Private Pensions: Clarity of Required Reports and Disclosures Could Be Improved
Highlights
What GAO Found
Sponsors of private sector pension plans are required to submit various reports to federal agencies and disclosures to participants depending on the plans' type, size, and circumstances. GAO identified more than 130 reports and disclosures stemming from provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Internal Revenue Code, as administered largely by three ERISA agencies: the Department of Labor (Labor), Internal Revenue Service (IRS), and Pension Benefit Guaranty Corporation (PBGC). Although each plan sponsor is required to submit only certain of these reports and disclosures, determining which ones can be challenging and the agencies' online resources to aid plan sponsors with this task are neither comprehensive nor up-to-date.
Plan sponsors' reports to the ERISA agencies involve minimal duplication, but the management of data on one report raised concerns. Notices that the Social Security Administration (SSA) sends to retirees listing vested benefits left behind with previous employers can be misleading, because management of the data is fragmented across three agencies and none assumes responsibility for ensuring the data are accurate. Beyond issuing the form and instructions, IRS views its role as merely to pass the data through from sponsors to SSA, SSA views its role as merely to provide retirees with whatever data SSA receives from IRS, and Labor views its role as merely to respond to retirees' inquiries. As a result, the SSA notices can be misleading, listing benefits that have already been paid.
Participant disclosures are numerous and do not always communicate effectively. Various groups GAO interviewed said that participants often find the content overwhelming and confusing. Although certain disclosures are required by law to be written in a manner calculated to be understood by the average plan participant, the three ERISA agencies acknowledged that enforcement of these provisions has not been a priority. Also, GAO found that several model notices that these agencies had developed as templates for sponsors to use in developing their disclosures fell short when evaluated against federal plain language guidelines.
Why GAO Did This Study
The private sector pension system in the United States represents trillions of dollars in assets and is a key source of financial security for millions of Americans. To promote transparency and enhance retirement security, legislation and regulations require that plan sponsors provide numerous reports to Labor, IRS, and PBGC, and numerous disclosures to plan participants. GAO was asked to review this system of private sector pension plan reporting and disclosure.
In this report, GAO examined (1) the reports and disclosures pension plans are required to make to government agencies and plan participants; (2) the ways, if any, reports to agencies may be inefficient or ineffective, and (3) the ways, if any, disclosures to participants may be inefficient or ineffective. In conducting this work, GAO reviewed relevant statutes and regulations; analyzed inquiries to Labor's participant help line; assessed certain disclosures for readability when evaluated against criteria based on federal plain language guidelines; and interviewed agency officials, plan sponsor representatives, service providers, and participant advocates.
Recommendations
GAO asks Congress to consider shifting responsibility and necessary resources to Labor for managing the pension benefit data that SSA provides to retirees. GAO also recommends that the agencies improve their online tools on reporting requirements and facilitate better readability of disclosures. In response, the agencies generally agreed with our findings and are taking steps to address the issues we identified.
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| To increase the accuracy of "potential private pension benefit information" notices that SSA sends to Social Security claimants, Congress should consider legislation shifting responsibility and necessary resources to Labor for (a) electronically collecting form 8955-SSA information on participants' deferred vested benefits, (b) maintaining an accurate federal database of those benefits, and (c) periodically sending SSA accurate information about such benefits for recent Social Security claimants identified by SSA, so that SSA may provide notices to retirees. | In July 2020, the House and Senate introduced the Retirement Savings Lost and Found Act (H.R. 7439, S. 1492) to address separated participants with deferred vested benefits. The legislation requires Labor to provide better guidance and relief to plans that cannot find missing participants. While this legislation does not specifically give Labor responsibility to track 8955-SSA, it addresses our concerns regarding the accuracy of private pension benefit information. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Labor | To ease the burden on plan sponsors, enhance compliance, and help ensure that disclosures to participants are written in a manner that can be understood by the average participant, Labor, IRS, and PBGC should work together to create and regularly update a comprehensive online tool for plan sponsors to search for the reports and disclosures they are required to provide based on plan type, design, and circumstances. |
Labor officials met with their colleagues at the Treasury Department/IRS and PBGC to discuss the value and feasibility of developing and maintaining a comprehensive online tool for plan sponsors. Although a comprehensive online tool would be useful, the agencies agreed to cross-reference each other's guidance on their websites to help plan sponsors search for reports and disclosures. Labor's guide was cross-referenced with the existing PBGC Reporting and Disclosure Guide, and all resources were posted on the appropriate websites. These resources will be helpful to plan sponsors.
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| Internal Revenue Service | To ease the burden on plan sponsors, enhance compliance, and help ensure that disclosures to participants are written in a manner that can be understood by the average participant, Labor, IRS, and PBGC should work together to create and regularly update a comprehensive online tool for plan sponsors to search for the reports and disclosures they are required to provide based on plan type, design, and circumstances. |
IRS officials noted that they were continuing efforts to ensure that plan sponsors have access to comprehensive and up-to-date online resources. They met with DOL and PBGC officials to discuss the value and feasibility of developing and maintaining a comprehensive online tool. Although a comprehensive online tool would be useful, the agencies agreed to cross-reference each other's guidance on their websites to ease the burden on plan sponsors. IRS subsequently created an IRS-specific Reporting and Disclosure Guide that identifies reports and disclosures plan sponsors are required to provide. The guide was cross-referenced with the DOL/PBGC Reporting and Disclosure Guide, and all resources were posted on the appropriate websites. For example, the IRS Guide was posted to the www.irs.gov site (see https://www.irs.gov/retirement-plans/retirement-plan-reporting-and-disclosure). Cross-referencing each agency's guidance is helpful to plan sponsors seeking to comply with reporting and disclosure requirements.
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| Pension Benefit Guaranty Corporation | To ease the burden on plan sponsors, enhance compliance, and help ensure that disclosures to participants are written in a manner that can be understood by the average participant, Labor, IRS, and PBGC should work together to create and regularly update a comprehensive online tool for plan sponsors to search for the reports and disclosures they are required to provide based on plan type, design, and circumstances. |
PBGC officials said they generally agree with GAO's findings and will continue to work together with their colleagues at Labor and Treasury/IRS in exploring their options to address the issues our report raises. In 2016, PBGC reported that they collaborated with Labor and IRS on their guides for employee benefit plans reporting and disclosure requirements, which were posted on the agencies' websites.
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| Department of Labor | To ease the burden on plan sponsors, enhance compliance, and help ensure that disclosures to participants are written in a manner that can be understood by the average participant, Labor, IRS, and PBGC should work together to define criteria for complying with the readability provisions in ERISA and the Internal Revenue Code (IRC), and apply the criteria to agency-generated model notices as well as those developed by plan sponsors. As part of these criteria, consider requiring clear, simple, brief highlights at the beginning of disclosures, reflecting federal plain language guidelines. |
Labor officials stated that they would explore the application of readability standards to model notices and disclosures. In November 2017, the ERISA Advisory Council issued a report with recommendations for design and delivery improvements with respect to various disclosures. One of the recommendations called for simplifying the Single Employer Model Annual Funding Notice to provide basic introductory information regarding funded status and key metrics, with all other information contained in an appendix to the notice but Labor did not implement it. Labor also reported that, in consultation with Treasury, they explored the potential for broader use of electronic delivery to improve the effectiveness of disclosures and to reduce the costs of furnishing required pension plan disclosures. On May 27, 2020, Labor published a final electronic disclosure rule in the Federal Register on the Effectiveness and Reducing Costs of Pension Plan Disclosures. The rule has readability provisions for a Notice of Internet Availability, but these provisions do not apply to disclosures. For disclosures, the rule merely states that Labor will continue to analyze readability and other measures.
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| Internal Revenue Service | To ease the burden on plan sponsors, enhance compliance, and help ensure that disclosures to participants are written in a manner that can be understood by the average participant, Labor, IRS, and PBGC should work together to define criteria for complying with the readability provisions in ERISA and the Internal Revenue Code (IRC), and apply the criteria to agency-generated model notices as well as those developed by plan sponsors. As part of these criteria, consider requiring clear, simple, brief highlights at the beginning of disclosures, reflecting federal plain language guidelines. |
IRS officials said that they were committed to using the Federal Plain Language Guidelines as a resource in preparing model disclosures and that they will consider including brief highlights at the beginning of model disclosures. Although they said it was unclear whether imposing defined readability criteria on employer and plan communications would be in the best interests of plan participants, administrators, sponsors, and the retirement system as a whole, they did see merit in directing employers and plan sponsors to the Guidelines as a resource for developing readable notices and disclosures. In September 2015, IRS reported that the Tax Exempt/Government Entities (TE/GE) Counsel was using the Federal Plain Language Guidelines (FPLG) as a resource in drafting model disclosures and would consider including brief highlights at the beginning of them. In addition, on 7/17/15, IRS posted the Federal Plain Language Guidelines (FPLG) to their website under Disclosures for Retirement Plans (see https://www.irs.gov/retirement-plans/retirement-plan-reporting-and-disclosure).
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| Pension Benefit Guaranty Corporation | To ease the burden on plan sponsors, enhance compliance, and help ensure that disclosures to participants are written in a manner that can be understood by the average participant, Labor, IRS, and PBGC should work together to define criteria for complying with the readability provisions in ERISA and the Internal Revenue Code (IRC), and apply the criteria to agency-generated model notices as well as those developed by plan sponsors. As part of these criteria, consider requiring clear, simple, brief highlights at the beginning of disclosures, reflecting federal plain language guidelines. |
PBGC officials said they generally agree with GAO's findings and will continue to work together with their colleagues at Labor and Treasury/IRS in exploring their options to address the issues our report raises. In 2015, PBGC reported that it continues their efforts to improve readability and make compliance information available on their website. In 2016, PBGC reported that they engaged in discussions with Labor and IRS to establish "plain English" standards for agency model notices and other disclosures and communications. The agency also posted a Plain Language Guide on their website and encouraged employers, plan sponsors, and plan administrators to use the guidelines as a resource in developing notices and disclosures. In addition, PBGC incorporated plain English standards in participant notice requirements in recent final regulations for a Multiemployer plan action.
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| Department of Labor | To better ensure plan participants have access to information about their rights and benefits, as currently in force under their plans, Labor should direct plan sponsors to post to any intranet website maintained by the employer, as soon as determined feasible by Labor, a copy of the most current summary plan description (SPD) and any summary of material modifications issued subsequent to that SPD. |
Labor officials said that rather than addressing the recommendation as a stand-alone item, they believed it would be better to consider the benefits of such an intranet posting requirement in connection with efforts to expand or modify disclosure standards in response to their 2011 Request for Information regarding electronic disclosure. On May 27, 2020, Labor published a final electronic disclosure rule in the Federal Register. The final rule permits plan administrators, subject to a number of requirements protective of plan participants, to post ERISA retirement plan disclosures, including SPDs and summaries of material modification, on a website, or to send them directly to plan participants via email or text .
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