Private Pensions:

Clarity of Required Reports and Disclosures Could Be Improved

GAO-14-92: Published: Nov 21, 2013. Publicly Released: Dec 17, 2013.

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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.

What GAO Recommends

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.

For more information, contact Charles Jeszeck at (202) 512-7215 or jeszeckc@gao.gov.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: 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.

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendations for Executive Action

    Recommendation: 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.

    Agency Affected: Department of Labor

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: 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.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: 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.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: 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.

    Agency Affected: Department of Labor

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: 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.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: 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.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: 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.

    Agency Affected: Department of Labor

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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