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.

Matter for Congressional Consideration

  1. Status: Open

    Comments: No congressional action has been taken in response to this recommendation.

    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.

Recommendations for Executive Action

  1. Status: Open

    Comments: In its initial agency comments, Labor officials said that they would consult with their colleagues at the Treasury Department/IRS and PBGC regarding creation of one unified online tool for plan adminstrators to search for the reports and disclosures they are required to submit based on a plan's type, design, and circumstances. However, in a follow-up letter in FY 2014, officials indicated that, although they will continue to consult with their other agency colleagues regarding creation of such a tool, they now tentativley disagree with the recommendation and believe that such a tool could be confusing, especially for small employers. GAO continues to believe just the opposite, that a well-designed comprehensive online tool could be very helpful, especially for small employers.

    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

  2. Status: Open

    Comments: IRS officials said that they are continuing their efforts to ensure tha plan sponsors have access to comprehensive and up-to-date online resources. They said they had met with Labor and PBGC officials to discuss the value and feasibility of developing and maintaining a comprehensive online tool. However, with decreased resources, they said it is unlikely for IRS to be able to create and regularly update such a tool. However, they would continue to confer with Labor and PBGC colleagues to deterine if it is possible to cross-reference existing agency resources online.

    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

  3. Status: Open

    Comments: 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. However, no specific response was included that addressed our recommendation to work with the other agencies to create and regularly update a comprehensive online tool.

    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

  4. Status: Open

    Comments: Labor officials said that, while sensitive to plan sponsor concerns regarding libilities that may result from ambiguities that arise when complex information is summarized using plain English criteria, they will, nevertheless, explore the application of readability standards in this context. Officials indicated they may decide it would be helpful to engage a contractor and undertake a survey or other data collection in order to evaluate this recommendation, but do not have resources budgeted in FY 2014 for such an exercise. In the meantime, they plan to continue to use modern communication techniques (such as focus group testing) to improve the effectiveness of their model notices and other standardized disclosures.

    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

  5. Status: Open

    Comments: IRS officials said that they are committed to using the Federal Plain Language Guidelines as a resource in preparing model disclosures and that they will consider including bnrief highlighs at the beginning of model disclosures. They said that it is unclear that imposing defined readability criteria on employer and plan communications is in the best interests of plan participants, administrators, sponsors, and the retirement system as a whole. However, they do see merit in directing employers and plan sponsors to the Guidelines as a resuource for developing readabile notices and disclosures, and are considering how best to communicate that resource to stakeholders.

    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

  6. Status: Open

    Comments: 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. However, to get to the root cause of the issues raised, PBGC suggested that GAO should consider the possibility of giving the ERISA agencies the discretion to develop better notices, which would enable the agencies to implement the results of their cooperative efforts much more effectively. Although perhaps additional discretion would be helpful, GAO continues to believe that the ERISA agencies have considerable discretion under existing law to take steps to improve the readability of plan notices to participants, such as by developing clearer model disclosures and by requiring clear, simple, brief highlights at the beginning of each disclosure, even if more complex statutory content must also be included.

    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

  7. Status: Open

    Comments: Labor officials said that they generally support implementing such a requirement, subject to a legal determination of their authority absent legislation to issue such a directive. However, rather than addressing the recommendation as a stand-alone item, they believe 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 (RFI) regarding electronic disclosure. Moreover, officials noted that, during FY 2014, Labor was focusing its regulatory resources on other higher priority projects and did not have a specific timeline for any next action on e-disclosure isssues.

    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

 

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