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403(b) Assets Up—But Fees Can Have Big Effect, Says GAO

The collective balance of the 403(b)s in the education sector rose steadily over a decade, but fees blunt the effect of that growth, the Government Accountability Office (GAO) suggests in a recent study. 

In “Defined Contribution Plans:403(b) Investment Options, Fees, and Other Characteristics Varied,” the GAO examined the number and characteristics of 403(b) plans and the fees charged to 403(b) plan participants. 

Growing Assets 

The market they studied, the GAO reports, is not insignificant. They report that in 2020, 403(b) plans collectively held more than $1.1 trillion. The assets held by the education sector grew steadily over a decade, says the GAO, with the total falling from one year to the next only once. 

Assets Held in 403(b)s in the Education Sector, 2010-2019 (in Billions of 2019 Dollars)

Year Assets Held in 430(b)s  Change from Previous Year
2010 $159.354 --
2011 $160.754    +$1.400
2012 $171.516 +$10.762
2013 $194.987 +$23.471
2014 $209.724 +$14.737
2015 $216.547   +$6.823
2016 $224.616   +$8.069
2017 $250.396 +$25.780
2018 $238.421 --$11.975
2019 $271.102 +$32.681


Not all 403(b)s are covered by ERISA. But the GAO says that in 2020, half of the assets held by 403(b)s were attributable to 403(b)s covered by ERISA, and approximately $200 billion was held in ERISA 403(b)s sponsored by employers in the educational sector. The vast majority—93%—of ERISA 403(b) plans were the primary, or only, retirement plan an employer offered. 

The Study

The GAO analyzed 45 plans regarding: 

  • number of participants;
  • amount of plan assets;
  • available information on plan investment offerings from 2010 through 2019—the most recent year for which data are available from the Form 5500 database as well as available industry data;
  • individual-level data from the Health and Retirement Study (HRS) of respondents over age 50 who reported participating in 403(b) plans; and
  • information on plan characteristics and fees from non-generalizable surveys GAO conducted of 403(b) plan sponsors and 403(b) service providers.

GAO researchers interviewed federal officials, industry stakeholders and experts knowledgeable about 403(b) plans.


Plan service providers charge various types of fees for different services the GAO notes: 

  • Administrative fees, which 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, which are associated with buying, selling, and managing investments, but they can also include embedded costs of plan administration. 
  • Asset-based investment fees, often called the expense ratio, are a type of investment-related fee and typically are the largest fees a participant will pay. They express the percentage of assets under management that is deducted each year for fund expenses. 

The GAO found that plan fees varied widely:

  • Record keeping and administrative fees ranged from 0.0008% to 2.01% of assets
  • Fees for investment options ranged from 0.01% to 2.37% of assets

The effect of those fees varied as well, but even small fees matter. The report notes that in earlier research, the GAO found that “even seemingly small fees can significantly reduce participants' retirement savings over time.”

The study says that for a 403(b) account worth $100,000, even small increases in fees had a pronounced effect on the account balance 20 years later. Assuming annual returns of 4% over 20 years, at three particular annual fee levels, the balance grew thusly: 


Initial Balance  20 Years Later, With Annual Fee of 0.25%  20 Years Later, With Annual Fee of 0.75%  20 Years Later, With Annual Fee of 1.50% 
$100,000 $208,815 $189, 584 $163,862


Apparently, Size Matters

The GAO found that larger plan sponsors—such as universities, states and sponsors with $1 billion or more in assets—reported that they were taking multiple steps to reduce fees. 

Smaller plan sponsors, however—those with less than $1 billion in assets—more often reported that they did not have the information they needed to monitor fees. For example, five public school district plan sponsors told the GAO that they did not know expense ratios for investment options their plans offered that would also allow them to monitor fees.

Full Report Available

The full report is available here