Private Sector Pensions: Federal Agencies Should Collect Data and Coordinate Oversight of Multiple Employer Plans
Highlights
What GAO Found
Little is known about the characteristics of private sector multiple employer plans (MEP), especially information regarding the employers that participate in them. Although no participating employer information is currently collected in the Form 5500, the primary source for pension information reported to the government, some plan-level information on MEPs is available. GAO’s analysis of 2009 plan-level data shows that the bulk of MEP participants and assets resided in the largest 25 private-sector MEPs. Three major sponsor types emerged among the top 25 plans: large corporations, associations, and professional employer organizations (PEO), which are firms that provide payroll and other human resources services to clients. These sponsor types differ in various ways, but notably, associations and PEO sponsors GAO interviewed tended to have a large number of employers participating in their plans. Little is also known about a fourth category of sponsor type called “open” MEPs, a type of MEP in which employers in the plan share no common relationship or affiliation with the other employers in the plan. This sponsor type appears to have come about in response to 2002 IRS guidance that allowed certain PEOs to avoid tax disqualification of their pension plans if they were converted to MEPs. Soon after this guidance was issued, practitioners began offering open MEPs.
MEPs are marketed as providing several advantages for employers over single-employer plans, but GAO found that these advantages may not always be unique to MEPs. MEPs are marketed as providing reduced fiduciary liability, administrative responsibility, and cost. However, other types of single-employer plans may also offer reduced fiduciary responsibility and third-party administrators can reduce administrative responsibilities. Overall, among MEP representatives and pension experts, there was no consensus on whether or not open MEPs or PEO-sponsored MEPs could substantially expand pension coverage. Given that employers do not directly oversee the plan, there was also some concern from Labor officials regarding the risk of MEP abuses, such as charging excess fees or mishandling the plan’s assets. Additionally, because all of the participating employers are responsible for maintaining the MEP, if one employer becomes noncompliant with the tax requirements the plans of all the employers in the MEP may lose their tax-qualified status.
Labor regulates MEPs for participant protections under the Employee Retirement Income Security Act of 1974 (ERISA), while the IRS regulates them for preferential tax treatment under the Internal Revenue Code (IRC). However, ERISA places requirements on plans that are not required under the IRC, and Labor and IRS do not coordinate to reduce the impacts of defining a MEP differently. For example, although Labor recently opined that open MEPs are a collection of single plans, each separately sponsored by participating employers for their employees, open MEPs still qualify for preferential tax treatment under the IRC. Pension experts told GAO that such differing treatment can create compliance challenges. For example, an open MEP may be able to file a single annual report for the IRS but may also have to file annual reports for each of its component plans for Labor. Pension experts agreed that compliance guidance from either agency would be helpful.
Why GAO Did This Study
GAO has reported that millions of U.S. workers lack access to employer-sponsored pension plans and that some small businesses, which offered plans at lower rates than large businesses, may be deterred by the cost of plan administration. MEPs, a type of pension plan maintained by more than one employer, have been supported as an option that could expand coverage by lowering administrative costs. For this report, GAO examined (1) the characteristics of private-sector MEPs, (2) the advantages and disadvantages of MEPs and how their perceived advantages are used to market them, and (3) how IRS and Labor regulate MEPs.
GAO interviewed MEP sponsors, pension experts, officials at the Department of Labor (Labor), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC), and analyzed the primary source of pension data reported to the government—the Form 5500.
Recommendations
GAO recommends that Labor lead an effort to collect data on the employers that participate in MEPs. GAO also recommends that Labor and IRS formalize their coordination with regard to statutory interpretation efforts with respect to MEPs. Furthermore, Labor and IRS should jointly develop guidance on the establishment and operation of MEPs. Agencies generally agreed with GAOs recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Labor | The Secretary of Labor should direct the EBSA to take the lead in gathering useful oversight information about the employers that participate in MEPs. A likely source for collection of this data would be the Form 5500, as it is the primary source of private pension data for government oversight activities. |
The Cooperative and Small Employer Charity Pension Flexibility Act of 2014 (CSEC) added section 101(g) to ERISA that requires any multiple employer plan to include in their Form 5500 Annual Return/Report a list of participating employers and a good faith estimate of the percentage of total contributions made by such participating employers during the plan year. An interim final regulation issued on November 10, 2014 implemented this requirement. The new reporting requirement became effective beginning with the 2014 plan year Form 5500. EBSA received four public comments on the interim final rule. EBSA said in the Federal Register Notice announcing the interim final rule that it would consider public comments in connection with publishing a final rule that would apply no earlier than the 2015 Form 5500.
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| Department of Labor | The Secretary of Labor should instruct the Assistant Secretary of EBSA and the Secretary of the Treasury should instruct the Commissioner of Internal Revenue to formalize their coordination with regard to the statutory interpretations reflected in Labor's advisory opinions related to MEPs. Furthermore, the agencies should coordinate to develop compliance-related guidance on the establishment and operation of MEPs under ERISA and the IRC. |
Labor's Employee Benefits Security Administration (EBSA) and Treasury coordinated on the advisory opinions to some extent during their development and issuance and acknowledge that there are various mechanisms they could use to improve and formalize their coordination. In FY14 and FY15, DOL reported that it would continue to consult and coordinate with IRS, Treasury and the PBGC on any identified compliance and policy matters relating to MEPs, and with respect to open MEPs in particular. Additionally, guidance has included the implementation of the CSEC provisions of the Code as related to MEPs. After DOL Advisory Opinions 2012-03A and 2012-04A were issued, EBSA staff consulted with IRS and the Treasury on regulatory issues related to MEPs. The agency also monitored legislative efforts in Congress focused on MEP structures and issues. EBSA agrees with GAO that it is premature, however, to make decisions on changes in its determination letter practices until there has been an opportunity to analyze the full impact of the advisory opinions on open MEP practices and compliance issues become more apparent. Consistent with EBSA's 2015 status report, EBSA says it continues to consult and coordinate with IRS, Treasury and the PBGC on any identified compliance and policy matters relating to MEPs. The Administration's 2017 Budget also included a package of proposals aimed at increasing access to retirement plans and increasing the portability of retirement savings and benefits. The proposals aim to ensure near-universal access to workplace retirement savings accounts and test new approaches to making retirement benefits more portable across jobs (http://www.dol.gov/sites/default/files/documents/general/budget/CBJ-2017-V2-01.pdf, p. 16). Previously, GAO said it would monitor whether the two agencies amend their coordination agreement when compliance issues become more apparent or if the impact of the advisory opinions suggests such coordination would be helpful. EBSA also noted that, for many traditional MEPs operating under both ERISA and the Code, it is unclear what compliance issues exist that require special guidance or coordination. The agency is concerned about the lack of direct employer involvement in the oversight of open MEP arrangements that may make them more susceptible to abuse, and supports efforts to expand the availability of retirement plan coverage to workers through their employers. However, EBSA believes ERISA's protections for workers, retirees and their families should be maintained in the context of an open MEP. While EBSA's progress is laudable, there is no specific guidance for MEPs, and no formal documentation of coordination with IRS/Treasury, such as an MOU or meeting notes reflecting a discussion of statutory interpretation.
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| Department of the Treasury | The Secretary of Labor should instruct the Assistant Secretary of EBSA and the Secretary of the Treasury should instruct the Commissioner of Internal Revenue to formalize their coordination with regard to the statutory interpretations reflected in Labor's advisory opinions related to MEPs. Furthermore, the agencies should coordinate to develop compliance-related guidance on the establishment and operation of MEPs under ERISA and the IRC. |
Treasury coordinated with Labor on the advisory opinions to some extent during their development and issuance and acknowledged that there are mechanisms they could use to improve and formalize their coordination. After DOL Advisory Opinions 2012-03A and 2012-04A were issued, Treasury consulted with EBSA staff on regulatory issues related to MEPs. GAO monitored whether the two agencies would amend their coordination agreement when compliance issues become more apparent or if the impact of the advisory opinions suggests such coordination would be helpful. However, Treasury did not report on these coordination issues and DOL did not corroborate any specific formal coordination in this area.
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