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Tax Revenues Lost and Beneficiaries Inadequately Protected When Private Pension Plans Terminate

HRD-81-117 Published: Sep 30, 1981. Publicly Released: Sep 30, 1981.
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Highlights

In response to a congressional request, GAO reviewed the effectiveness of the practices and procedures of: (1) the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC) for ensuring that pension plan terminations are reported; (2) IRS for processing plan terminations; and (3) IRS for ensuring compliance with income tax requirements by individuals receiving pension benefits.

Recommendations

Matter for Congressional Consideration

Matter Status Comments
Congress should enact legislation requiring plan sponsors to request an IRS determination for tax qualification of terminating pension plans before plan dissolution.
Closed – Not Implemented
Congress has taken no action on this recommendation. Therefore, follow-up on this recommendation should be discontinued in accordance with the GAO Project Manual, in that GAO follow-up on recommendations to Congress should be considered satisfied when Congress has not acted on the recommendation in 22 months.

Recommendations for Executive Action

Agency Affected Recommendation Status
Internal Revenue Service The Commissioner of IRS should: (1) establish quality control procedures to ensure that termination applications approved contain all necessary data for making such determinations; (2) establish a level of turnover for reviewers to use in deciding whether to question participant departures before plan termination; and (3) identify documentation for reviewers to obtain when questioning possible discriminatory vesting, participant forfeitures, and questionable benefit distributions.
Closed – Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Internal Revenue Service The Commissioner of IRS, in cooperation with PBGC, should use the automated records of both agencies to identify nonreporters of plan terminations.
Closed – Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Pension Benefit Guaranty Corporation The Executive Director of PBGC, in cooperation with IRS, should use the automated records of both agencies to identify nonreporters of plan terminations. In addition, the Executive Director should establish procedures for timely follow-up with potential nonreporters to ensure participants in terminated plans, entitled to retirement benefit insurance, are afforded the protection intended by Congress under ERISA.
Closed – Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Internal Revenue Service The Commissioner of IRS should determine for tax year 1982 the amount of pension payouts reported by employers as capital gains to employees and whether an effective method to compare such reporting with individual tax returns can be developed. If an effective comparison method cannot be developed, the employer reporting requirements of pension payouts as capital gains should be discontinued.
Closed – Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Internal Revenue Service The Commissioner of IRS should use relevant reporting areas on individual tax returns, such as a reported rollover for computer matching with employer pension payout reports, to alleviate the need for manual reviews.
Closed – Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Internal Revenue Service The Commissioner of IRS should develop procedures for testing employers' filing compliance of pension payouts by obtaining, on pension plan annual reports, summary information on the number of payouts made above established dollar tolerances during the year to be compared with employer summary miscellaneous income reports.
Closed – Implemented
When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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Topics

BeneficiariesConsumer protectionEmployee retirement plansFederal taxesPersonal income taxesPensionsTax administrationComputer matchingTax returnsTaxes