Pension Plans:

IRS Needs to Strengthen Its Enforcement Program

HRD-91-10: Published: Jul 2, 1991. Publicly Released: Aug 5, 1991.

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Pursuant to a congressional request, GAO evaluated the effectiveness of the Internal Revenue Service's (IRS) Employee Retirement Income Security Act of 1974 (ERISA) enforcement program, focusing on recent changes that shifted resources from reviewing plan designs to examining plan activities.

GAO found that: (1) in recent years, IRS spent most ERISA enforcement resources on reviewing and approving plan designs, rather than examining plan operations, due to frequent changes in ERISA which required companies to repeatedly amend their pension plans; (2) increasing the emphasis on examinations, working on new approaches for targeting potential violators, and initiating a new quality assurance program should improve the security of participants' benefits and ensure compliance with ERISA; (3) results of examinations by the IRS taxpayer compliance measurement program (TCMP) to evaluate the effectiveness of enforcement efforts and develop criteria for targeting plans showed that of the plans examined, 32 percent required some change in their design or operation to comply with ERISA; (4) the IRS program for identifying plans with ERISA violations has not been as effective as expected, due to outdated TCMP selection criteria and the large number of plans examined by inexperienced staff for training purposes; (5) IRS was testing an alternative examination selection system which would enable it to select plans with multiple characteristics that suggest a high potential for ERISA violations, and periodically revise new criteria without waiting for TCMP results; (6) IRS initiated a new quality assurance program in February 1990 to review each district office's employee plan operations every 2 years, but it lacked a sufficient sample size to statistically evaluate the quality of such examinations; and (7) if IRS expectations for high participation in its volume submitter program are not realized, it will have to either shift enforcement resources from conducting examinations or approve many design changes without a detailed review, which could result in the approval of plans that do not comply with ERISA.

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

    Recommendations for Executive Action

    Recommendation: The Commissioner of Internal Revenue should direct the Assistant Commissioner, Employee Plans and Exempt Organizations, to include plan underfunding among the criteria for targeting plans for examination.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: IRS directed its field office to devote at least 10 percent of its fiscal year 1992 examination time to returns with minimum funding issues. According to IRS officials, most field offices will meet or exceed the 10 percent. In addition, underfunded plans are targeted in the proposed 1993 work plan, and IRS announced that it will undertake a 2.5 year study on pension plan underfunding.

    Recommendation: The Commissioner of Internal Revenue should direct the Assistant Commissioner, Employee Plans and Exempt Organizations, to revise quality assurance procedures so that enough examinations are reviewed to draw statistically valid conclusions about examination quality.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: IRS has transferred responsibility for examination review from headquarters to the regional offices. The regions were directed to randomly sample at least 10 percent of the population, which exceeds the number GAO considered necessary to draw statistically valid conclusions.

    Recommendation: The Commissioner of Internal Revenue should direct the Assistant Commissioner, Employee Plans and Exempt Organizations, to develop a strategy to determine whether approving nonstandardized plans without detailed review adversely affects plan participants and compliance with ERISA.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Not Implemented

    Comments: Due to delays in issuing regulations, the anticipated workload that gave rise to the recommendation has not materialized. While it still could, preliminary indications are that the volume of nonstandardized plans will be less than previously anticipated. IRS believes its procedures are flexible enough to deal with whatever problems arise without implementing the recommendation.

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