments in plans, tracking contribution

types and participants’ investments, providing plan sponsors and

participants with account statements and other information to help

participants manage their accounts.

See BrightScope and Investment Company Institute (ICI), The BrightScope/ICI Defined

Contribution Plan Profile: A Close Look at ERISA 403(b) Plans, 2017 (January 2021).

Specifically, as of 2009, 403(b) plans are required to have a written program that

describes eligibility, benefits, and investments, among other things. 26 CFR Parts 1, 31,

54 and 602. These regulations became effective Jan. 1, 2009.

For the purposes of our report, we defined sole, primary, and supplemental based on

the reported balances of a participant’s various defined contribution plans in the HRS

analysis and based off the number of participants in any other defined contribution plans

in the Form 5500 analysis. If a plan sponsor offered or a survey respondent had a defined

benefit plan, we defined the 403(b) plan as supplemental in accordance with DOL’s

general practice.

403(b) Plan Sponsors

Contract with Service

Providers

Page 7 GAO-22-104439 Defined Contribution Plans

Investment options are generally more limited for 403(b) plans than they

are for other qualified retirement plans.

Amounts contributed into 403(b)

accounts may only be invested in annuity contracts or custodial accounts

that hold mutual funds.

Thus, investments in individual stocks and

bonds, bank savings accounts, individual treasury notes or bills, or similar

types of investments traditionally available under employer-sponsored

retirement plans are not permitted for 403(b) accounts.

Further, 403(b)

plan assets invested in annuity contracts may be invested in fixed or

variable annuities.

With a fixed annuity, participants are guaranteed a

specified rate of return on their contributions.

With a variable annuity,

participants can direct their plan contributions to different investment

A qualified retirement plan is a retirement plan that meets certain IRC requirements.

Generally, under a qualified plan, employers are able to take an income tax deduction for

their contributions to the plan and participants are able to defer income taxation on their

contributions to the plan, including any investment gains attributable to those

contributions, until distribution.

See 26 U.S.C. § 403(b)(1) & (7). Retirement income accounts provided by churches are

able to include investment options other than annuity contracts and mutual funds. See 26

U.S.C. § 403(b)(9). These accounts are typically referred to as church plans. Church plans

are plans that (1) have as their principal purpose or function the administration or funding

of retirement or welfare benefits for employees of a church or convention or association of

churches and (2) are controlled by or associated with a church or convention or

association of churches. See 29 U.S.C. § 1002(33)(A)-(C). However, church plans can

also elect to be subject to ERISA and its heightened requirements.

In contrast, 401(k) plans can offer a wider range of investment products. In addition,

401(k) plans are allowed to offer investment options through a collective investment trust.

26 U.S.C. § 401(k).

Owners of tax-deferred annuities pay taxes only when they make withdrawals, take a

lump sum, or begin receiving income from the account. At that point, the money received

is generally taxed at the participant’s ordinary income tax rate unless there is an

unpermitted early withdrawal (which would subject the amount to additional taxation).

There are also annuities that specify the amount of guaranteed monthly lifetime income

(income annuities) rather than a rate of return.

Permitted Investments in

403(b) Plans

Page 8 GAO-22-104439 Defined Contribution Plans

options, usually mutual funds, to be held in their annuity account.

For

fixed and variable annuities, the amount of money participants receive in

retirement will vary depending on various factors, which can include how

much participants contribute, the type of investment options offered by

the plan and the options selected by participants, the rate of return on the

investments, and plan fees and expenses.

Plan service providers charge various types of fees for different services.

Administrative fees can cover services such as record keeping for the

plan and communications with participants; as well as services incurred

on an individual participant basis, such as fees for processing a

participant loan or distribution. Investment-related fees are associated

with buying, selling, and managing investments, but they can also include

embedded costs of plan administration. Asset-based investment fees, a

type of investment-related fee, are typically the largest fees a participant

will pay. Often called the expense ratio, this fee expresses the percentage

of assets under management that is deducted each year for fund

expenses. For the purposes of this report, we surveyed plan sponsors

and 403(b) service providers regarding the several types of fees that

could be charged to 403(b) plan sponsors or participants, as described in

table 1.

Table 1: Examples of Administrative and Investment Fees That May Be Charged in 403(b) Plans

Fee type

Description

Record keeping and administrative services

Tracking individual contributions and reporting returns

Consulting and investment advice

Helping the plan sponsor select funds for the plan and monitor investments

Other administrative services

Trustee, legal, and audit services

A variable annuity has two phases: an accumulation phase and a payout phase. During

the accumulation phase, individuals can typically transfer their money from one

investment option to another without paying tax on their investment income and gains,

although they may be charged by the insurance company for transfers. At the beginning of

the payout phase, they may receive their purchase payments plus investment income and

gains (if any) as a lump-sum payment, or they may choose to receive them as a stream of

payments at regular intervals (generally monthly) for the remainder of their life (or the life

of their spouse or other beneficiary); there can be other withdrawal options as well.

Indexed annuities are a particular type of annuity that combines features of securities and

insurance products. In this type of annuity, an insurance company promises that

participants’ contributions will grow at a rate of return based on a market index, such as

the Standard & Poor’s 500 Index. For more information see Securities and Exchange

Commission, Variable Annuities: What You Should Know, SEC Pub. 011 (September

2007).

Annuities are regulated by state insurance commissions.

Types of Fees That 403(b)

Plan Services Providers

Charge

Page 9 GAO-22-104439 Defined Contribution Plans

Fee type

Description

Investment management

Managing investment fund assets (fees are generally stated as a percentage of the

amount of assets involved)

Marketing and distribution

Commissions to brokers and other salespersons, for expenses such as advertising

and other costs of promoting the fund to investors

Trading/transaction costs

Commissions and other fees associated with an investment manager’s buying and

selling of securities within a particular investment vehicle

Wrap fees

Aggregate fees that encompass multiple components, such as investment

management fees, surrender fees,

and administrative expense fees.

Source: GAO review of documentation. I GAO-22-104439

Also known as 12(b)(1) fees, named for the Securities and Exchange Commission rule that

authorizes a mutual fund to charge them. See 17 C.F.R. § 270.12b-1.

Surrender fees are fees for selling or withdrawing money from an investment before a set period of

time has passed. Surrender fees are often phased out over a period of years, and vary by specific

investment options, but generally involve a reduction of 1 to 2 percent per year until the surrender fee

is no longer charged. For example, an annuity with a 10-year, 10 percent surrender fee would charge

10 percent the first year to move money out of the annuity, 9 percent the second year, and so on,

until there is no surrender fee after the 10-year period.

Most private sector employer-sponsored retirement plans are subject to

ERISA requirements intended to protect the interests of plan participants.

Specifically, among other things,

• plan fiduciaries are required to discharge their duties solely in the

interest of participants and beneficiaries for the exclusive purpose of

providing benefits and defraying reasonable expenses of plan

administration and with the care, skill, prudence, and diligence under

the circumstances then prevailing of a prudent person acting in a like

capacity and familiar with such matters;

• plan fiduciaries are generally prohibited from entering into certain

transactions with the plan, such as by dealing with plan assets in the

fiduciary’s own interest;

• plan administrators are required to provide participants with a

summary plan description outlining their benefits, rights, and

responsibilities under the plan, and notify participants of any material

changes; and

• plan administrators are required to file annual reports including the

Form 5500 and applicable schedules and attachments that collect

information on particular plan aspects. This includes information on

plan investments, fees paid to service providers, the plan’s financial

condition, annual participant contributions, and the number of

participants.

DOL’s Employee Benefits Security Administration’s (EBSA) role includes

overseeing the administration of 403(b) retirement plans and the fiduciary

Regulation and Oversight

of 403(b) Plans

Page 10 GAO-22-104439 Defined Contribution Plans

protections of such plans subject to ERISA. EBSA’s mission is ensuring

the security of retirement, health, and other workplace-related benefits of

American workers and their families.

Not all 403(b) plans are subject to ERISA. The type of employer and, in

certain cases, the extent to which the employer is involved in the plan can

determine whether the plan is subject to ERISA. For example, plans

sponsored by public schools are generally exempt from ERISA, as shown

in figure 1.

Figure 1: The Type of Employer and Extent of the Employer’s Involvement in the

Plan Can Determine Whether a 403(b) Plan Is Subject to ERISA

Retirement plans offered by religious organizations are referred to as church plans. Church plans are

plans that (1) have as their principal purpose or function the administration or funding of retirement or

welfare benefits for employees of a church or convention or association of churches and (2) are

controlled by or associated with a church or convention or association of churches. See 29 U.S.C.

§ 1002(33)(A)-(C).

In certain circumstances, a 403(b) plan that meets certain criteria may qualify for a safe harbor

exemption and as such not be subject to ERISA. In order to fall under what we will refer to in this

report as the “Limited Employer Involvement” safe harbor, employer involvement in the plan must be

limited. See 29 C.F.R. § 2510.3-2(f); see also Department of Labor (DOL) Field Assistance Bulletin

2007-02 (July 24, 2007).

More specifically, in certain circumstances, a 403(b) plan that meets

certain criteria may qualify for a safe harbor exemption and as such not

be subject to ERISA. In order to fall under what we refer to in this report

as the “Limited Employer Involvement safe harbor,” employer involvement

Page 11 GAO-22-104439 Defined Contribution Plans

in the plan must be limited as described in DOL regulations.

For

example, to qualify for the safe harbor, employers are not allowed to

contribute to the plan or make discretionary determinations in

administering the plan, such as processing distributions, authorizing plan-

to-plan transfers, or making determinations of eligibility for loans or

hardship distributions; and participant involvement in the plan must be

voluntary (i.e., participants elect to participate in the plan, instead of being

automatically enrolled by the employer).

In addition to DOL’s EBSA, a number of federal and state agencies have

a role in regulating and overseeing 403(b) plans or investment options

provided to participants. Specifically:

• Internal Revenue Service (IRS) administers the Internal Revenue

Code (IRC), including provisions related to 403(b) retirement plans.

Among its responsibilities, IRS ensures that taxpayers comply with the

tax law and develops monitoring mechanisms to enforce retirement

plans’ compliance with IRC requirements for tax qualification.

• The Securities and Exchange Commission administers and enforces

federal securities laws and regulations that govern the sales and

marketing of variable annuities, mutual funds, and certain other

investment products in part through Regulation Best Interest.

This

regulation establishes a standard of conduct for brokers or dealers

who provide recommendations regarding securities, investment

strategies for securities, and other investment products used to fund

403(b) plans.

• State Insurance Commissioners administer and enforce state

regulations regarding fixed, variable, and indexed annuities that may

be offered in 403(b) plans. In addition, State Insurance

Commissioners may be in charge of administering and enforcing

individual state laws for 403(b) plans sponsored by a state,

subdivision, or instrumentality thereof covering employees of public-

supported schools.

The Form 5500 and a series of supplemental forms known as “schedules”

are the primary source for the federal government to collect information

regarding most private sector employer-sponsored retirement plans, and

See 29 C.F.R. § 2510.3-2(f); see also Department of Labor Field Assistance Bulletin

2007-02 (July 24, 2007).

17 C.F.R. § 240.15l-1.

Reporting Requirements

for ERISA 403(b) Plans

Page 12 GAO-22-104439 Defined Contribution Plans

were jointly developed by DOL, IRS, and the Pension Benefit Guaranty

Corporation.

The Form 5500 collects information from each retirement

plan on the number of plan participants, assets held and benefits paid by

the plan, and administrative fees paid by the plan, among other things.

The Form 5500 is part of ERISA’s overall reporting and disclosure

framework, which is intended to ensure that retirement plans, including

those 403(b) plans subject to ERISA, are operated and managed

according to certain prescribed standards and that participants,

beneficiaries, and federal agencies are provided or have access to

sufficient information to protect the rights and benefits of participants and

beneficiaries. EBSA uses the Form 5500 to monitor and enforce the

requirements of title I of ERISA. IRS uses the form to monitor and enforce

standards of compliance with the tax code, which relate to, among other

things, how employees become eligible to participate in benefit plans, and

how they become eligible to earn rights to benefits.

All 403(b) plans that are subject to ERISA are required to file a Form

5500. Plans with 100 or more participants at the start of a calendar year

are generally required to file a Form 5500, and have their financial

statements audited by an independent qualified public accountant and

submitted to DOL when filing Form 5500. Plans with fewer than 100

participants may generally file a shorter form called the Form 5500-SF

and are generally exempt from the independent qualified public

accountant audit requirement.

Form 5500 Data Do Not Represent All 403(b) Plans

Form 5500 data do not represent all 403(b) plans because not all plans are subject to

the Employee Retirement Income Security Act of 1974, as amended (ERISA), including

its reporting requirements. ERISA does not cover governmental plans, certain church

plans, and 403(b) annuities and custodial accounts that meet the conditions of the safe

harbor under 29 CFR 2510.3-2(f), which is based on limited employer involvement.

Source: GAO analysis of 29 C.F.R. 2510.3-2(f). l GAO-22-104439

DOL and other federal agencies collect information on fees in several

different supplemental schedules attached to Form 5500 for retirement

plans covered by ERISA, including 403(b) plans. These include Schedule

C, in which sponsors of large retirement plans (including 403(b) plans)

are required to disclose both direct and indirect compensation paid to

service providers in connection with their services to the plan that

The Pension Benefit Guaranty Corporation serves as trustee for certain terminated

pension plans that are underfunded and unable to pay guaranteed benefits.

Page 13 GAO-22-104439 Defined Contribution Plans

exceeds a $5,000 threshold; and include Schedule H, in which sponsors

provide financial information, including a series of line items for

administrative expenses paid directly by the plan to service providers.

Total assets in both ERISA and non-ERISA plans increased from 2010 to

2020, and the majority of participants were in the education and health

care sectors, as described below.

Assets in plan. The amount of assets held by participants in 403(b)

plans has grown considerably since 2010, according to available data.

Data from the Investment Company Institute (ICI) quarterly reports shows

total (ERISA and non-ERISA) 403(b) plan assets grew from $851 billion in

2010 to more than $1.1 trillion in 2020, driven by an increase in ERISA

plans.

According to our analysis of available data, the ERISA plan share

of total assets increased from 37 percent to 57 percent from 2010 to

2019.

According to our analysis of DOL’s Form 5500 data, the value of

ERISA 403(b) plan assets increased from $313 billion in 2010 to $617

billion in 2019, the most recent year for which these data are available.

Although no comprehensive data exist on non-ERISA 403(b) plans, which

are not subject to federal reporting requirements, using ICI total 403(b)

We applied an inflation adjustment to present ICI’s nominal dollar estimates in 2019 real

dollars. See Investment Company Institute, The U.S. Retirement Market, Third Quarter

2021.

These data represent our analysis of ICI’s estimates of the total (ERISA and non-

ERISA) 403(b) market as detailed in its quarterly retirement total market reports, and our

analysis of Form 5500 data, and calculating the annual ERISA percentage of assets.

All analyses of Form 5500 data are presented in 2019 adjusted dollars.

Available Data Show

That Total 403(b) Plan

Assets Have

Increased since 2010

and Other

Characteristics, such

as Plan Participation,

Varied Among Plans

Total 403(b) Plan Assets

Increased from 2010 to

2020, Driven by an

Increase in ERISA Plan

Assets, Which Are

Concentrated in the

Education and Health

Care Sectors

Page 14 GAO-22-104439 Defined Contribution Plans

plan asset estimates and GAO’s analysis of ERISA plan assets, we

estimated that the amount of non-ERISA plan assets decreased from

$538 billion in 2010 to $469 billion in 2019.

This represented a decrease

in the share of non-ERISA assets from 63 percent to 43 percent during

the time period.

Sector. Participants in ERISA 403(b) plans were concentrated in the

education or health care sectors, but the number of plans was similar

across sectors. Specifically, our analysis of Form 5500 data found that 56

percent of ERISA plan participants were in health care and another 27

percent of participants were in education in 2019.

On a plan basis, our

analysis of DOL’s Form 5500 data for 2019 found a fairly even distribution

across the number of ERISA plans in the education, health care, social

assistance, and religious sectors.

Number of plans. The number of ERISA 403(b) plans has declined since

2010, while the trend in the number of non-ERISA plans is unknown.

According to our analysis of DOL’s Form 5500 data, the number of ERISA

403(b) plans declined from 21,900 in 2010 to 20,900 in 2019, a decrease

of 5 percent.

Experts from a large nonpartisan retirement research

entity, as well as a retirement plan sponsor association, told us that the

health care sector has seen significant merger and acquisition activity,

which may, in part, be driving the decline in the number of ERISA plans,

given that many ERISA 403(b) plans are health care-related companies

and hospitals. Similarly, our analysis of Form 5500 data found that the

health care sector experienced the largest decline in the number of

Non-ERISA asset estimates are based on ICI’s estimates of annual (ERISA and non-

ERISA) total 403(b) market assets, less our ERISA asset values as determined through

our analysis of Form 5500 data. We applied an inflation adjustment to ICI’s nominal dollar

estimates to present in 2019 real dollars.

Plan sponsors report the North American Industry Classification System (NAICS) code

corresponding to their principal business activity on the form 5500. We categorized as

follows: educational services including schools, colleges, & universities, business code

611000; health care, business codes from 621111 to 623000; social assistance, business

codes from 624100 to 624410; religious and similar (includes religions, grant making,

civic, professional, and similar organizations), business code 8130000; all other – all other

NAICS codes. In addition, our analysis of HRS data—which covers ERISA and non-

ERISA 403(b) plans—found similar results, and also found that a higher percentage of

403(b) participants were employed in the education or healthcare and social assistance

sectors, compared to 401(k) retirement account holders. See appendix II for detailed

results of our HRS analysis.

BrightScope/ICI’s annual reports on 403(b)s published from 2016 to 2021 and covering

2012 to 2017 show a similar trend in terms of decreasing number of ERISA plans from

2012 to 2017, and increasing number of participants and plan assets.

Page 15 GAO-22-104439 Defined Contribution Plans

ERISA 403(b) plans, with a 10.4 percent decrease from 2010 to 2019,

and had the largest increase in inflation-adjusted total 403(b) assets, an

increase of 140 percent between 2010 and 2019. Figure 2 shows the

decline in number of plans, by sector, and the increase in plan assets, by

sector.

Figure 2: Number of 403(b) ERISA Plans and Value of ERISA Plans’ Assets, by Sector, 2010-2019

Note: ERISA refers to the Employee Retirement Income Security Act of 1974, as amended. Plan

sponsors report the North American Industry Classification System (NAICS) code corresponding to

their principal business activity on the form 5500. We categorized as follows: education, including

schools, colleges, and universities, business code 611000; health care, business codes from 621111

to 623000; social service, business codes from 624100 to 624410; religious and similar (includes

religions, grant making, civic, professional, and similar organizations), business code 8130000; other–

all other NAICS codes.

Information on the total number of non-ERISA plans, which may be

sponsored by states, localities, school districts, or religious organizations,

among others, was not available. At the state-level, an industry group

reported that, as of August 2020, 16 states sponsored non-ERISA 403(b)

state-wide plans for certain public school workers. However, three states

from this list told us they had discontinued their state-sponsored 403(b)

plans.

Number of participants. Although the number of 403(b) ERISA plans

decreased from 2010 to 2019, our analysis of Form 5500 data found that

the number of participants in these plans grew from about 7.1 million to

Page 16 GAO-22-104439 Defined Contribution Plans

9.9 million over the same time period, an increase of 39 percent.

addition, our analysis of data from the Health and Retirement Study

(HRS), a nationally representative survey of respondents who are over

age 50, indicates that the number of individuals who reported having an

ERISA or non-ERISA 403(b) retirement account was statistically

unchanged between 2010 and 2016, the most recent year for which

complete data are available. Specifically, the estimated number of

individuals over age 50 who reported they had a 403(b) account was 1.9

million in 2010 and 2.0 million in 2016. This change is not statistically

significant at the 95 percent confidence level.

No comprehensive data

exist regarding the number of non-ERISA 403(b) participants.

Coverage rate. Other available data indicate that the share of older

Americans who were employed and participating in 403(b) plans (both

ERISA and non-ERISA) was statistically unchanged between 2010 and

2016. Our analysis of HRS data shows that an estimated 4.3 percent of

Americans over age 50 reported having a 403(b) plan in 2010, and 3.9

percent had a 403(b) plan in 2016, although this change is not statistically

significant at the 95 percent confidence level.

By contrast, available data indicate 401(k) plans and participation have

increased across all measures. Our analysis of Form 5500 data shows

that the number of plans, number of participants, and plan assets for

401(k) plans all increased during this period. More specifically, the

number of 401(k) plans and participants increased by 17 percent and 27

percent, respectively.

In addition, the amount of 401(k) plan assets

As noted earlier, an expert told us there has been significant merger and acquisition

activity in the healthcare market, which may, in part, be the driver of the decline in the

number of ERISA plan, given that many ERISA 403(b) plans are healthcare related

companies and hospitals. This may also account for the increase in the number of

participants in each plan.

The associated lower and upper bound confidence intervals with these estimates are +/-

290,000, and +/-360,000, respectively.

We reviewed the Current Population Survey and the Survey of Income and Program

Participation datasets but did not identify any data fields relating to 403(b) retirement

accounts.

The associated confidence intervals at the 95 percent level are +/-0.6 percent for 2010

and +/-0.6 percent for 2016 403(b) account participants.

Specifically, from 2010 to 2019 the number of 401(k) plans increased from 510,000 to

595,000 and the number of participants in such plans increased from 71 million to 90

million.

Page 17 GAO-22-104439 Defined Contribution Plans

increased by 72 percent.

However, our analysis of HRS data shows that

the share of Americans over age 50 with a 401(k) plan was statistically

unchanged between 2010 and 2016.

Specifically, the estimated percent

of individuals over age 50 with a 401(k) plan through their current job was

28.4 percent in 2010 and 30.0 percent in 2016, although this change was

not statistically significant at the 95 percent confidence level.

Demographic characteristics of 403(b) participants over age 50. Our

analysis of data indicate some differences in the demographic

characteristics of 403(b) and 401(k) participants over age 50.

Specifically, HRS data show that a greater estimated percentage of

403(b) participants—in either an ERISA or non-ERISA plan—were

female; were in the education or health care and social assistance

sectors; and had $300,000 or more in household assets, compared to

401(k) participants. In addition, a greater percentage of 403(b)

participants earned $50,000 or more annually. Some of our results did not

show statistically different results—for example, our estimates regarding

the extent to which 403(b) account holders are 65 years of age or older,

and by race. See appendix II for more detailed additional results of our

analyses of HRS data.

The amount of 401(k) plan assets increased from $3.6 trillion to $6.2 trillion from 2010 to

2019.

The HRS contains a data field to identify those respondents in its representative sample

of people in the United States who are 50 years of age or older that report having a 403(b)

retirement account. An analysis of HRS data yielded 279 403(b) plans identified by 270

HRS respondents for the 2016 wave, the most recent year for which complete data are

available. We selected 401(k) account holders as a comparison group here and elsewhere

in the report because, according to DOL data and reporting, 401(k) accounts comprise the

largest share of defined contribution retirement accounts on a plan basis.

The associated confidence intervals for these estimates at the 95 percent level are +/-

1.8 percent for 2010, and +/-1.7 percent for 2016 for 401(k) account participants.

The Form 5500 does not capture demographic information on ERISA 403(b) plan

participants, such as race, gender, income, and education. Our surveys of plan sponsors

and service providers were not designed to capture this information.

Page 18 GAO-22-104439 Defined Contribution Plans

Certain characteristics of ERISA and non-ERISA 403(b) plans varied; for

example, based on the results of our non-generalizable survey, non-

ERISA plans were more likely than ERISA plans to be supplemental to

other forms of retirement savings.

Primary versus supplemental plan status. The best available data

sources, while not directly comparable, seem to indicate that ERISA

403(b) plans tend to be the sole or primary plan offered by an employer,

while non-ERISA plans are mostly supplemental to another retirement

savings plan offered by an employer. According to HRS data—which do

not differentiate between ERISA and non-ERISA plans—an estimated 61

percent of individuals over age 50 with a 403(b) plan reported that the

403(b) plan was their only retirement plan, and another 13 percent

reported it was their primary plan. With respect to ERISA plans, our

analysis of Form 5500 data found that 93 percent of ERISA 403(b) plans

are the employer’s sole or primary retirement plan. By contrast, most (18

of 21) of the non-ERISA plan sponsors who responded to our survey said

that the 403(b) plan was a supplemental plan.

With respect to ERISA

plans, our analysis of Form 5500 data found that 93 percent of ERISA

403(b) plans are the employer’s sole or primary retirement plan.

contrast, most (18 of 21) of the non-ERISA plan sponsors who responded

Our analysis was based on available data, including the Form 5500, industry reports,

and our surveys of 403(b) plan sponsors. More information is available about ERISA

403(b) plans, which are subject to federal reporting requirements, than for non-ERISA

403(b) plans. We relied exclusively on the results of our surveys of non-ERISA plans to

provide some information regarding the non-ERISA 403(b) market; however, this

information must be considered non-generalizable due to the small numbers of

respondents to our survey. For the purposes of this report, we refer to 403(b) record

keepers, third-party administrators, vendors, and others who provide administrative

services to a plan as 403(b) service providers.

For the HRS analysis, we considered a plan to be primary if the respondent reported

having multiple defined contribution plan types and the 401(k) or 403(b) plan had the

largest reported balance. We considered a plan supplemental if the respondent did not

have the largest reported balance in that plan account among multiple defined contribution

plan types or if the respondent also reported a defined benefit plan (the defined benefit

plan was assumed to be primary).

For our analysis of Form 5500 data for ERISA plans, we considered a plan to be a

primary plan if there was no other defined benefit plan sponsored by employer and no

other defined contribution plan type (e.g. money purchase) that covered a larger group of

participants. We also analyzed Form 5500 data to determine the extent to which

employers made contributions to 403(b) and 401(k) plans, and found that 74 percent of

403(b) plan employers reported they made a contribution to participants’ accounts, while a

higher percentage of 401(k) plans (80 percent) reported they made contributions to

participants’ accounts.

Available Data Show That

Non-ERISA Plans Are

Often Supplemental to

Other Forms of Retirement

Savings and That Other

Characteristics, such as

Contribution Rates and

Participation, Vary among

403(b) Plans

Page 19 GAO-22-104439 Defined Contribution Plans

to our survey said that the 403(b) plan was a supplemental plan, meaning

that it was not the retirement plan holding the greatest share of assets for

most participants.

Experts told us that many public plans—such as

those offered by a university or state—usually have a defined benefit plan

and the 403(b) plan is typically a supplemental plan. The National Tax-

Deferred Savings Association noted that supplemental savings in 403(b)

plans have become increasingly important with widespread reductions in

benefits of state retirement system plans.

Contribution rates. While no comprehensive data exist on contribution

rates—the percentage of earnings participants or employers contribute to

a 403(b) plan—available data seem to indicate 403(b) employers

contribute less than 403(b) plan participants to 403(b) accounts.

Specifically, industry survey data from 2021 indicates that 403(b) plan

sponsors in 2020 on average contributed 4.6 percent of annual payroll,

and 403(b) participants on average contributed 6.2 percent of annual

earnings; those numbers represent a decrease from, respectively, 6.3

percent and 7.2 percent from 2019.

In a separate report regarding K-12

school plan sponsors, the National Tax-Deferred Savings Association

(NTSA) estimated in 2018 that only 6 percent of these non-ERISA 403(b)

K-12 school plan sponsors offered matching contributions. According to

NTSA, contribution rates in 403(b) plans are lower than rates in 401(k)

plans, in part, because many of these plans are supplemental to other

forms of retirement savings and very few employers offer matching

For our surveys, by primary, we mean that the respondent’s 403(b) plan had the largest

balance of all the respondent’s two or more reported defined contribution plans and there

was no defined benefit plan. By supplemental, we mean that the 403(b) or 401(k) plan

does not have the largest reported balance of multiple defined contribution plan types or if

the respondent also reported a defined benefit plan (e.g., the defined benefit plan is

assumed to be primary).

See National Tax-Deferred Savings Association, Improving Retirement Savings for

America’s Public Educators: A Comprehensive Survey of Public Education 403(b)

Retirement Plans (2018).

Tax-exempt associations, foundations and universities had the highest average

employer contribution rates as a percentage of gross annual payroll at 8.8 percent and 7

percent, respectively. The “research, science, and environmental organizations” and

“associations/foundations” sectors had the highest average participant elective deferral

contribution rates at 9.1 percent and 8.3 percent, respectively. This survey was of both

ERISA and non-ERISA plan sponsors. For more information, see Plan Sponsor Council of

America, 2021 403(b) Survey, Reflecting 2020 Plan Experience (2021) and 2020 403(b)

Survey, Reflecting 2019 Plan Experience (2020).

Page 20 GAO-22-104439 Defined Contribution Plans

contributions.

NTSA’s report also found that contribution rates in these

non-ERISA 403(b) K-12 school plans nationally roughly averaged 6.9

percent of the average teacher’s salary of about $56,000.

We also analyzed HRS data from 2016 to determine the extent to which

employers and employees made contributions to 403(b) or 401(k)

accounts. The text box below describes the extent to which employers or

participants made contributions to 403(b) accounts, compared to 401(k)

accounts, in 2016.

Extent to Which Employers or Employees Opted to Not Contribute to Their 403(b) or 401(k) Accounts

We found that a higher percentage of individuals over age 50 who had a 403(b) account reported there was no

employer contribution to their 403(b) account, compared to individuals over age 50 who reported they had a 401(k)

retirement account. There was no statistically significant difference in the percentage of 403(b) and 401(k) participants

over age 50 who reported they made no employee contribution. Our results are shown in the figure below.

Source: GAO analysis of Health and Retirement Study data l GAO-22-104439

Note: Results are generalizable to individuals over age 50 in the United States. With respect to

employer contribution, the estimated percentages and associated margins of error at the 95 percent

confidence level are as follows: 403(b) no employer contribution, 42.5 percent, +/-10.9 percent;

401(k) no employer contribution, 22.7 percent, +/-3.2 percent. With respect to employee contribution,

the estimated percentages and associated margins of error at the 95 percent confidence level are as

follows: 403(b) no employee contribution, 13.5 percent, +/-6.4 percent; 401(k) no employee

contribution, 10.8 percent, +/-1.8 percent. 2016 is the most recent year for which complete weighted

Health and Retirement Study data are available.

The estimated difference for no employee contribution was not statistically significant at the 95

percent confidence level.

In its report, NTSA stated 403(b) savings rates are generally lower than 401(k) savings

rates because: (1) in the corporate market, 401(k) plans are the primary retirement

savings plan and usually with no accompanying defined benefit savings program; (2) few

school districts match participant contributions whereas about half of corporate 401(k)

plans have such a match; (3) very few school districts auto-enroll employees into 403(b)

programs; and (4) two-thirds (66 percent) of school districts also offer employees a 457(b)

savings plan alternative. (A 457(b) plan is a tax-advantaged, compensation-deferred

savings plan similar in nature to a 401(k) plan, except they are mainly for state and local

public workers, together with highly paid executives at certain tax-exempt organizations.)

See NTSA, Improving Retirement Savings for America’s Public Educators: A

Comprehensive Survey of Public Education 403(b) Retirement Plans (2018).

Page 21 GAO-22-104439 Defined Contribution Plans

In addition, our plan survey results indicate that non-ERISA 403(b) plans

included an employer contribution to the plan less frequently than ERISA

403(b) plans. More specifically, our survey results show the following:

• Employer basic or minimum contribution: Three of five ERISA plans

provided a minimum contribution to a participant’s account, compared

to four of 21 non-ERISA plans.

• ERISA plans’ employer matching contribution: Four of five ERISA

plans matched a percentage of a participant’s contributions to an

account, compared to four of 21 non-ERISA plans.

Participation rates. Participation rates in 403(b) plans have steadily

increased over time, according to one industry survey, and plan sponsors

that responded to our survey reported wide ranges in plan participation

rates. Specifically:

• A 2021 study of 403(b) plan sponsors reported that, among those

who were eligible, the percentage of employees with a 403(b)

account balance increased from 77.4 percent in 2012 to 82.6

percent in 2020. The percentage of employees that contributed to

the plan increased from 66.2 to 77.2 percent during the same time

period.

• An industry study of public school employees found a wide range

of participation rates within plans offered by school districts. The

study found that the participation rates for the 4,473 school

districts in the survey ranged from less than 7.6 percent to more

than 99 percent. The study noted that the choices that each

school district makes available to employees and the resources

that they provide to help employees understand the benefits of

participation are key differences in driving participation rates.

• Respondents to our plan sponsor survey reported a wide range in

employee participation, from 2.5 percent to 100 percent. About

half of survey respondents (11 of 21) reported a participation rate

See Plan Sponsor Council of America, 2021 403(b) Survey, Reflecting 2020 Plan

Experience.

See National Tax-Deferred Savings Association, Improving Retirement Savings for

America’s Public Educators: A Comprehensive Survey of Public Education 403(b)

Retirement Plans (2018).

Page 22 GAO-22-104439 Defined Contribution Plans

of 50 percent or higher.

This participation rate for those plan

sponsors that responded to our survey did not appear to vary by

plan size, as measured by the number of participants.

Our survey results also identified some impacts due to the COVID-19

pandemic on 403(b) participant activities, as noted in the text box.

Impact of the COVID-19 Pandemic on 403(b) Participant Activity

Our survey data of ERISA and non-ERISA 403(b) plan sponsors found some reported an increase in participant loans and

hardship withdrawals due to the COVID-19 pandemic, while most reported there was no increase or they did not know. Our

plan sponsor survey asked plan sponsors to identify observed effects due to the pandemic by checking yes on a certain

option. Alternatively, respondents could check “do not know” to all options. As such, we are not able to discern the extent to

which plan sponsors would report “no” to a certain potential effect. Our survey of service providers found that eight of 19

service providers reported an increase in the number of withdrawals due to the pandemic, while five of 19 reported no such

increase, as shown in the graphic below

In addition, six service providers reported an increase in the amount of withdrawals, while four service providers reported no

such increase. Some plan sponsors reported that 403(b) plan participation rates or contributions decreased (in both cases,

four of 26); a few service providers also reported decreases in participation rates (three of 19). Respondents to our surveys

reported minimal other potential impacts of the pandemic on 403(b) participant activity. For example, two plan sponsors

reported decreases in participation due to layoffs, while four service providers reported decreases in employers’ matching

contributions. Seven service providers reported no such decrease in employer matching programs, and eight reported they did

not know. We did not ask service providers about plan sponsors’ reported participation impacts due to layoffs.

Source: GAO analysis of GAO survey results. l GAO-22-104439

Note: Our plan sponsor survey asked plan sponsors to identify observed effects due to the pandemic

by checking yes on a certain option. Alternatively, respondents could check “do not know” to all

options. As such, we are not able to discern the extent to which plan sponsors would report “no” to a

certain potential effect or “do not know” for all potential effects. We refer to all record keepers, third-

party administrators, vendors, and others who provide administrative services to a plan as 403(b)

service providers.

We excluded five survey respondents who provided participation data that did not allow

us to calculate a participation rate.

More specifically, the six smallest plans, with 2,000 or fewer participants, reported a

similarly large range of participation from 2.5 to 100 percent, and the six largest plans in

terms of participants—those with more than 20,000 participants each—reported a large

range of participation, from 9.9 to 78 percent. We note that one plan had a lower reported

participation rate of 0.13 percent; however, that plan is a recently discontinued state

sponsored plan, so we chose to not report that result as the lowest.

Page 23 GAO-22-104439 Defined Contribution Plans

Number of participants within plan. The majority of ERISA 403(b)

plans are small plans with 99 or fewer participants. Specifically, our

analysis of Form 5500 data found that 63 percent of ERISA 403(b) plans

have 99 or fewer participants. This is a smaller share than for 401(k)

plans, as 88 percent of 401(k) plans have 99 or fewer participants. No

comprehensive data exist regarding plan size in terms of participants in

non-ERISA 403(b) plans, and accordingly we cannot quantify the

percentage of non-ERISA 403(b) plans that may have fewer than 99

participants. The non-ERISA plan sponsors who responded to our survey

reported a range of plan sizes measured as the number of participants

within the plan, from two to 315,000 participants.

Available data indicate that ERISA and non-ERISA 403(b) plans had a

larger number of investment options compared to 401(k) plans. According

to reports published by BrightScope and the Investment Company

Institute, the ERISA 403(b) plans in its sample had an average of 32

investment options in 2017, compared to an average of 21 investment

options for its sample of 401(k) plans.

A 2021 survey from the Plan

Sponsor Council of America, which surveyed both ERISA and non-ERISA

plans, found that 403(b) plans consistently averaged having between 23

and 31 investment options available to 403(b) plan participants between

2011 and 2020.

In comparison, the Plan Sponsor Council of America

2020 survey of 401(k) plans found that 401(k) plans consistently

These numbers may include some inactive participants who are no longer contributing

to the plan.

For the purposes of this analysis and our report, a suite of target-date funds is counted

as a single investment option. Target-date funds are pooled investment products that

invest in a mix of assets and shift from higher-risk to lower-risk investments as a

participant approaches their target retirement date. BrightScope/ICI relies, according to ICI

representatives, on a manual review of the attachments provided by a firm in its audited

Form 5500 submission since the Form 5500 data do not include information regarding the

number of investment options; we did not conduct a similar analysis of Form 5500 audited

files. BrightScope/ICI’s audited sample is generally of plans with 100 or more participants.

See BrightScope and Investment Company Institute, The BrightScope/ICI Defined

Contribution Plan Profile: A Close Look at ERISA 403(b) Plans, 2017 (Washington, D.C.:

January 2021) and The BrightScope/ICI Defined Contribution Plan Profile: A Close Look

at 401(k) Plans, 2017 (Washington, D.C.: August 2020).

The Plan Sponsor Council of America received responses from 379 non-profit (tax-

exempt) entities that sponsor a 403(b) plan. It is not generalizable. See Plan Sponsor

Council of America, 2021 403(b) Survey Report, Reflecting 2020 Plan Experience (2021).

403(b) Plans Generally

Have a Greater Number of

Investment Options than

Do 401(k) Plans, but

Some 403(b) Plan

Sponsors Reported They

Did Not Know the

Numbers and Details of

Investment Options

Offered by Their Plans

Page 24 GAO-22-104439 Defined Contribution Plans

averaged having between 18 and 20 investment options available to

401(k) participants.

Among the plan sponsors we surveyed, the number of investment options

they made available varied widely, as shown in figure 3.

Figure 3: Reported Number of Investment Options Offered by 403(b) Plan Sponsors

Surveyed by GAO

Some plan sponsors offer a large number of investment options. For

example, one respondent representing a large state university system

reported that its non-ERISA plan offers on average 42 investment options

to participants,

while one respondent of a smaller plan reported that its

ERISA plan currently offers 48 options. Our survey results, however, did

not indicate a strong correlation between plan size measured in terms of

assets held and the number of available investment options. Specifically,

the largest eight plan sponsors in terms of assets reported offering a

median of 30 investment options, while the smallest seven plans reported

offering a median of 28 investment options.

The time period for the number of investment options for 401(k) participants was from

2010 to 2019. See Plan Sponsor Council of America, 63rd Annual Survey, Reflecting 2019

Plan Experience (2020).

The plan sponsor reported that this number was an average across four platforms. The

sponsor noted that its program is based on annuities, so every participant has a direct

account with its four investment providers. As a result of this setup, the plan is unable to

map assets, and while it has worked to decrease the number of options available to new

participants to about 40, it is unable to close accounts that are invested in the legacy

options. As such, other information provided by the plan sponsor showed the total number

of investment options for the plan was 216.

One plan sponsor in the larger group and two plan sponsors in the smaller group did not

know how many investment options were offered in their 403(b) plans, and we therefore

excluded those plans in calculating the median.

Page 25 GAO-22-104439 Defined Contribution Plans

While some 403(b) plans have a large number of investment options,

several of the plan sponsors we surveyed reported significantly reducing

the number of investment options they offer over the last 10 years.

Specifically, eight of 17 plan sponsors who provided information on how

the number of investment options had changed over the last 10 years

reported that the number of investment options offered in their plans

decreased—including four who previously had hundreds of investment

options but had significantly reduced the number of options. The current

number of investment options for these plans ranged from 10 to 22.

Experts we interviewed noted that some plan sponsors had consolidated

the number of investment options to ensure better outcomes for

participants, including lower fees. For example, one official noted that his

state had consolidated the number of 403(b) investment options for state

educator and other government employees from over a dozen providers

with 1,600 investment options, to a single provider with 14 investment

options.

Five public school 403(b) plan sponsors who responded to our survey

reported they did not know the number of investment options their plans

offered, although we were able to identify and obtain this information

through public sources for three of these school districts. An expert told

us that local school districts often will not have certain information

regarding their plans’ investment offerings because they are effectively

delegating the plan administration to a third- party administrator. For

example, representatives from one large school district reported its

district, with about 15,000 participants as of August 2021, listed the

names and phone numbers of 27 providers of 403(b) investment options

on its website. Each provider may offer multiple investment options with

varying expense ratios, and it is unclear from the information how many

investment options the school district might offer. As another example, an

official at a school district with 21,000 participants in its 403(b) plan stated

in written communication to us, that it has a list of the vendors who offer

403(b) investment options in the school district, but the school district

does not have a list of the number of investments offered or the expense

ratios that are associated with the investment options. This situation also

applied to some small schools. For example, the plan administrator at one

small school district reported that in 2020 the district’s 403(b) plan had

two participants and was administered by a large third-party

The official noted the state was responsible for continuing to provide record keeping

services for investment options from the former 403(b) plans that are no longer offered;

however, 85 percent of participants had moved into investment options through the state-

sponsored plan.

Page 26 GAO-22-104439 Defined Contribution Plans

administrator, and also reported that she had not had contact with the

third-party administrator in years and did not know how to locate them or

how to determine any other information regarding the plan.

The majority of assets across 403(b) plans were in fixed or variable

annuities according to ICI quarterly reporting, but asset allocations varied

considerably among individual service providers and plans, according to

our survey respondents. At an aggregate level, according to ICI’s

quarterly reporting, at the end of 2020, 48 percent of total ERISA and

non-ERISA 403(b) assets were in life insurance products (excluding

mutual funds held inside variable annuities), 24 percent were in variable

annuity mutual funds,

and 28 percent were in non-variable annuity

mutual funds.

According to Form 5500 data from 2019, the majority of ERISA 403(b)

plan assets—$463 billion of $617 billion—were held by plans that

reported offering both annuity and mutual fund investment options.

Moreover, our analysis of Form 5500 data found that the amount of

assets held by ERISA 403(b) plans that exclusively offer annuity products

increased from $56 billion in 2010 to $74 billion in 2019, while the amount

of assets held by plans that exclusively offer mutual fund products

increased from $40 to $64 billion, as shown in figure 4.

According to ICI, the mutual fund component excludes assets attributable to the life

insurance wrapper as well as underlying variable annuity holdings which are not mutual

funds; both of those are in the life insurance category.

ICI produces a quarterly report, based on data collected from its members, the Board of

Governors of the Federal Reserve System, and the American Council of Life Insurers.

403(b) Plans’ Asset

Allocations to Annuities

and Mutual Funds Varied

by Plan, and Some Plan

Sponsors Reported They

Did Not Know Asset

Allocation of Their Plans

Page 27 GAO-22-104439 Defined Contribution Plans

Figure 4: Trends in ERISA 403(b) Plans Offering Annuities Only, Mutual Funds Only, or Both Annuities and Mutual Funds, by

Asset Value, 2010-2019

Note: ERISA refers to the Employee Retirement Income Security Act of 1974, as amended.

In comparison, non-generalizable industry surveys of plan sponsors

including ERISA and non-ERISA plans reported that the share of plans

allowing annuities as permitted investments has increased from about 45

percent in 2013 to about 54 percent in 2020, and the share allowing

mutual funds as permitted investments increased from about 76 percent

to about 95 percent during the time period.

Among our service provider survey respondents, who provide

administrative services to both ERISA and non-ERISA plans, fewer

reported that their 403(b) plan clients offer fixed annuities compared to

The non-generalizable survey reported that in 2013, the year for which these data are

first available, about 45 percent of 403(b) plans sponsors allowed participants to invest in

annuities, and about 76 percent allowed them to invest in mutual funds. Fifteen percent of

respondents in 2013, as noted in the 2014 report, stated that they were unsure what types

of investments were permitted for the plan. See Plan Sponsor Council of America, 2014

403(b) Plan Survey, Reflecting 2013 Plan Experience (2014), and Plan Sponsor Council

of America, 2021 403(b) Survey, Reflecting 2020 Plan Experience (2020).

Page 28 GAO-22-104439 Defined Contribution Plans

variable annuities or mutual funds. According to one expert we

interviewed, generally speaking, non-ERISA plans with multiple product

vendors, which include most public school districts, offer both annuities

and mutual funds. This expert said that ERISA 403(b) plans are more

likely to offer only mutual funds compared to non-ERISA 403(b) plans.

Service providers we surveyed also reported a wide range in the asset

allocation within plans. Specifically, a slight majority of service providers

reported that the plans to which they provided services offered both

annuities and mutual funds, as shown in table 2.

Table 2: Extent to Which Service Providers Surveyed by GAO Reported 403(b) Plan

Clients Offered Annuities and/or Mutual Funds

Plan investment offering

Number of providers servicing such plans

Fixed annuities

11 of 19

Variable annuities

13 of 19

Mutual funds

16 of 19

Both mutual funds and annuities

11 of 19

Source: GAO survey data. | GAO-22-104439

One service provider reported they did not know whether the plans for which they provided services

offered fixed annuities.

More specifically, of the 16 service providers reporting that the plans they provided services to

offered mutual funds, 14 reported the plans they provide services to offered institutional mutual funds,

which are mutual funds that are available to plans with certain asset thresholds and are generally not

available to the general public. In addition, of the 16 service providers reporting that the plans they

provided services to offered mutual funds, 14 service providers reported that the plans they provided

services to offered retail mutual funds, which are mutual funds that are available to the general public.

Twelve of the 16 service providers that reported plans they provide services to offer mutual funds

reported that the plans they provide services to offered both institutional and retail mutual funds.

In addition, 10 of 19 respondents reported that variable annuities and

mutual funds comprised 63 percent or more of the value of the assets

held.

Eight of the 11 service providers that reported that the plans they

service offer fixed annuities also reported the percentage of assets in

fixed annuities ranged from 1 to about 65 percent. Three of the service

providers reported that the plans they provide services to held a very

small share—3 percent or less—of plan assets in fixed annuities.

Eight service providers did not provide the percentage of assets held in variable

annuities or retail or institutional funds by the plans for which they provide services.

Page 29 GAO-22-104439 Defined Contribution Plans

However, eight of 21 non-ERISA plan sponsors among those we

surveyed reported not knowing the distribution of assets between fixed

annuities and variable annuities or mutual funds in the plans they

sponsor. For example, table 3 shows the number of public school district

plans who responded to our survey who did not know the share of plan

assets by investment type.

Table 3: Investment Offerings and Knowledge of 403(b) Asset Allocation Reported by the Eight Public School District Plans

That Responded to GAO’s Survey

Investment offering

Number of public school district plans that

reported offering investment type

Number of public school district plans that

reported they did not know percentage of

plan assets in this investment type

Fixed annuities

Variable annuities

Institutional mutual funds

Retail mutual funds

Source: GAO survey data. | GAO-22-104439

Note: Among our 26 403(b) plan sponsor survey respondents were eight public school districts,

including one 403(b) plan sponsor whose plan covers multiple school districts. One of these plan

sponsors did not know what types of investments were included in their 403(b) plan assets.

Institutional mutual funds are available to plans with certain asset thresholds and are generally not

available to the general public. Retail mutual funds are available to the public.

Among the 12 state or public university sponsors who responded to our

survey were 11 who reported that they offered institutional grade mutual

funds—mutual funds that are available to plans with certain asset

thresholds and are generally not available to the general public—as an

investment option.

Of those 11 plan sponsors, nine of them reported

that they knew the percentage of plan assets in that category. By

contrast, two of the 12 state or public university sponsors who responded

to our survey reported offering retail mutual funds, one of whom knew the

percentage of plan assets in that category.

One plan sponsor who we characterized as a public school district (and are therefore is

not included in these numbers) reported having higher education faculty and staff, in

addition to public school teachers, among its participants. We nonetheless characterized

the sponsor as a public school district since, as of 2020, teachers accounted for 62.3

percent of plan participants while higher education faculty and staff combined accounted

for 6.6 percent of plan participants.

Page 30 GAO-22-104439 Defined Contribution Plans

Available data, including an industry study and our survey of ERISA and

non-ERISA 403(b) plan sponsors and service providers, indicate that fees

for 403(b) plans varied widely. For example, record keeping and

administrative fees ranged from less than 0.1 percent to more than 2

percent for the plan sponsors we surveyed.

According to BrightScope/ICI, in 2017—the most recent year for which

this analysis is available—ERISA 403(b) plans in their sample had an

average total plan cost of 0.81 percent of assets, but these costs varied

widely by plan.

For example, 10 percent of plans had a total plan cost of

0.45 percent or less of assets, while another 10 percent had a total plan

cost of 1.34 percent or more. We surveyed key populations of both

ERISA and non-ERISA 403(b) plan sponsors and service providers to

obtain additional information, and found that the types and amounts of

fees paid by plans varied widely, as discussed below.

Record keeping and administrative service fees. Plan sponsors

reported a wide range of fees paid for record keeping and administrative

services, such as tracking and reporting contributions. The 17 of 26 plan

BrightScope/ICI’s study examined 2017 plan fees based on audited information on 31

percent of ERISA 403(b) plans, covering about 87 percent of ERISA 403(b) plan

participants and 91 percent of ERISA 403(b) plan assets. In addition, it analyzed the

employer contribution structures for a randomly selected sample of 1,131 large ERISA

403(b) plans for plan year 2017. BrightScope/ICI’s audited sample is generally of plans

with 100 or more participants. Total plan cost includes asset-based investment

management fees, asset-based administrative and advice fees, and other fees (including

insurance charges) from the Form 5500 and audited financial statements of 403(b) plans

covered by ERISA. According to BrightScope/ICI, when plans use products registered

under the Investment Company Act of 1940—such as mutual funds—they use expense

ratio data from Lipper to calculate fees. See BrightScope, The BrightScope/ICI Defined

Contribution Plan Profile: A Close Look at ERISA 403(b) Plans, 2017 (January 2021).

While the BrightScope/ICI study examined data on ERISA 403(b) plans, similar

information on non-ERISA plans were not available.

Fees for 403(b) Plans

Varied Widely, and

Some Plans Reported

They Lacked

Knowledge of

Investment Fees

Available Data Show That

403(b) Plans Had a Wide

Range of Fees, and Some

Plan Sponsors Reported

They Did Not Know the

Expense Ratios for Their

Plans’ Investment Options

Page 31 GAO-22-104439 Defined Contribution Plans

sponsors that provided plan fee data in our survey reported record

keeping and administrative service fees ranging from 0.0008 percent of

plan assets to 2.01 percent of plan assets, with seven plan sponsors

reporting record keeping and administrative service fees above 0.1

percent.

These record keeping and administrative fees were the most

common type of fee reported by plan sponsors.

Another six of 26 plan

sponsors either reported they did not know their record keeping and

administrative or other plan-level fees, or did not report this information.

For complete information on plan sponsors’ survey responses regarding

record keeping and administrative fees, see table 5 appendix III.

Of 19 403(b) service providers—who generally provide services to both

ERISA and non-ERISA plans—10 reported record keeping and

administrative fees they charged to plans.

Consistent with plan

sponsors’ survey responses, these fees also varied widely, ranging from

0.03 to 1.26 percent of plan assets per year among those who reported

those fees in terms of percentages of plan assets.

Eight service

These 17 plan sponsor respondents included 14 out of 20 non-ERISA plans and three

out of five ERISA plans. In addition, one plan sponsor of a non-ERISA plan, a large school

district, did not report their administrative fees but reported information about other plan-

level fees. Of these 17 respondents, 14 reported an average number and three reported

their numbers in the form of a range. The highest reported number among those who

reported a range was 2.01 percent, while the lowest was 0 percent. For detailed

information, see appendix III.

DOL has stated that, when paid directly by the plan, administrative fees are either

allocated among participants’ individual accounts in proportion to each account balance

(i.e., participants with larger account balances pay more of the allocated expenses) or

passed through as a flat fee against each participant’s account.

Thirteen of 19 403(b) service providers indicated on our survey that they provide

services to both ERISA and non-ERISA plans, to varying degrees; respondents reported

between 1 percent and 89 percent of the 403(b) plans for which they provide record

keeping or administrative services were ERISA plans. Two other service providers

responded that they did not provide services to any ERISA 403(b) plans. Four others

responded that they did not know the extent to which their clients were ERISA or non-

ERISA plans. For detailed information, see appendix III. As noted earlier, some

administrative fees may be paid at the plan-level or may be included in the expense ratio

for each investment option. According to DOL officials, when plans report administrative

fees of zero it may be because there were no direct fees—only indirect fees—paid by the

plan. In addition, DOL officials said a plan may report total administrative fees of zero if

the employer or plan sponsor pays for plan-related fees out of their own pocket, rather

than charging the fees to the plan itself to be paid by participants.

Some respondents expressed their record keeping and administrative fees in flat dollar

or dollar per participant amounts rather than percentages.

Page 32 GAO-22-104439 Defined Contribution Plans

providers did not report this information.

For complete information on

service providers’ survey responses regarding record keeping and

administrative fees, see table 6 in appendix III.

Other plan-level fees. In addition to record keeping and administrative

fees, plan sponsors reported other plan-level service fees such as

retirement plan consultant and investment advisor fees, and legal and

audit fees, which also varied. For example, eight of our 21 non-ERISA

plan sponsors reported paying retirement plan consultants in amounts

ranging from 0.00108 percent to 0.43010 percent of plan assets per year.

Further, eight of our 21 non-ERISA plan sponsor survey respondents

reported paying legal or audit fees, ranging from 0.00035 percent to

0.34695 percent of plan assets.

For complete information regarding

what each of our plan sponsor survey respondents reported regarding

other plan-level fees, see table 5 in appendix III.

Expense Ratios

Individual investment options available to participants commonly express fees through an expense ratio, which are typically

the largest fees borne by a participant. An expense ratio measures how much of a fund’s assets are used for management,

administrative, and other operating expenses charged by the fund manager and incurred by the fund. An expense ratio is a

fund’s operating expenses divided by the average dollar value of its assets under management. Operating expenses reduce

the fund’s assets, thereby reducing the return to investors.

Source: GAO analysis of Securities and Exchange Commission and other public information. l GAO-22-104439

Expense ratios for investment options. Asset-based fees for

investment options—known as expense ratios—also varied widely

according to survey respondents and administrative data from a state that

maintains a registry of investment options available to 403(b)

participants.

Specifically, reported expense ratios from seven non-

ERISA plan sponsors that responded to this survey question ranged from

0.02 percent to 2.37 percent, as shown in figure 5.

One service provider expressed their fees in terms of a “wrap fee,” an aggregate fee that

encompasses multiple components, which can include administrative fees. This wrap fee

amount to 2.10 percent of plan assets per year.

See appendix III for detailed results from each plan sponsor and service provider.

The source of the administrative data was a survey respondent.

Page 33 GAO-22-104439 Defined Contribution Plans

Figure 5: Reported Ranges and Calculated Medians of Expense Ratios for Investment Options for Plan Sponsors Surveyed by

GAO

Note: Twenty-six plan sponsors responded to our survey. We omitted one plan sponsor with a

reported range of 0 to 1.93 percent because the zero referred to an annuity product that did not have

an expense ratio-based fee. None of the plan sponsors in the figure reported an investment option

with an expense ratio of zero. In addition, nine of 26 plan sponsors—including six public school

districts—reported in our survey they did not know the expense ratios for the investment options in

their plans, although we were able to find expense ratio information for three of the public school

districts through other public sources of information.

This plan sponsor reported a total of 10 investment option expense ratios. Six of those 10 investment

options had expense ratios of 0.01 percent, and two others between 0.01 and 0.04 percent.

Consequently, the median of these options ended up being 0.01 percent.

Page 34 GAO-22-104439 Defined Contribution Plans

In addition, administrative data from one state that maintains a public

registry of investment options available in its state, and which was also a

survey respondent, reported expense ratios from 403(b) plans purveyed

by vendors in its state ranged from 0.02 percent to 3.74 percent, with a

median of 0.90 percent, for the 6,064 mutual funds offered to 403(b)

participants in non-ERISA plans in the state. The text box below

demonstrates how higher fees can erode a participant’s savings over

time.

Page 35 GAO-22-104439 Defined Contribution Plans

Illustrative Example of How Fees Can Erode a Participant’s Retirement Savings

In a 403(b) plan, a participant’s account balance will affect the amount of retirement income the participant can receive from

the plan. While contributions to a participant’s account and positive returns on the investments will increase the retirement

income, negative returns and fees paid by the plan may substantially reduce the growth in the account, which will reduce the

amount of retirement income that can be generated from the account. Our prior work has shown that even seemingly small

fees, such as a 1 percent annual charge can significantly reduce plan participants’ retirement savings, even as investment

returns may grow the savings overall.

The graphic below illustrates how fees can impact a participant’s retirement savings

account.

Source: GAO analysis. | GAO-22-104439

Note: The amount of savings a participant accumulates depends on contributions, fees, and

investment returns. Higher fees can substantially reduce a participant’s savings over time compared

to what they may have accrued in lower fee options unless the higher fees are offset by higher

investment returns. This figure illustrates an initial $100,000 contribution and contrasts total fees of 25

basis points (higher line) with total fees of 75 basis points (middle line) and 150 basis points (lower

line), and assumes a 4 percent nominal investment return in each case.

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).

Page 36 GAO-22-104439 Defined Contribution Plans

In addition, seven non-ERISA plan sponsors—six public school districts

and one state-sponsored plan for its state-funded universities—along with

sponsors of two of five ERISA plans reported in our survey that they did

not know the amount of fees associated with their plans’ investment

options, although we were able to identify and analyze such investment

option fee information for three of the public school districts through other

public sources.

An expert told us that local school districts often will not

have information regarding the fees associated with their plans’

investment options, or other information regarding the plans’ investment

offerings, because they are effectively delegating the plan administration

to a third-party administrator. Another representative from a large plan

told us information on investment fee expense ratios is a key factor in

determining which investments the large plan his organization sponsors

chooses to include, in order to ensure participants’ savings are not

eroded by high fees. Information on investment fees can be helpful to

plan sponsors and participants because it enables them to make

comparisons across similar investment options and determine if such

fees are reasonable.

See appendix III for the complete results of

reported fees for all plan sponsors and 403(b) service providers who

responded to our survey.

Surrender fees. 403(b) participants that invest in annuity options may

also pay surrender fees—fees for selling or withdrawing money from an

investment within a set period of time—which can significantly lower a

participant’s account balance should the participant decide to deselect the

Two of five ERISA plan sponsors that responded to our survey provided expense ratio

information regarding the investment options in their plan. Those expense ratios ranged

from 0.12 percent to 1.23 percent. For detailed information for all plans that responded to

our survey, see appendix III.

Our previous work has shown that, based on responses to a GAO generalizable survey,

an estimated 64 percent of 401(k) participants believed they were either not paying any

401(k) fees—administrative or investment fees—or did not know if they were paying such

fees. See GAO, 401(k) Retirement Plans: Many Participants Do Not Understand Fee

Information, but DOL Could Take Additional Steps to Help Them, GAO-21-357

(Washington, D.C.: July 27, 2021).

Page 37 GAO-22-104439 Defined Contribution Plans

annuity before the phase-out period is complete.

Surrender fees are

often phased out (i.e., gradually reduced) over a certain number of years.

Among 403(b) plans and service providers we surveyed that reported

surrender fees, these fees varied and ranged as high as 10 percent with

phase-out periods as long as 15 years. Administrative data we obtained

from one large, non-ERISA state sponsor with both fixed and variable

annuities among its investment options indicate that the most common

combination of surrender fee and phase-out period was 7 percent phased

out over 8 years.

Ten of 19 of the 403(b) service providers that

responded to our survey reported the plans they provide services to offer

annuities that charge surrender fees. For example, one 403(b) service

provider reported 75 percent of the annuity products for which it provides

record keeping and account services have surrender fees, with a

maximum of a 10 percent surrender fee with a phase-out period of 10

years.

Seven of the 26 plan sponsors, one of which reported not offering

annuities as an investment option in 2020, reported that some annuities in

the plans they sponsor charge a surrender fee. For example, one plan

sponsor reported that 60 percent of the plan’s annuity investment options

have surrender fees, with a maximum of a 10 percent surrender fee and a

For example, an annuity option may have a surrender fee where participants would be

charged a 7 percent fee if they want to take their 403(b) contributions out of that annuity

and move it to another investment option within the first year. Surrender fees are often

phased out over a period of years, and vary by specific investment options, but generally

involve a reduction of 1 to 2 percent per year until the surrender fee is no longer charged.

For example, an annuity with a 10-year, 10 percent surrender fee would charge 10

percent the first year to move money out of the annuity, 9 percent the second year, and so

on, until there is no surrender fee after the 10-year period.

More specifically, seven out of 26 fixed annuity and 467 out of 1,885 variable annuity

investment options had surrender charges of 8 percent or more, and six out of 26 fixed

annuity and 1,235 out of 1,885 variable annuity investment options had a phase out period

of 8 years or more. The most common specific surrender fee value was 5 percent. The

second most common surrender fee and phase- out combination was 5 percent with a

phase-out period of 6 years. Individual schedules for the phase out period vary by specific

investment options, but generally involve a reduction of 1 to 2 percent per year until the

surrender fee is no longer charged. For example, an annuity with a 10-year, 10 percent

surrender fee would charge 10 percent the first year to cancel plan participation, 9 percent

the second year, and so on, until there is no surrender charge after the 10-year period.

Additionally, five of 19 403(b) service providers reported not charging surrender fees,

and four of 19 service providers reported that they did not know whether they charged

surrender fees. For detailed responses for each 403(b) service provider, see appendix IV.

Page 38 GAO-22-104439 Defined Contribution Plans

phase-out period of 6 years.

For detailed responses from each plan and

403(b) service provider who responded to our survey, see appendix IV.

Surrender fees can significantly reduce a participant’s savings, should the

participant decide to switch investment options. Because the amount of

the surrender fee is generally phased out over a certain time period, the

potential cost is higher the sooner a participant opts to leave the annuity

option. For example, as shown in figure 6, if participants withdraw their

investments from an annuity with a 10 percent surrender fee that phases

out over 10 years, the fee would be higher if they made such a withdrawal

in the first year (10 percent fee) compared to the tenth year (1 percent

fee). Further, an expert stated that high surrender fees may discourage

some participants from leaving annuities that may charge annual fees or

not be in their best financial interest.

In addition, nine of 26 plan sponsors reported that they do not offer annuities, and had

no investment options subject to surrender fees. Six of 26 plan sponsors reported that

they offer annuities, but did not know whether or not these investment options carried

surrender fees. In addition, plan sponsors may offer or service providers may service

products, typically mutual funds, which are subject to short-term trading fees. These fees

are charged to an investor when shares are sold from a fund, and typically are only

applied within a certain time frame, in order to discourage short-term trading. Seven of 19

service providers reported the plans they provide services to charge short-term trading

fees for mutual funds, while eight reported that they did not, with four not knowing. Service

providers who specified the terms of short-term trading fees listed periods up to one year

and fees as high as 2 percent.

Page 39 GAO-22-104439 Defined Contribution Plans

Figure 6: Illustrative Examples of Surrender Fees on a Hypothetical Participant’s Account Balance, with an Initial Account

Balance of $10,000

Note: These examples illustrate the impact of a surrender charge on the initial account balance over

time and do not include an annual rate of return.

403(b) fees may be paid directly, where fees are paid directly to a service

provider; or they may be paid indirectly, where fees or compensation are

received by the service provider from sources other than directly from the

plan or plan sponsor, including amounts service providers receive from

charges against a mutual fund for things such as portfolio management or

Available Form 5500 Data

Show an Increase in

Administrative Fees Paid

Directly by ERISA 403(b)

Plans from 2010 to 2018,

among Other Things, but

Many Smaller Plans Did

Not Pay Such Fees

Page 40 GAO-22-104439 Defined Contribution Plans

brokerage commissions.

When fees are paid indirectly, fees or

compensation are received from a source other than the plan, plan

sponsor, or an affiliate. As an example, indirect fees may be deducted

from the investment funds held by the plan. While the Form 5500

provides limited information on ERISA 403(b) plans for both directly paid

and indirectly paid fees, available data show that the share of ERISA

403(b) plans paying administrative fees directly out of plan assets from a

covered plan has increased over time. During the time period between

2010 and 2019, plans that reported directly paid administrative fees on

the Schedule H (generally plans with 100 or more participants) increased

from 69 percent to 89 percent during the time period.

Limitations of Form 5500 Data

While the Form 5500 captures information on 403(b) plan fees for plans subject to the Employee Retirement Income Security

Act of 1974, as amended (ERISA), these data have several limitations and lack comprehensive information about service

providers and their fees. For example, Schedule C collects information on compensation paid to a plan’s service providers.

However, this does not include compensation below $5,000 and reported fees are not itemized by the type of service provided.

In addition, 63 percent of all ERISA 403(b) plans are small—with 99 or fewer participants—and do not file the Schedule C.

According to Department of Labor (DOL) officials, there is no authoritative way to identify all the fees a plan pays for direct or

indirect administrative services through the Form 5500 and its reporting schedules. GAO has previously reported that the Form

5500 series has several key limitations and does not capture total plan fees. In a 2014 report,

we noted there were

longstanding concerns regarding the quality and usefulness of the Form 5500 data collected on plan investment and service

provider fees, especially from those who prepare and use the data.

We recommended that DOL make several revisions to the

5500 to provide better information on plan fees. While DOL previously proposed changes to improve information on fees

collected through the Form 5500,

these changes have not been implemented as of December 2021 and our recommendation

to DOL remains open. In September 2021, DOL officials told us revisions to the Form 5500 series, including to Schedules A,

C, I, and the Short Form, were under agency consideration.

Source: GAO review of DOL documentation and interviews with DOL officials. l GAO-22-104439

GAO, Private Pensions: Targeted Revisions Could Improve Usefulness of Form 5500 Information,

GAO-14-441, (Washington, D.C.: June 5, 2014).

In that report, more than half of stakeholders who responded to a GAO survey said, among other

things, that the form’s information on service provider fees was misaligned with other required fee

disclosures. In that report, stakeholders also identified issues with the completeness of service

provider and fee information.

DOL and IRS proposed changes to Schedules C and H in 2016 to, among other things, decrease the

threshold for many categories of service providers from $5,000 to $1,000 for reporting on the

Schedule C.

Generally, fees are ultimately borne either by the plan sponsor or by participants. Our

analyses of fees does not distinguish between the proportions borne by participants or

plan sponsors, which is beyond the scope of our work because of data limitations. In

addition, Form 5500 data on fees only capture those fees either paid directly by the plan

or indirectly; it does not capture fees paid directly by the plan sponsor.

During the time period, the percentage of Form 5500 short form filers—generally for

plans with 99 or fewer participants—reporting directly paid administrative fees increased

from 29 percent to 43 percent.

Page 41 GAO-22-104439 Defined Contribution Plans

As more plans paid for administrative fees directly out of plan assets, the

amount of these fees reported by ERISA 403(b) plans also increased.

Our analysis of Form 5500 data found that total administrative fees paid

directly by the plan increased from about 0.05 percent of plan assets in

2010 to 0.08 percent of plan assets in 2019 among plans that reported

administrative expenses.

All types of administrative fees, including

professional fees, contract administrator fees, investment advisory and

management fees, and other fees increased in both absolute terms and

as a share of plan assets during that time period.

Because this measure

includes only administrative fees paid directly by the plan, and not those

that are paid indirectly, it does not indicate, among other things, whether

administrative fees borne by participants have changed. DOL officials told

us that total direct administrative fees reported on the Form 5500 may be

increasing because more plans are paying for administrative services

directly rather than having service providers receive compensation

indirectly. In addition, officials said that direct administrative fees could

have increased due to greater compliance and reporting of fees that were

previously under-reported or that some plan sponsors who previously

paid for plan fees out of plan sponsor assets have now shifted to paying

them from plan assets.

Nonetheless, while the amount of administrative fees paid directly by

ERISA 403(b) plans out of plan assets has increased, Form 5500 data

indicated that the majority of smaller plans reported they paid no direct

administrative fees in 2019, as shown in figure 7.

This reflects total fees as reported on Schedule H line 1f, Schedule I line 1a, and Form

5500-SF line 7a, as a percentage of assets as reported on Schedule H line 2i(5),

Schedule I line 2h, and Form 5500-SF line 8a. In 2019 dollars, the increase was from

$122 million in 2010 to $454 million in 2019. We conducted the same analysis for reported

fees for 401(k) plans, and found that fees were similarly trending upwards.

These more detailed fees are reported in the Schedule H, which is generally filed by

plans with 100 or more participants. As noted elsewhere, the percentage of plans that

reported paying fees on schedule H increased from 2010 to 2019. As such, the greater

number of plans complying with requirements to report this information may account for

some of the overall increase in reported fees.

DOL officials told us that a reason why a plan may report total expense of zero is that

the plan sponsor may have paid for plan-related expenses out of the plan sponsor’s

assets, rather than charging the expenses to the plan itself. A reported total expense of

zero could signal that the plan sponsor is paying all the expenses outside of the plan.

According to DOL officials, a question designed to track the extent to which expenses

were paid by the plan sponsor was eliminated in 2000.

Page 42 GAO-22-104439 Defined Contribution Plans

Figure 7: ERISA 403(b) Plans Reporting No Direct Administrative Fees, 2019

Note: ERISA refers to the Employee Retirement Income Security Act of 1974, as amended.

A plan may report zero direct administrative fees because all its fees were

paid either directly by the plan sponsor or indirectly through participants’

investment or other fees, rather than as direct plan expenses. According

to DOL officials, plans in the education or hospital sectors more frequently

use service providers that recover administrative expenses indirectly.

We asked 403(b) service providers to indicate the highest and lowest

direct participant fees or compensation that the service provider charges

or otherwise receives from the plans they provide services to, and these

Our analysis shows that 47 percent of education plan sponsors reported $0 fees, as well

as 47 percent of religious and similar organizations, 43 percent of social service

organizations, 21 percent of health care organizations, and 47 percent of all other tax-

exempt organizations. Plan sponsors report the North American Industry Classification

System codes (NAICS) code corresponding to their principal business activity on the form

5500. We categorized as follows: education, including schools, colleges, and universities,

business code 611000; health care, business codes from 621111 to 623000; social

service, business codes from 624100 to 624410; religious and similar (includes religions,

grant making, civic, professional, and similar organizations), business code 8130000;

other – all other NAICS codes.

Page 43 GAO-22-104439 Defined Contribution Plans

fees varied. Eight of 19 service providers responded to this question and

reported fees ranging from 0 to 2.72 percent of account assets annually.

For complete information regarding what each of our service provider

survey respondents reported regarding other direct fees, see table 6 in

appendix III.

With respect to indirect fees—among plans that filed a Form 5500

Schedule C, which includes fees paid indirectly—record keeping fees

were the most common type of fee reported being paid to one or more

service providers for services valued at $5,000 or more in 2019,

according to our analysis of Schedule C data for 2019, the most recent

year for which data are available.

Table 4 provides details on the

number and percentages of 403(b) plans reporting paying $5,000 or more

to service providers for direct or indirect plan fees in 2019.

Table 4: Percentage of ERISA 403(b) Plans Reporting Paying Fees of $5,000 or More, by Fee Category

Type of fee detailed on Schedule C

Percentage of 403(b) plans with 100 or more participants reporting

paying an entity $5,000 or more for services including this type of

fee

Record keeping fees

64.0%

Record keeping and information management (computing,

tabulating, data management)

50.5%

Direct payment from the plan

46.4%

Participant loan processing

44.2%

Investment advisory (plan)

35.4%

Account maintenance fees

28.0%

Contract administrator

27.7%

Investment Management

25.7%

Investment management fees paid indirectly by plan

23.1%

Participant communication

22.9%

Distribution fees

22.1%

Claims processing

19.6%

Shareholder servicing fees

19.1%

Source: GAO analysis of Form 5500 Schedule C data. l GAO-22-104439

Notes: ERISA refers to the Employee Retirement Income Security Act of 1974, as amended. Form

5500 Schedule C captures direct and indirect compensation paid by plans (that have 100 or more

participants) for each person who rendered services to or had transactions with the plan and who

Form 5500 Schedule C captures direct and indirect compensation (fees) that large

plans (100 or more participants) paid to each person who rendered services to or had

transactions with the plan and who received $5,000 or more in total direct or indirect

compensation in connection with services rendered to the plan.

Page 44 GAO-22-104439 Defined Contribution Plans

received $5,000 or more in total direct or indirect compensation in connection with any and all

services rendered to the plan.

According to Schedule C filing instructions, direct payments by the plan would include, for example,

direct payments by the plan out of a plan account, charges to plan forfeiture accounts and fee

recapture accounts, charges to a plan’s trust account before allocations are made to individual

participant accounts, and direct charges to plan participant individual accounts. Payments made by

the plan sponsor that are not reimbursed by the plan, are not subject to Schedule C reporting

requirements even if the sponsor is paying for services rendered to the plan.

Although there are no comprehensive data available to report trends in

direct and indirect fees, some industry representatives and industry

stakeholders told us that, in general, fees trended down over time.

ICI/BrightScope found total ERISA 403(b) plan cost decreased from 0.59

percent in 2009 to 0.45 percent in 2017 on an asset-weighted basis, and

that nearly all plan size groups saw declines in total plan cost between

2009 and 2017.

Among the 21 non-ERISA plan sponsors who

responded to our survey, 11 reported that fees had gone down, while

seven reported fees had remained about the same, with three others

reporting that they did not know whether fees decreased or not. Four of

the five ERISA plan sponsors among our survey respondents reported

that they did not know whether fees had decreased or not; the other

ERISA respondent reported that fees had remained about the same. No

plan sponsors reported that fees had increased.

We also asked 403(b) service providers to indicate the highest and lowest

indirect fees or compensation that the service provider charged the plan

or plan’s affiliate, and found these fees varied. Six of 19 service providers

responded to this question and reported fees ranging from 0 to 2.0

percent annually.

For complete information regarding what each of our

service provider survey respondents reported regarding other indirect

fees, see table 6 in appendix III.

ICI/BrightScope also reported total plan costs on a plan and participant-weighted basis.

Specifically, on a plan-weighted basis, ICI/BrightScope found that total plan costs were

0.82 in 2009 and 0.81 percent in 2017. On a participant-weighted basis, total plan costs

declined from 0.68 percent to 0.57 percent over the same time period. These figures apply

to what ICI/BrightScope characterizes as “large” plans, which they define as plans who file

a Form 5500 including a Schedule H with DOL–generally these plans would have 100 or

more participants.

We note that the service provider with the highest reported direct or indirect fee charged

participants declined permission to include the provider’s information in appendix III.

Page 45 GAO-22-104439 Defined Contribution Plans

Available data from the Form 5500 show that large ERISA 403(b) plans

had lower direct administrative fees than smaller plans. Specifically, our

analysis of Form 5500 data for 2019 found that, among plans that

reported direct payments, large ERISA 403(b) plans (defined by DOL as

those who reported having 100 or more participants) paid lower average

direct administrative fees than small plans—0.076 percent of total assets

for large plans compared to 0.335 percent of total assets for small

plans.

As shown in figure 8, direct administrative service fees in 2018,

as a percent of plan assets, were highest for the smallest plans with fewer

than 50 participants.

Figure 8: Reported Average Direct Fee Amounts as a Percentage of Assets Paid by

403(b) ERISA Plans for Administrative Services, by Plan Size in Terms of Number of

Participants, 2019

Note: ERISA refers to the Employee Retirement Income Security Act of 1974, as amended. Data are

for plans that reported paying $1 or more in direct administrative service expenses; we excluded

those that reported no fees for direct administrative service expenses. Plans with 100 or more

participants (large plans) generally report total administrative service fees on Schedule, H, which is a

combined total of individually reported professional fees, contract administer fees, investment

management and advisory fees, and other administrative fees. Plans with 99 or fewer participants

(small plans) generally do not differentiate among various types of fees and instead report one top

This analysis is of those plans that reported fees on Schedule H, Schedule I, or the

Form 5500 short form. The data do not include administrative fees that were paid

indirectly.

Available Data Indicate

That the Largest 403(b)

Plans Had Lower

Administrative and

Investment Fees than

Smaller Plans

Page 46 GAO-22-104439 Defined Contribution Plans

line number of total administrative fees on the Form 5500-SF or Schedule I, a simplified version of

Schedule H for plans that would be small enough for the Form 5500-SF in that they are 99 or fewer

participants, but for certain reasons are not eligible to file Form 5500-SF.

This variation in fees by plan size is consistent with industry data on total

administrative and investment fees. While average total plan cost, which

includes asset-based management fees, and asset-based administrative

and advice fees for ERISA 403(b) plans were 0.81 percent in 2017 on a

plan-weighted basis, fees varied considerably by plan size.

Specifically,

total plan costs for the largest ERISA 403(b) plans (defined as having

over $1 billion in assets) averaged 0.37 percent, while those for plans

with under $1 million in assets averaged 1.33 percent.

While no comprehensive data are available on fees for non-ERISA plans,

responses from our survey of 26 ERISA and non-ERISA 403(b) plan

sponsors and 19 service providers that responded to our survey also

indicate that, as a percentage of total assets, smaller plans pay higher

fees than larger plans, at both the plan level and the investment level.

Among the 14 plan sponsors (out of 26 total) who reported record

keeping and administrative fee information as a single number on our

survey, those who sponsored the seven smallest in terms of total assets

reported record keeping and administrative fees between 0.06 and 0.27

percent of total assets (with a median of 0.1425 percent), whereas those

who sponsored the seven largest plans in terms of total assets reported

paying record keeping and administrative fees between 0.0008 and 0.18

percent of total assets (with a median of 0.0285 percent).

The results of our surveys of service providers indicate that smaller plans

pay more in fees at the investment level. More specifically, with respect to

investment-level fees, eight of the 19 403(b) service providers who

responded to our survey furnished a total of 66 selected examples of

different-sized 403(b) plans and the expense ratios associated with

See BrightScope, The BrightScope/ICI Defined Contribution Plan Profile: A Close Look

at ERISA 403(b) Plans, 2017 (January 2021). Its definition of “total plan costs” reads, in

full, the inclusion of asset-based investment management fees, asset-based

administrative and advice fees, and other fees (including insurance charges) from the

Form 5500 and audited financial statements of 403(b) plans covered by ERISA. When

plans use products registered under the Investment Company Act of 1940–such as mutual

funds–expense data from Lipper are used to calculate fees.

Three other plan sponsors reported record keeping and administrative fees, but

expressed their response in terms of a range. Nine other plan sponsors did not respond to

this question on the survey.

Page 47 GAO-22-104439 Defined Contribution Plans

them,

and the reported expense ratios for the smaller example plans

were generally higher than those of the larger example plans, as shown in

figure 9.

Figure 9: Median Expense Ratios as a Percentage of Assets Paid by 403(b) Plan

Sponsors, by Plan Size in Terms of Total Assets, from Example Plans Provided by

403(b) Service Providers

Note: Nine of the 19 service providers that responded to our survey provided a total of 66 example

403(b) plans, which furnished the data for this table. This figure excludes four sample plans submitted

by service providers with a reported expense ratio of zero.

University plans, state-sponsored plans, and the largest 403(b) plans—

those with $1 billion or more in assets, which included three public school

districts—who responded to our survey reported they were more likely to

take actions to more actively manage their plans than other plan sponsors

and to cite low fees as being among the most important factors

considered in selecting service providers. In particular, our surveys found

that the 15 university, state-sponsored, or large plan sponsors with $1

billion or more in assets took actions to manage their plans or evaluate

fees:

• Eleven of 15 of such plan sponsors reported requesting quotes or bids

from multiple providers.

• Nine of 15 of such plan sponsors reported using outside consultants

to compare fees.

• Eight of 15 of such plan sponsors reported evaluating fees paid on a

quarterly, semi-annual, or annual basis, while 13 of 15 reported

This figure excludes four sample plans submitted by service providers with a reported

expense ratio of zero.

University Plans, State-

more in assets, six chose this factor.

Both groups of plan sponsors were about equally likely to cite customer

service features such as consistency, timeliness, and availability of

customer service as among the three most important factors in selecting

service providers; 10 of 15 plan sponsors for the university, state, and

public schools with $1 billion or more in assets cited this factor, while

seven of 10 plan sponsors for school districts with less than $1 billion in

assets or for tax-exempt organizations did so. Three of the 10 plan

sponsors for school districts with less than $1 billion in assets or for tax-

exempt organizations who answered this question ranked that factor the

highest, compared with two of the 15 plan sponsors for university, state,

or public schools with $1 billion or more in assets group.

Page 51 GAO-22-104439 Defined Contribution Plans

The university- and state-sponsored plans, and other plans who reported

having $1 billion or more in assets that responded to our survey were

generally more likely to report that they were able to reduce their plan

fees than were sponsors of other plans. Twelve of 15 such plan sponsors

reported that they were able to lower fixed or explicit costs to their plans,

compared with three of 11 sponsors of public school districts with less

than $1 billion in assets and other tax-exempt organization plans.

For example, one state university system was able to lower expense

ratios for the investment options under one vendor in its 403(b) plan from

0.95 percent per year to 0.48 percent per year following a consultant-led

analysis of its investment options. One large university plan reported it

was able to lower its record keeping and account administration fees from

just under 1.0 percent to 0.65 percent.

This plan sponsor stated that the

plan was able to do this by (1) reducing the number of investment options

from over 100 when the official first started with the organization to 15 at

present, which generated administrative efficiencies; and (2) working with

some vendors to provide an essentially identical product from the vendor

but with the plan’s name instead of the vendor’s brand. The plan sponsor

stated these actions enabled it to lower the charged administrative fees,

even though it continued to use the same identical account managers and

identical portfolio pre- and post-negotiation of the fee structure and

specifics. Another state sponsor reported lowering its range of fees,

including both plan-level and investment-level fees, from a combined 0.2

percent to 4.8 percent of a participant’s account balance to between 0.18

percent to 1.0 percent of a participant’s account balance as an annual

charge.

We provided a draft of this report to the Department of Labor; the

Department of the Treasury, including the Internal Revenue Service; and

the Securities and Exchange Commission. The Internal Revenue Service

and the Securities and Exchange Commission provided technical

This data point is for administrative fees only, and does not include other fees such as

investment option expense ratios.

The plan sponsor stated it consolidated its 403(b) plans from over 1,600 options to 14

options and that when designing the investment menu of the state’s new plan for

educators, the plan decided to adopt a non-revenue sharing basis and go solely on a fee

basis. Setting the plans up that way allowed the plan sponsor to put fee information on

participants’ statements and avoid the previous situation where participants did not realize

they were paying fees, because the fees were wrapped into the investment option fee or

expense ratio.

Agency Comments

Page 52 GAO-22-104439 Defined Contribution Plans

comments, which we incorporated as appropriate. The Department of

Labor did not provide formal comments on the draft report.

As agreed with your office, unless you publicly announce the contents of

this report earlier, we plan no further distribution until 30 days from the

report date. At that time, we will send copies to the appropriate

congressional committees, the Secretary of Labor, the Chair of the

Securities and Exchange Commission, and other interested parties. In

addition, the report will be available at no charge on the GAO website at

https://www.gao.gov.

If you or your staff have any questions about this report, please contact

us at (202) 512-7215 or [email protected]. 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 key contributions to this report

are listed in appendix V.

Sincerely yours,

Tranchau (Kris) Nguyen

Director

Education, Workforce, and Income Security Issues

Appendix I: Objectives, Scope, and

Methodology

Page 53 GAO-22-104439 Defined Contribution Plans

This report examines (1) the number and characteristics of ERISA and

non-ERISA 403(b) plans; and (2) fees charged to 403(b) plan

participants.

To describe the number and characteristics of 403(b) plans, we obtained

and analyzed data from the Health and Retirement Study (HRS)

regarding whether respondents over age 50 report participating in ERISA

or non-ERISA 403(b) plans, including their 403(b) account balances,

household assets, earnings, and the industry in which they are

employed.

The HRS is a project of the University of Michigan’s Institute

for Social Research that is funded through the National Institute on Aging

and the Social Security Administration. This biennial longitudinal survey

collects data on individuals over age 50, gathering information on marital

status, retirement plans held, and income from retirement plans. The HRS

includes both members of a couple as respondents.

Each biennial period is referred to as a “wave.” The initial 1992 cohort

consisted of respondents who were over age 50 to 61 years old, and

these respondents were interviewed every 2 years since 1992. New

cohorts have been added over time to maintain the representation of the

older population from pre-retirement through retirement and beyond. We

used data from 2010 to 2016 for our analyses.

We weighted the data

and calculated standard errors to reflect HRS guidance based on our

sample size and design.

The HRS contains a data field to identify those respondents that report

having a 403(b) retirement account. An analysis of HRS data yielded 279

403(b) plans identified by 270 HRS respondents for the 2016 wave, the

most recent year for which data are available. We selected 401(k)

account holders as a comparison group here and elsewhere in the report

because, according to Department of Labor (DOL) data and reporting,

401(k) accounts comprise the largest share of defined contribution

retirement accounts by number of plans.

During the course of the review, we also reviewed relevant information, such as

questionnaires and user guides, from three other nationally representative survey

databases—the Current Population Survey, the Survey of Consumer Finances, and the

Survey of Income and Program Participation, but found they did not contain relevant

information for our purposes.

We used the RAND 2018 V1 longitudinal file and restricted the sample to responses in

HRS waves 2010 to 2016 because sampling weights for 2018 were not yet available at

the time of our analysis (December 2021).

Appendix I: Objectives, Scope, and

Methodology

Identifying the Number

and Characteristics of

ERISA and Non-ERISA

403(b) Plans

Appendix I: Objectives, Scope, and

Methodology

Page 54 GAO-22-104439 Defined Contribution Plans

The HRS data have some limitations. For example, survey responses are

self-reported. As such, they are subject to the respondent’s possible

errors in reporting specific financial amounts. In addition, the 401(k) and

403(b) data may be understated because many respondents indicated

that they have a defined contribution plan of unspecified type. Some of

these unspecified plans are likely to be 403(b) or 401(k) plans because

these two plan types are so common. The survey population is those over

age 50 and their spouses or partners, so it is not expected to capture

younger participants in these plans. Further, since respondents are asked

only about the retirement accounts at their current job, HRS may not

capture information regarding some respondents’ retirement accounts

from previous jobs or from retirees.

We reported estimates of the proportion of those respondents who

reported having only a 401(k) or only a 403(b) account holder.

The

estimated population proportions and associated confidence intervals are

generalizable to the population of adults in the United States, over age

50, who were employed. Some estimates, such as the estimated

differences regarding the extent to which 403(b) and 401(k) plans were

primary plans in 2016 and the estimated change in the share of the U.S.

population participating in 403(b) plans (both ERISA and non-ERISA)

from 2010 to 2016 were not statistically significant at the 95 percent

confidence interval.

We performed a data reliability assessment of the HRS variables we

included in our analyses. We reviewed technical documentation,

conducted electronic data tests for completeness and accuracy, and

contacted knowledgeable officials with specific questions about the data.

We determined that the data for the variables we used were sufficiently

reliable for the purposes of reporting on the estimated number of

individuals that reported participating in an ERISA or non-ERISA 403(b)

retirement plan, the extent to which the 403(b) plan was the participant’s

primary retirement plan or supplemental retirement plan, and the selected

demographic characteristics of these individuals.

We identified a very small number of respondents who reported both 401(k) and 403(b)

accounts and who had the characteristics of the variables described above. The “both

401k and 403b” respondents were an insufficient sample of observations to generate

reliable estimates. However, if the respondent had either a 401(k) or 403(b) account—not

both types of accounts—and a defined benefit pension plan, we included them in our

analysis.

Appendix I: Objectives, Scope, and

Methodology

Page 55 GAO-22-104439 Defined Contribution Plans

In addition, we analyzed plan-level characteristics—including the number

of participants, the amount of plan assets, and available information on

plan investment offerings for ERISA 403(b) plans—from DOL’s Form

5500 database. DOL’s Form 5500 Database captures information from

each ERISA-covered retirement plan—including ERISA 403(b) plans—on

the number of plan participants, assets held by the plan, and

administrative fees paid by the plan, among other things. For the

purposes of this report, we generally defined the largest plans as those

with $1 billion or more in assets, unless otherwise indicated. Consistent

with filing requirements for the Form 5500, we generally defined small

plans as those with either 99 or fewer participants. In some cases we

further defined small plans as those with $1 million or less in assets.

We used the Private Pension Plan Data, which comes from the universe

of Form 5500 for pension plans subject to ERISA, from 2010 through

2019, the most recent year for which data are available.

DOL has done

some initial cleaning of the data, in particular identifying duplicate and

overlapping filings. To identify 403(b) plans, we used both the retirement

plan code variable and a string search on the name of the plans. Where

plans reported a pension code corresponding to “401(k)” but the string

search indicated that the plan was called a 403(b), we reclassified the

plan to be a 403(b).

This resulted in the reclassification of about 7,600

plans. We checked a sample of reclassified plans and found that they

DOL’s Private Pension Plan Data consolidates data from the 5500, the 5500 short form,

Schedule I, and Schedule H.

We identified 403(b) and 401(k) plans using information on the 5500 where filers report

their plan type and compared it to a search for key terms in the plan’s name to correct for

cases where a plan may have misreported their plan type. For years 2010-2013, DOL

identified 403(b) plans using a variable “type9” which classified all filings into 9 categories

based on codes reported in the type pension benefit code. DOL uses string search to

identify plans if the plan benefit code is ambiguous, generally meaning the plan did not

contain any pension benefit codes associated with one of these specific plan types.

Starting in 2014, DOL implemented a new methodology for classifying defined contribution

plans. DOL introduced the variable “dctype” which classifies filings into categories based

on the pension benefit code. Our methodology also relied on the type pension benefit

code. However, we used string search to confirm the plan type in all cases, not only when

the pension benefit code was ambiguous. As a result, we identified cases where the

pension type benefit code contradicted key phrases in the plan name, and we reclassified

these plans accordingly. For example, we reclassified a plan where the pension type

benefit code indicated it was a 401(k) but the plan’s name indicated it was a 403(b). Prior

to 2014, we used a similar methodology to categorize a plan as a 403(b) or 401(k) based

on the pension benefit code and a string search on the name of the plan.

Appendix I: Objectives, Scope, and

Methodology

Page 56 GAO-22-104439 Defined Contribution Plans

were generally sponsored by tax-exempt organizations which would be

eligible to offer a 403(b) plan.

We analyzed Form 5500 data to determine, among other things:

• the number of ERISA retirement plans;

• the number of participants in ERISA 403(b) retirement plans;

• the value of assets held in these plans over time;

• the extent to which the 403(b) plan was the sponsor’s primary

retirement plan or supplemental retirement plan;

• the extent to which the plan offered annuities only, mutual funds only,

or combination of annuities and mutual funds; and

• the industry of the plan sponsor.

We performed a data reliability assessment of the Form 5500 variables

we included in our analyses. We reviewed technical documentation,

conducted electronic data tests for completeness and accuracy, and

contacted knowledgeable officials with specific questions about the data.

We determined that the data for the variables we used were sufficiently

reliable for the purposes of our reporting objectives.

In addition, we examined available data on ERISA and non-ERISA 403(b)

plans from third-party research and industry publications. In particular, we

examined research from:

• The Investment Company Institute (ICI), such as its 2021 publication

The BrightScope/ICI Defined Contribution Plan Profile: A Close Look

at ERISA 403(b) Plans, 2017, and The U.S. Retirement Market, Third

Some 403(b) plans are a sponsor’s primary plan, in that the 403(b) account is the sole

retirement savings account provided by the sponsor or is the largest among all plans

reported by that sponsor. Other plans are supplemental, in that the 403(b) account is not

the largest plan offered by the employer.

Plan sponsors report the North American Industry Classification System codes (NAICS)

code corresponding to their principal business activity on the form 5500. We categorized

as follows: education including schools, colleges, and universities, business code 611000;

health care, business codes from 621111 to 623000; social assistance, business codes

from 624100 to 624410; religious and similar (includes religions, grant making, civic,

professional, and similar organizations), business code 8130000; all other–all other

NAICS codes.

Appendix I: Objectives, Scope, and

Methodology

Page 57 GAO-22-104439 Defined Contribution Plans

Quarter 2021 as well as ICI-supplied data regarding its other quarterly

reports since 2010;

• The Plan Sponsor Council of America, including its 2021 403(b) Plan

Survey, Reflecting 2020 Plan Experience; and

• The National Tax-Deferred Savings Association, Improving

Retirement Savings for America’s Public Educators: A

Comprehensive Survey of Public Education 403(b) Retirement Plans.

We also interviewed officials from several U.S. government agencies,

including:

• DOL’s Employee Benefits Security Administration and Office of

Regulations and Interpretations,

• the Board of Governors of the Federal Reserve System,

• the Department of the Treasury, including the Internal Revenue

Service, and

• the Securities and Exchange Commission.

We also conducted semi-structured interviews with 11 expert institutions

representing the retirement industry (including plan sponsors and record

keepers), participants, and independent research organizations; we also

interviewed four plan sponsors and three large service providers. These

stakeholders and experts included representatives of industry

associations, research organizations, and service providers to 403(b)

plans we identified as being knowledgeable about 403(b) plans based on

their published research or other documentation or based on referrals

from other organizations we interviewed.

In addition, we included relevant information obtained by our surveys, as

described in detail below.

To determine the fees paid by 403(b) plan sponsors and participants, we

conducted surveys for this review. We conducted a survey of four sets of

key populations of 403(b) plan sponsors, and another survey of 403(b)

service providers to plans, including service providers who act as record

keepers, administrators, vendors and consultants, which we collectively

refer to as service providers.

No comprehensive sources of data on

We applied a Consumer Price Index calendar-year inflation adjustment to present ICI’s

nominal dollar estimates in 2019 real dollars.

Our 26 plan sponsor survey respondents included five ERISA and 21 non-ERISA plans.

Identifying Fees Charged

to 403(b) Plan Participants

Appendix I: Objectives, Scope, and

Methodology

Page 58 GAO-22-104439 Defined Contribution Plans

sponsors of or service providers for 403(b) plans exist. As such, we used

multiple methods, as outlined below, to identify the two survey

populations: one population consisting of four sets of 403(b) plan

sponsors, and another consisting of 403(b) record keepers, third-party

administrators, vendors, and consultants. We pretested both surveys with

experts in the 403(b) field, including both large plan sponsors and large

record keepers.

In total, we received completed surveys from 26 sponsors of 403(b) plans

after reaching out to 64 such plan sponsors. Among those 26

respondents were 10 state sponsors, two public university system plans,

seven large school districts, one small school district, and six tax-exempt

organizations.

Among the four sets of 403(b) plan sponsors, we

obtained the following response rate:

• Nine of the 14 state-sponsored 403(b) plans identified and compiled in

a list published by the National Tax-Deferred Savings Association (we

excluded two state-sponsored plans that were no longer in existence,

but did include one plan, discontinued in 2020, whose sponsor filled

out a survey).

• Five of 11 of the largest 403(b) plan sponsors, as identified by

Pensions and Investments (we excluded one such plan that also

appeared on the list of state sponsored plans above, to avoid double

counting).

• Five of 14 small 403(b) plan sponsors, as identified by a random

sample of plans from DOL’s 2018 5500 filings of 99 or fewer

participants and plans from the Form 5500 filings with $1 million or

less in total assets. We initially randomly selected 20 small plans—10

The six tax-exempt organizations among our respondents included three non-profit

organizations in the education sector, one non-profit organization in the health care sector,

one religious organization, and one other non-profit organization.

The National Tax-Deferred Savings Association is an industry group whose members

include 403(b) and 457 plan sponsors and service providers. Their list included a total of

16 state plan sponsors. Three states listed on NTSA’s list have discontinued their plans in

the last three years. One of the state’s that discontinued its plan in 2020 completed a

survey, and we included this response in our analysis. We excluded the other two states

from our count of those surveyed.

Pensions and Investments is a news publication written for pension, portfolio, and

investment management executives in the institutional investment market. Each year

Pensions and Investments publishes a list of the largest 403(b) plan sponsors. We

examined its 2019, 2020, and 2021 lists; when combined, they listed a total of 11 distinct

plan sponsors, after we excluded one plan sponsor that appeared on the list of state

sponsored plans to avoid double counting.

Appendix I: Objectives, Scope, and

Methodology

Page 59 GAO-22-104439 Defined Contribution Plans

with 99 or fewer participants and 10 with $1 million or less in total

assets according to Form 5500 data—however, we excluded six for

various reasons; for example, plans that had apparently been

terminated since the 2018 Form 5500 filing. Therefore we obtained a

response of five small plans of the 14 we proceeded to formally

survey. We excluded two entities for no longer having 403(b) plans,

one entity for appearing to no longer exist, and two other entities for,

upon further review and updated information, had plan assets above

the $1 million threshold).

• Seven of 26 K-12 school districts, including five of the 10 largest

districts as measured by the number of students in the district as

measured by the National Center for Education Statistics and selected

by a certainty sample, as well as one of the 20 districts randomly

selected out of the remaining districts in 50 states plus the District of

Columbia. We excluded five K-12 school districts from an initial list of

30, either because plan administrators told us that the district did not

have a 403(b) plan, because school officials had no contact

information for administrators or any participant information, or

because the district appeared not to exist anymore. We also included

as one of the seven school districts, one sponsor of a plan that covers

multiple K-12 school districts after initially reaching out to them as a

service provider.

In addition, we drew a list of respondents from a group of large record

keepers, third-party administrators, consultants, and vendors, which we

collectively refer to as “service providers” when discussing the results of

this survey. We reached out to a total of 50 potential respondents. We

received a total of 19 respondents from record keepers, administrators,

consultants, or vendors.

As with the plan sponsors, no comprehensive

source of data on such entities or their roles in 403(b) plans exists, so we

used multiple sources to select our target population, including the

following:

• JP Morgan published a white paper

listing the top 10 vendors of

variable annuities, a key component of 403(b) plan assets. We

received five responses from this group, and excluded two entities

who indicated to us that they were not 403(b) service providers.

The number of potential respondents and number of respondents include one

respondent who had been identified as an administrator that we later identified as a multi-

employer plan sponsor for a set of multiple K-12 school districts. We included this entity as

among our population of plan sponsors, as discussed above.

J.P. Morgan, Variable Annuity Market Trends, North American Equity Research (2020).

Appendix I: Objectives, Scope, and

Methodology

Page 60 GAO-22-104439 Defined Contribution Plans

• Pensions and Investments produces an annual list of the most used

managers, consultants, and custodians for both defined contribution

and defined benefit plans, and the September 30, 2020 issue listed 14

entities. We received four responses from this group, and excluded

three entities who indicated to us that they were not 403(b) service

providers.

• The Plan Sponsor Council of America, a trade association

representing sponsors of retirement plans, conducts a periodic survey

of plan sponsors and has a question on that survey that asks plan

sponsors to name their service provider which includes a drop down

menu including 14 entities. This list yielded the names of seven

entities that did not already appear on one of the above lists. We

received four responses from this group, and excluded one entity who

indicated to us that they were not 403(b) service providers.

• Interviews with experts in the 403(b) field identified 18 other parties.

We received five survey responses from this group. We excluded

three of these potential respondents—one because it was neither a

403(b) record keeper nor administrator, one because it was exiting the

403(b) business, and one because we determined it would be more

appropriately classified as a plan sponsor.

We conducted the surveys from May to September 2021. Since we

actively selected both sets of survey populations, and did not have the

ability to generate a random sample of either population, or any subset

thereof, the results of neither survey are generalizable.

In addition, some of our survey respondents—both plan sponsors and

service providers—furnished additional administrative data regarding

investment options and fee structures. We also identified and examined

publicly available data sources on the investment options available for

participants in some of the 403(b) plans sponsored by our survey

respondents and the investment option expense ratios and other fee

information associated with those options, including one state’s web

resource that contains a summary of available investment options for

multiple employers in that state. While these data are not generalizable to

all 403(b) plans, they serve as illustrative examples of both the types of

investment options available to 403(b) plan sponsors and participants and

the fees associated with those options, as well as with the administration

of 403(b) plans generally.

To provide additional information about the fees paid by 403(b) plan

sponsors and participants, we examined available data on the fees and

Appendix I: Objectives, Scope, and

Methodology

Page 61 GAO-22-104439 Defined Contribution Plans

the actions taken by plan sponsors to manage those fees. We examined

third-party research and industry publications, in particular:

• ICI, such as its 2021 publication The BrightScope/ICI Defined

Contribution Plan Profile: A Close Look at ERISA 403(b) Plans, 2017;

and

• The Plan Sponsor Council of America, including its 2021 403(b) Plan

Survey, Reflecting 2020 Plan Experience.

We also talked with experts at those industry associations regarding the

methodology and underlying data behind those studies.

We analyzed plan-level characteristics from the DOL’s Form 5500

database. Specifically, we analyzed a set of supplemental schedules in

which plan sponsors required to file Form 5500 provide information about

service providers and disclose, depending on plan size, total

administrative expenses on either an itemized or summary basis, as well

as the portions of the short Form 5500-SF that requires filers to disclose

total administrative expenses. Our sources of fee information from the

Form 5500 included:

• Schedule C (Service Provider Information), where both direct and

indirect compensation paid to service providers in connection with

their services to the plan of $5,000 or more is reported;

• Schedule H (Financial Information), where administrative expenses—

professional fees, contract administrator fees, investment advisory

and management fees, and other fees paid directly by the plan to

service providers—are reported;

• the Form 5500-SF, where plans with 99 or fewer participants file

generally some administrative expense information; and

• Schedule I (Financial Information – Small Plan) for small plans

ineligible to file the 5500-SF

We analyzed these Form 5500 series to compare the fees paid by

sponsors of different sizes of ERISA 403(b) plans, and determine the

extent reported fees paid by 403(b) plans changed over time between

2010 and 2019—the most recent year for which Form 5500 data are

available.

This Form 5500 information is not comprehensive for several reasons.

First, it covers only 403(b) plans covered by ERISA and therefore

contains no information about 403(b) plans not subject to ERISA. Only

Appendix I: Objectives, Scope, and

Methodology

Page 62 GAO-22-104439 Defined Contribution Plans

large plans, defined as having 100 or more participants, file Schedule C,

and Schedule C data only include service providers who were

compensated $5,000 or more, so they are not a comprehensive source of

information about service providers for ERISA 403(b) plan sponsors who

file Form 5500. According to DOL officials, Schedules H, I, and 5500-SF

data include administrative expenses paid directly by the plans and do not

include indirect expenses. We considered including information reported

by 403(b) plans on the Schedule A in our analysis of directly paid

administrative fees. However, according to DOL, given the limitation that

some information might be reported on the Schedule A but not Schedule

C and given the potential lack of a directly comparable time period for

Schedule A with other Form 5500 schedules,

we opted to not include

Schedule A information in our analysis.

We conducted this performance audit from July 2020 through March 2022

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.

According to DOL officials, the Schedule A information may be based on the insurance

policy year that ends with or within the plan year rather than based on the plan year if that

is different from the insurance policy year.

Schedule A (Insurance Information) is a supplemental filing required of all Form 5500

filers for whom any benefits under the plan are provided by an insurance company. It

contains information about payments made to insurance companies, such as premiums,

and includes fees and expenses paid by insurers to agents, brokers, and other persons,

such as commissions, associated with obtaining annuities for 403(b) plans.

Appendix II: Detailed Findings from Analysis of

Health and Retirement Study Data

Page 63 GAO-22-104439 Defined Contribution Plans

We used Health and Retirement Study (HRS) data to analyze the

demographic characteristics of respondents who reported they had a

403(b) retirement account, and compared those reported respondents

with those respondents who reported they had a 401(k) retirement

account. The HRS is a longitudinal study conducted by the Institute for

Social Research at the University of Michigan. Every 2 years, it surveys a

representative sample of about 18,000 to 23,000 people in the United

States who are over age 50, and currently contains observations from

1992 to 2016. The most recent year for which complete weighted HRS

data were available was 2016.

As we noted previously, the HRS data have some limitations. The survey

population is those over age 50 and their spouses or partners, so is not

expected to capture younger participants to these plans. Further, since

respondents are asked only about the retirement accounts at their current

job, HRS does not capture information regarding respondents’ retirement

accounts from previous jobs or from retirees.

Our analysis of HRS data show that a greater percentage of 403(b)

participants—in either an ERISA or non-ERISA plan—were female, in the

education or health care and social assistance sectors, and had $300,000

or more in household assets, compared to 401(k) participants. Some of

our results did not show statistically different results, such as our

estimates regarding the extent to which 403(b) account holders are 65

years of age or older, and by race. Looking at specific demographic

characteristics of survey respondents, our analyses of the HRS data

found the following based on responses from the most recent 2016 wave:

Primary versus supplemental plan status. As noted earlier, an

estimated 61 percent of individuals with a 403(b) plan reported the 403(b)

plan was their only retirement plan, and another 13 percent reported it

was their primary plan.

We found a higher percentage of 403(b) account

holders reported the plan was supplemental, compared to 401(k) account

holders, as noted in figure 10.

We used the RAND 2018 V1 longitudinal file and restricted the sample to responses in

HRS waves 2010 to 2016 because sampling weights for 2018 were not yet available at

the time of our analysis (December 2021).

By supplemental, we mean that the 403(b) or 401(k) plan does not have the largest

reported balance of multiple defined contribution plan types or that the respondent also

reported a defined benefit plan (e.g., the defined benefit plan is assumed to be primary).

Appendix II: Detailed Findings from Analysis

of Health and Retirement Study Data

Appendix II: Detailed Findings from Analysis of

Health and Retirement Study Data

Page 64 GAO-22-104439 Defined Contribution Plans

Figure 10: Estimated Percentage of Individuals Who Reported Having a 403(b) or 401(k) Account as Their Only Plan, Primary

Plan, or Supplemental Plan, 2016

Note: By supplemental, we mean that the 403(b) or 401(k) plan does not have the largest reported

balance of multiple defined contribution plan types or if the respondent also reported a defined benefit

plan, e.g., the defined benefit plan is assumed to be primary. The estimated percentages and

associated margins of error at the 95 percent confidence level are as follows: 403(b) only plan, 60.9

percent +/-8.0 percent; 403(b) primary plan, 12.6 percent +/-5.9 percent; 403(b) supplemental plan,

26.5 percent +/- 8.2 percent; 401(k) only plan, 80.7 percent +/-2.6 percent; 401(k) primary plan, 7.3

percent +/-2.2 percent; 401(k) supplemental plan 12.0 percent +/-1.8 percent. 2016 is the most recent

year for which complete weighted Health and Retirement Study data are available.

The estimated difference for primary plans was not statistically significant at the 95 percent

confidence level.

Sector. We found that a higher percentage of 403(b) account holders

were in the education or health care and social assistance sectors,

compared to 401(k) retirement account holders (see fig. 11).

Figure 11: Estimated Percentage of Individuals Who Reported Having a 403(b) or 401(k) Account, by Employer’s Sector, 2016

Appendix II: Detailed Findings from Analysis of

Health and Retirement Study Data

Page 65 GAO-22-104439 Defined Contribution Plans

Note: The estimated percentages and associated margins of error at the 95 percent confidence level

are as follows: 403(b) educational services, 34.0 percent +/-7.5 percent; 403(b) health care/social

assistance, 49.0 percent +/-8.2 percent; 403(b) all others, 17.0 percent +/- 5.8 percent; 401(k)

educational services, 5.8 percent +/-1.3 percent; 401(k) health care/social assistance, 14.4 percent

+/-2.2 percent; 401(k) all others, 79.8 percent +/- 2.5 percent. The Health and Retirement Study

follows the Census Occupational Classification System (Census) to identify a respondent’s industry.

We categorized as follows: educational services, Census code 14; health care and social assistance,

Census code 15; all others, Census codes 1-13, and 16-19. 2016 is the most recent year for which

complete weighted Health and Retirement Study data are available.

Gender. We found that a higher percentage of 403(b) account holders

were female, compared to 401(k) retirement account holders (see fig. 12).

Figure 12: Estimated Percentage of Individuals Who Reported Having a 403(b) or 401(k) Account, by Gender, 2016

Note: The estimated percentages and associated margins of error at the 95 percent confidence level

are as follows: 403(b) female, 72.0 percent +/-7.6 percent; 403(b) male, 28.0 percent +/-8.4 percent;

401(k) female, 42.6 percent +/-2.4 percent; 401(k) male, 57.4 percent +/-2.4 percent. 2016 is the

most recent year for which complete weighted Health and Retirement Study data are available.

Race. We estimated that 85 percent of 403(b) account holders were

White (see fig. 13). However, neither the estimated difference for this

group compared with 401(k) account holders for this estimate, nor our

estimated differences for 403(b) compared to 401(k) account holders for

Black or Other race categories were statistically significant at the 95

percent confidence level; as such, comparisons cannot reliably be made

for 403(b) account holders with 401(k) account holders by race.

Appendix II: Detailed Findings from Analysis of

Health and Retirement Study Data

Page 66 GAO-22-104439 Defined Contribution Plans

Figure 13: Estimated Percentage of Individuals Who Reported Having a 403(b) or 401(k) Account, by Race, 2016

Notes: None of these estimates were statistically significant at the 95 percent confidence level; as

such, no comparisons should be made between 403(b) and 401(k) account holders. The estimated

percentages and associated margins of error at the 95 percent confidence level are as follows: 403(b)

White, 84.8 percent +/-5.2 percent; 403(b) Black, 8.5 percent +/-3.6 percent; 403(b) other, 6.8 percent

+/-4.0 percent; 401(k) White, 81.1 percent +/-1.9 percent; 401(k) Black, 9.0 percent +/-1.6 percent,

401(k) other, 9.9 percent +/-2.2 percent.

HRS treats ethnicity separately from race; as such, Hispanic is not reported in these categories.

2016 is the most recent year for which complete weighted Health and Retirement Study data are

available.

Age. We estimated 17 percent of 403(b) account holders were 65 or older

(see fig. 14). Because neither of our estimated differences between

403(b) and 401(k) account holders by age were statistically significant at

the 95 percent confidence level, we cannot make comparisons with

401(k) account holders.

Figure 14: Estimated Percentage of Individuals Who Reported Having a 403(b) or 401(k) Account, by Age, 2016

Notes: None of these estimates were statistically significant at the 95 percent confidence level; as

such, no comparisons should be made between 403(b) and 401(k) account holders. The estimated

percentages and associated margins of error at the 95 percent confidence level are as follows: 403(b)

65 or older, 17.2 percent +/-6.0 percent; 403(b) under 65, 82.8 percent +/-6.0 percent; 401(k) 65 or

Appendix II: Detailed Findings from Analysis of

Health and Retirement Study Data

Page 67 GAO-22-104439 Defined Contribution Plans

older, 11.0 percent +/-1.9 percent; 401(k) under 65, 89.0 percent +/-1.9 percent. 2016 is the most

recent year for which complete weighted Health and Retirement Study data are available.

Education level. We found that a lower percentage of 403(b) account

holders had a high school diploma or less, compared to 401(k) retirement

account holders (see fig. 15).

Figure 15: Estimated Percentage of Individuals Who Reported Having a 403(b) or 401(k) Account, by Education Level, 2016

Note: We did not estimate a statistically significant difference at the 95 percent confidence level for

some college, 4-year degree, or graduate degree 403(b) and 401(k) account holders; as such, no

comparisons should be made between 403(b) and 401(k) account holders. The estimated

percentages and associated margins of error at the 95 percent confidence level are as follows: 403(b)

high school or less, 20.7 percent +/-6.5 percent; 403(b) some college, 12.4 percent +/-6.2 percent;

403(b) 4-year college degree, 40.9 percent +/-9.0 percent; 403(b) graduate degree, 26.1 percent +/-

6.5 percent; 401(k) high school or less, 48.6 percent +/-3.9 percent; 401(k) some college, 11.7

percent +/-2.1 percent, 401(k) 4-year college degree, 26.9 percent +/-3.7 percent; 401(k) graduate

degree, 12.8 percent +/-2.1 percent. 2016 is the most recent year for which complete weighted Health

and Retirement Study data are available.

Household assets. We found that a higher percentage of 403(b) account

holders had $300,000 or more in household assets, compared to 401(k)

retirement account holders (see fig. 16).

Appendix II: Detailed Findings from Analysis of

Health and Retirement Study Data

Page 68 GAO-22-104439 Defined Contribution Plans

Figure 16: Estimated Percentage of 403(b) Retirement Accounts’ Respondents Reported Household Assets, Compared to

401(k) Account Holders, 2016

Note: The estimated percentages and associated margins of error at the 95 percent confidence level

are as follows: 403(b) less than $300,000 household assets, 40.7 percent +/-9.6 percent; 401(k) less

than $300,000 household assets, 52.1 percent +/-4.3 percent; 403(b) $300,000 or more household

assets, 59.3 percent +/-9.6 percent; 401(k) $300,000 or more household assets, 47.9 percent +/-4.3

percent. 2016 is the most recent year for which complete weighted Health and Retirement Study data

are available.

Earnings. We found that a higher percentage of 403(b) account holders

earned between $50,000 and $100,000 per year, and were less likely to

be earning less than $50,000 per year, compared to 401(k) retirement

account holders (see fig. 17).

Figure 17: Estimated Percentage of 403(b) Retirement Accounts’ Respondents Reported Earnings, Compared to 401(k)

Account Holders, 2016

Note: The estimated percentages and associated margins of error at the 95 percent confidence level

are as follows: 403(b) $100,000 or more earnings, 28.1 percent +/-8.3 percent; 401(k) $100,000 or

more earnings, 27.0 percent +/-3.5 percent; 403(b) $50,000 to $100,000 earnings, 44.9 percent +/-7.2

percent; 401(k) $50,000 to $100,000 earnings, 35.2 percent +/-3.3 percent; 403(b) less than $50,000

earnings, 27.0 percent +/-6.6 percent; 401(k) less than $50,000 earnings, 37.8 percent +/-2.7 percent.

2016 is the most recent year for which complete weighted Health and Retirement Study data are

available.

Appendix II: Detailed Findings from Analysis of

Health and Retirement Study Data

Page 69 GAO-22-104439 Defined Contribution Plans

The estimated difference for earnings of $100,000 or more was not statistically significant at 95

percent confidence level.

Appendix III: Detailed Data on Fees from

Surveys of 403(b) Plan Sponsors and Service

Providers

Page 70 GAO-22-104439 Defined Contribution Plans

As noted earlier, we obtained data on fees through non-generalizable

surveys of 403(b) plan sponsors and service providers.

The tables below

show the data provided by each survey participants—a total of 26 plan

sponsors and 19 service providers—that reported data to us. Although it

is not comprehensive or representative of the general population, it

provides examples of the types and amounts of fees paid by 403(b) plan

sponsors. Table 5 shows reported types and amounts of fees paid by

403(b) plan sponsors. Table 6 shows reported types and amounts of fees

charged by 403(b) service providers.

Table 5: Retirement Plan Participant Counts, Assets, Numbers of Plan Investment Options, and Range of Fees and Expenses

for Plan Sponsors Surveyed by GAO

Description of

entity

Number of

plan

participants

Total 403(b) plan

assets (rounded

to nearest $1

million)

Number of

investment

options in

plan

Reported

recordkeeping

and

administrative

expenses

Other reported plan

expenses

Investment

option ex

pense

ratio range

(percentage)

State-

Sponsored

Plan A

3,000,000

0.06%

Wrap fees: 0.30%/year

0.02 – 0.88

State-

Sponsored

Plan B

8,775

1,146,000,000

0.0285%

Retirement Plan

Consultant:

$16,150/year; Other

Service Fees:

$5,000/year

0.02 – 0.76

State-

Sponsored

Plan C

13,800

492,000,000

0.0008%

Retirement Plan

Consultant:

$80,000/year;

Audit/Legal Fees:

$30,000/year

0.04 – 0.86

State-

Sponsored

Plan D

9,400

956,000,000

0.021%

Retirement Plan

Consultant:

$26,250/year; Other

Service Fees:

$5,000/year;

Investment

Management Fee:

0.35%/year (plan

reported average)

0.02 – 1.10

For the purposes of this report, we refer to all such record keepers, third-party

administrators, vendors, and others who provide administrative services to a plan as

403(b) service providers.

Appendix III: Detailed Data on Fees from

Surveys of 403(b) Plan Sponsors and

Service Providers

Appendix III: Detailed Data on Fees from

Surveys of 403(b) Plan Sponsors and Service

Providers

Page 71 GAO-22-104439 Defined Contribution Plans

Description of

entity

Number of

plan

participants

Total 403(b) plan

assets (rounded

to nearest $1

million)

Number of

investment

options in

plan

Reported

recordkeeping

and

administrative

expenses

Other reported plan

expenses

Investment

option ex

pense

ratio range

(percentage)

State-

Sponsored

Plan E

31,694

4,680,000,000

0 – 0.12%

Retirement Plan

Consultant:

$50,500/year;

Investment

Management Fees:

0.39 –

0.44% annually;

0.04 – 1.12

State-

Sponsored

Plan F

818

103,000,000

0.075%

State Board Fees,

0.045%/year

0.02 – 0.78

State-

Sponsored

Plan G

1,957

238,000,000

0.08%

Retirement Plan

Consultant:

$163,000/year

0.04 – 1.13

State-

Sponsored

Plan H

2,870

144,000,000

0.14%

DNR

0.04 – 0.63

Public

University Plan

315,000

22,000,000,000

DNR

Investment

Management:

0.04%/year

0.01 – 0.48

Large School

District

97,000

37,000,000,000

DNR

Retirement Plan

Consultant:

$2,795,000/year; Other

Service Fees:

$1,259,000/year;

Investment

Management Fee:

$105,474,000/year;

Transaction Costs:

$11,868,000/year

0.15 – 0.48

Large State

University Plan

43,200

6,300,000,000

0.035%

Legal Counsel:

$22,000/year

0.02 – 1.58

Religious

Organization

415

140,000,000

0.27%

Retirement Plan

Consultant:

$600,000/year;

Actuarial Consulting

Fees, $484,600/year;

Investment

Management Fees,

0.32%/year;

Investment Advisory

Fees,

$874,000/year;

Excess Commission,

0.003%/year;

Trading/Transaction

Costs, 0.02%/year;

0.30 – 0.76

Appendix III: Detailed Data on Fees from

Surveys of 403(b) Plan Sponsors and Service

Providers

Page 72 GAO-22-104439 Defined Contribution Plans

Description of

entity

Number of

plan

participants

Total 403(b) plan

assets (rounded

to nearest $1

million)

Number of

investment

options in

plan

Reported

recordkeeping

and

administrative

expenses

Other reported plan

expenses

Investment

option ex

pense

ratio range

(percentage)

Non-Profit

Organization

1,160,000

0.18%

Investment

Management Fees,

$2,022/year

DNK

Large School

District

57,600

3,194,000,000

DNK/35

0.018%

DNR

DNK/ 0.21 –

1.25

State-

Sponsored

Plan J

21,287

1,456,000,000

0.18%

DNR

0.02 – 1.19

Small School

District

DNK

Large School

District

19,637

783,000,000

DNK/20

DNR

DNK/0.06 –

2.37

Large School

District

21,000

872,000,000

DNK/14

DNR

DNK/0.06-1.76

Large School

District

20,831

694,000,000

DNK

0.072%

DNR

DNK

Non-Profit

Organization

701,000

DNK

Investment

Management Fees,

0.00-

0.93%/year;

12(b)(1) Fees, 0.00-

0.25%/year; Other

Expenses: 0.00-

0.46%/year: Acquired

Fee

Funds and

Expenses: 0.00-

0.77%/year; Expense

Waivers or

Reimbursements: 0.00-

0.30%/year; Net

Separate Account Fee:

0.75-

1.25%/year; Net

Compensation: 0.06-

0.43%/year

0.12 -1.23

Large School

District

15,000

1,345,000,000

DNK

DNR

DNK

Non-Profit

Organization

2,300,000

0.51 – 2.01%

DNR

0.51% - 1.93%

State-

Sponsored

Plan K

14,476

1,225,000,000

DNR

DNK

Appendix III: Detailed Data on Fees from

Surveys of 403(b) Plan Sponsors and Service

Providers

Page 73 GAO-22-104439 Defined Contribution Plans

Description of

entity

Number of

plan

participants

Total 403(b) plan

assets (rounded

to nearest $1

million)

Number of

investment

options in

plan

Reported

recordkeeping

and

administrative

expenses

Other reported plan

expenses

Investment

option ex

pense

ratio range

(percentage)

Non-Profit

Organization

222

13,700,000

0.145%

Retirement Plan

Consultant: 0.2%/year;

Audit Fees:

$12,000/year;

Investment

Management Fee:

0.4%/year

0.21 – 1.14

Large School

District

13,800

725,000,000

0.16 – 0.25%

Retirement Plan

Consultant:

0.03%/year;

Investment

Management Fee:

0.45%/year (0.15% if

account >$300K);

Investment Advisory

Fees: $500 plus

$100/year;

Trading/Transaction

Costs: $2/month or $25

for brokerage account

0.13 – 1.50

Non-Profit

Organization

474,915

DNR

DNK

Legend: DNK – Responded “Did Not Know”

DNR – Did not respond to this survey question; left blank

Source: GAO analysis of information collected from survey responses of state-sponsored, large, school, or small plan sponsors. | GAO-22-104439

Note: Information contained in this table came from a total of 26 survey responses that we received

from 403(b) plan sponsors. Duplicate counting of participants is possible in that some of the 403(b)

service providers that responded to our survey may be providing services to plan sponsors that

responded to our plan sponsor survey. We did not collect data to test for this possibility.

Plan participants include active participants who are currently contributing to the plan and inactive

participants who are no longer contributing to the plan.

Some respondents reported record keeping and administrative expenses as a percentage of total

assets on an annual basis. Other respondents reported those expenses in a dollar amount per year,

while others reported those expenses on a per participant basis per year. This column harmonizes

those numbers and expresses them as a percentage of total assets on an annual basis. Some

respondents instead reported a range of record keeping and administrative expenses per year and

we present those ranges as a percentage of total assets on an annual basis.

An expense ratio measures how much of a fund’s assets are used for administrative and other

operating expenses. An expense ratio is determined by dividing a fund’s operating expenses by the

average dollar value of its assets under management. Operating expenses reduce the fund’s assets,

thereby reducing the return to investors.

Plan sponsor reported this was an average across four platforms. The sponsor noted that its

program is based on annuities, so every participant has a direct account with its four investment

providers. As a result of this setup, the plan is unable to map assets, and while it has worked to

decrease the number of options to new participants to about 40, it unable to close accounts that are

invested in the legacy options. As such, other information provided by the plan sponsor showed the

total number of investment options for the plan was 216.

This survey respondent reported it did not know the number of investments in its plan or the expense

ratios associated with them; we found it elsewhere in statewide publicly available information.

Appendix III: Detailed Data on Fees from

Surveys of 403(b) Plan Sponsors and Service

Providers

Page 74 GAO-22-104439 Defined Contribution Plans

This plan sponsor reported an investment option with an expense ratio of zero, but we found that it

was a type of annuity investment whose fees would not be expressed in terms of expense ratio.

Table 6: 403(b) Retirement Plan Participant Counts, Total Assets, and Range of Fees and Expenses for 403(b) Service

Providers Surveyed by GAO

Description

of entity

(method of

obtaining

information /

source)

Number

of plans

Total

number of

participants

403(b) plan

assets (rounded

to nearest

$million)

Plan administrative expense

(specify type, and yearly,

quarterly)

Reported

direct and

indirect

fees

charged

range

Smallest and largest

example plans’

investment option

expense ratio

management fee range

Record

Keeper

1,671

204,277

14,427,000,000

Record keeping and

Administrative Fee:

$28,000,000/year; Investment

Advisory Fee: $991,000/year;

Other Fees (Loan Issue Fee,

Loan Maintenance Fee,

Locator Service Fee,

Mandatory Cash-

Out Fee,

Participant Maintenan

ce Fee,

Qualified Domestic Relations

Order Fee), $825,000/year

Direct Fees:

0.00 – 0.43

percent;

Indirect

Fees: 0.00 –

0.25 percent

Plans with <=$1 million

assets: .8%

Plan with >$1 billion

assets:$.5% 0.50 -

0.80%

Record

Keeper/Third-

Party

Administrator

442

161,776

4,839,000,000

Record keeping or

Administrative Fee: $4.50 per

participant/quarter

Other Fees: varies by vendor

and product

Direct Fees:

0.00 – 0.40

percent;

Indirect

Fees: 0 -

$24 fixed fee

for year

0.04 – 0.89%

Product

Vendor

DNR

15,269

1,100,000,000

Wrap Fees: 2.10 percent/year

DNK

DNR

Record

Keeper

23,369

4,890,068

498,063,000,000

DNK

Plans with <=$1million in

assets: 0.42 – 0.50%

Plans with >$1billion in

assets: 0.19 – 0.34%

Record

Keeper

347,360

33,566,000,000

DNK

Plans with <=$1 million

in assets: 0.14-25%

Plan with >$1 billion in

assets: 0.14%

Record

Keeper

840

3,345,922

289,973,000,000

DNR

DNK

DNR

Investment

Advisor

DNK

20,375,000,000

DNK

DNR

Appendix III: Detailed Data on Fees from

Surveys of 403(b) Plan Sponsors and Service

Providers

Page 75 GAO-22-104439 Defined Contribution Plans

Description

of entity

(method of

obtaining

information /

source)

Number

of plans

Total

number of

participants

403(b) plan

assets (rounded

to nearest

$million)

Plan administrative expense

(specify type, and yearly,

quarterly)

Reported

direct and

indirect

fees

charged

range

Smallest and largest

example plans’

investment option

expense ratio

management fee range

Product

Vendor

5,232

307,386

9,360,000,000

Administrative Charge:

$100/plan/month, plus $1-

4/participant/month

(depending on number of

participants), and includes

0.22% standard record

keeping expense; Account

Expenses: 0.25-

1.65%

(depending on account size);

DNK

0.39-2.40

Record

Keeper

1,157

57,141

2,300,000,000

DNK

DNR

Record

Keeper

6,000

100,000

6,500,000,000

Record Keeping and

Administrative Fees:

0.015%/year

Other Fees: $40/year

Direct Compensation: 5-

bps; Indirect Compensation: 0-

50 bps

Direct Fees:

0.05 – 0.21

percent;

Indirect

Fees: 0 –

0.50 percent

DNK

Product

Vendor

11,993

115,792

6,995,000,000

$30 maintenance fee per

participant/year for accounts

under $50,000; Transfer Agent

Fee of

$17.60/shareholder/year +

asset-based fee of .01%-

.03%/year, depending on

investment option;

Contingent

Deferred Sales Charge of 0-

1%; Front End Sales Load 0 –

5.50%; Processing Fees $20

($75 for Loan Initiation)

DNR

0.40 – 3.92

Appendix III: Detailed Data on Fees from

Surveys of 403(b) Plan Sponsors and Service

Providers

Page 76 GAO-22-104439 Defined Contribution Plans

Description

of entity

(method of

obtaining

information /

source)

Number

of plans

Total

number of

participants

403(b) plan

assets (rounded

to nearest

$million)

Plan administrative expense

(specify type, and yearly,

quarterly)

Reported

direct and

indirect

fees

charged

range

Smallest and largest

example plans’

investment option

expense ratio

management fee range

Record

Keeper

5,032

190,150

8,055,000,000

Administrative Service Fee: $0

– $1250/year; Per Participant

Fee: $0 -

$20/year; Minimum

Contribution Fee: $0 -

$1000/year; Contribution

Census System Non-

Usage

Fee: $1,000/year;

Administrative/Record keeping

Work: $100/hour; Advanced

Plan Compliance Work:

$200/hour; Special Plan

Services: $1000/event ;

Distribution,

$40/part

icipant/year; Loan

Initiation: $75/participant/year;

Loan Administration:

$24/participant/year

Direct Fees:

0 – 1.25

percent

Indirect

Fees: None

0.02 – 1.75 percent

Record

Keeper

2,031

368,276

18,808,000,000

For plans under $1M, charges

can be 0.4% or 0.5% plus a

flat fee of $2,600 and a $25

per participant fee. For most

plans with assets in excess of

$1million, we calculate a

record keeping fee that is

customized to the client based

on many factors.

DNK

Plan

s with <=$1 million

in assets: 1.21 - 1.95%

Plan with >$1 billion in

assets: $0.24%

Record

Keeper

1,125

328,494

23,529,000,000

DNK

Plans with <=$1 million

in assets: 0.06 – 0.66%

Plans with >$1 billion in

assets: 0.18 – 0.36%

Third-Party

Administrator

5,219

1,330,376

97,000,000,000

$24/year/account, plus

$36/participant

DNR

Legend: DNK – Responded “Did Not Know”

DNR – Did not respond to this survey question; left blank

Source: GAO analysis of information collected from survey responses of 403(b) service providers. | GAO-22-104439

Note: Information in this table came from 15 survey responses we received from 403(b) service

providers. Four other service providers who responded to our survey requested we not include this

information in this appendix. For the purposes of this report, we will refer to all such record keepers,

third-party administrators, vendors, and others who provide administrative services to a plan as

403(b) service providers.

The expense ratio information provided by this service provider represents the actual high and low

annual expense ratio management fee charged by this plan; it is not reported for selected plans only.

Appendix IV: Reported Surrender Fees and

Short-Term Trading Fees by 403(b) Plan

Sponsors and Service Providers Surveyed

Page 77 GAO-22-104439 Defined Contribution Plans

As we reported earlier, we obtained data on fees through surveys of

403(b) plan sponsors and service providers.

We received responses

from a total of 26 plan sponsors and 19 service providers. Surrender fees

are fees charged for selling or withdrawing money from an investment

before a set period of time. Individual schedules for the phase out period

vary by specific plan, but generally involve a reduction of 1 to 2 percent

per year until the surrender fee is no longer charged. For example, an

annuity with a 10-year, 10 percent surrender fee would charge 10 percent

the first year to cancel plan participation, 9 percent the second year, and

so on, until there is no surrender fee charged after the 10-year period.

Short-term trading fees are fees charged to an investor when shares are

sold from a fund, and typically are only applied within a certain time

frame, in order to discourage short-term trading.

Tables 7 and 8 below show the data provided by each survey respondent

that reported data to us. The data presented are not comprehensive or

representative of the general population. Table 7 shows the surrender

fees for any annuities in plans as reported by 403(b) plan sponsor

respondents.

Table 7: Summary of Surrender Fee Information Obtained From Plan Sponsor Survey Respondents

Surrender fee status

Survey respondents

Surrender fees

7 of 26 plan sponsors that reported some of the investment options contained in their plans that

charge a surrender fee:

Respondent #1: 10% of annuities have surrender fees, with a maximum of 2% and phase out

period of 0.5 years

Respondent #2: 5% of annuities have surrender fees, with a maximum of 5% and phase out

period of 5 years

Respondent #3: 90% of annuities have surrender fees, with a maximum of 5% and phase out

period of 7 years.

Respondent #4: 90% of annuities have surrender fees, with a maximum of 5% and phase out

period of 7 years.

Respondent #5: 60% of annuities have surrender fees, with a maximum of 10% and phase out

period of 6 years. [Note: This plan sponsor also reported that the plan does not currently offer

annuities.]

Respondents #6 and #7 reported that their assets contain annuities subject to surrender fees, but

not know the details about those fees.

No surrender fees

9 of 26 plan sponsors reported that their assets do not contain annuities, and no assets are

subject to surrender fees.

For the purposes of this report, we refer to all such record keepers, third-party

administrators, vendors, and others who provide administrative services to a plan as

403(b) service providers.

Appendix IV: Reported Surrender Fees and

Short-Term Trading Fees by 403(b) Plan

Sponsors and Service Providers Surveyed

Appendix IV: Reported Surrender Fees and

Short-Term Trading Fees by 403(b) Plan

Sponsors and Service Providers Surveyed

Page 78 GAO-22-104439 Defined Contribution Plans

Surrender fee status

Survey respondents

4 of 26 plan sponsors reported that their assets contain either fixed or variable annuities, but that

those assets are not subject to surrender fees.

Do not know

4 of 26 plan sponsors reported that their assets contain annuities, but did not know whether or

not their assets carried surrender fees.

2 of 26 plan sponsors reported not knowing whether they had annuities, or whether they had

assets that carried a surrender fee.

Source: GAO analysis of survey data. l GAO-22-104439

Table 8: Summary of Surrender and Short-Term Trading Fee Information Obtained From 403(b) Service Provider Survey

Respondents

Surrender fee status

Survey respondents

Surrender fees

10 of 19 service providers reported the plans they provide services to charge surrender fees.

Respondent #1: 75% of annuities have such surrender fees, with a maximum of 10% and phase out

period of 10 years.

Respondent #2: 100% of annuities have such fees charges, with a maximum of 7% and phase out

period of 5 years.

Respondent #3: 7% of annuities have such surrender fees, with a maximum of 6% and phase out

period of 15+ years.

Respondent #4: 90% of annuities have such surrender fees, with a maximum of 5% and phase out

period of 6 years.

Respondent #5: 14% of such products have such surrender charges, with a maximum of 10% and

phase out period of 10 years.

Respondent #6: 100% of annuities have such surrender charges, with a maximum of 5% and phase

out period of 1 year.

Respondent #7: 18% of such products have surrender charges with a maximum of 5% and a phase

out period of 5 years.

Respondent #8: 28% of annuities carry surrender fees, otherwise unspecified.

Respondents #9: and #10 Reported that some annuity products carried surrender charges, but did

not specify the percentage of such annuities or their terms.

Short-term trading fees

6 of 19 record keepers reported the plans they provide services to charge short-term trading fees for

mutual funds.

Respondent #7 (Same as #7 above) Reported that less than 1% of mutual fund products have short-

term trading fees, with a maximum of 2% and a phase out period of 6 months.

Respondent #8 (Same as #8 above) Reported that 29% of mutual fund products have short-term

trading charges, but did not specify their terms.

Respondents #9 and #10: (Same as #9 and #10 above) Reported that some mutual fund products

carried short-term trading charges, but did not specify the percentage of such products or their terms.

Respondent #11: 2% of mutual fund products have short-term trading charges, with a maximum of

1%; this respondent did not specify the phase out period.

Appendix IV: Reported Surrender Fees and

Short-Term Trading Fees by 403(b) Plan

Sponsors and Service Providers Surveyed

Page 79 GAO-22-104439 Defined Contribution Plans

Respondent #12: 1% of mutual fund products have short-term trading charges, with a maximum of

1% and a phase out period of 1 year

Either surrender or short-term

trading fees

2 of 19 service providers reported that some of the investment options carried either surrender fees

or short-term trading fees, but neither respondent provided further details.

No surrender fees

5 record keepers who did not report charging surrender fees, including 3 of 19 service providers

reported not charging surrender fees or short-term trading fees; and 2 of 18 record keepers reported

charging short-term trading fees but not surrender fees.

Do not know

2 of 19 service providers reported that they did not know whether any of the investment options in

the plans for which they provided services carried either surrender or short-term trading fees.

Source: GAO analysis of survey data. l GAO-22-104439

Note: For the purposes of this report, we refer to all such record keepers, third-party administrators,

vendors, and others who provide administrative services to a plan as 403(b) service providers.

Responses do not sum to 19 because some respondents were included in two or more categories.

Appendix V: GAO Contact and Staff

Acknowledgements

Page 80 GAO-22-104439 Defined Contribution Plans

Tranchau (Kris) Nguyen, at (202) 512-7215 or [email protected].

In addition to the individual named above, Sharon Hermes (Assistant

Director), Michelle Munn (Analyst in Charge), Andrew Bellis, Abigail

Loxton, Dae Park, and Timothy Young made key contributions to this

report. James Bennett, Ramona Burton, Nancy Cosentino, Justin Fisher,

Joseph Maher, Michael Naretta, Jessica Orr, Elizabeth Spurgeon,

Alexandra Squitieri, Rachel Stoiko, Frank Todisco, Walter Vance, and

Adam Wendel also provided support.

Appendix V: GAO Contact and Staff

Acknowledgements

GAO Contact

Staff

Acknowledgments

(104439)

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