Private Pensions: Targeted Revisions Could Improve Usefulness of Form 5500 Information
Highlights
What GAO Found
In a two-phase online GAO survey, stakeholders identified problems with the usefulness, reliability, and comparability of data from the Form 5500 (see table). Despite longstanding concerns with the Form 5500—the annual report that employee benefit plans file with the federal government—agency officials have made only minimal changes over the last 3 years.
Key Challenges Identified with Form 5500
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Weaknesses in the format |
Plan asset categories break out plan assets differently from the investment industry, and provide little insight into plan investments, their structure, or the level of associated risk. In particular, the majority of respondents indicated that the “other” plan asset category in the form is too broad because it can include many disparate types of investments. Respondents also indicated challenges in identifying the underlying holdings of plan assets invested in indirect investments. |
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Challenges in finding key information |
The form lacks detailed information on plan investments because there is no structured, data-searchable format for attachments to the form and the filing requirements on plan investments is limited for small plans, which have less than 100 participants. |
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Inconsistent data |
Naming conventions and identification numbers may be inconsistent, making it difficult to collect and accurately match records. |
Source: GAO analysis of survey responses from our two-phase Form 5500 stakeholders panel.
Stakeholders said the form's information on service provider fees was misaligned with other required fee disclosures, and also cited various exceptions and gaps in current reporting requirements as major challenges. Specifically, Form 5500 service provider fee information does not align with other information that service providers must disclose to plan sponsors, forcing providers to produce two different sets of information. Also, differences in service provider compensation types and the lack of definitions for codes designating the types of services provided can result in inconsistent and incomplete data being reported. Other exceptions and gaps in service provider information result in an incomplete picture of plan fees. For example, large plans—those with 100 or more participants—are not required to report fee information for certain types of compensation and small plans file only limited fee information.
The Department of Labor (DOL), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) face significant administrative, statutory, and contractual challenges to collecting and revising the annual reporting information required for regulating private pensions. While the rulemaking process and other informal efforts to solicit stakeholder input have provided opportunities for public reaction to proposed changes to the form, these opportunities have been limited and have not included the advance testing OMB guidance suggests. Stakeholder input could lower costs by reducing subsequent changes, improve filer comprehension, and increase the comparability and reliability of the form's data. Additionally, a statutory prohibition against requiring electronic filing caused IRS to remove certain data elements from the Form 5500 after DOL mandated electronic filing of the form. If IRS were able to require electronic filing, it could add the data elements back to the form, which would improve its compliance, restore robust information to its enforcement activities, and decrease its data collection costs.
Why GAO Did This Study
The Form 5500 is the primary means of collecting information for use by the federal government and the private sector on retirement plan assets, which exceeded $6 trillion in fiscal year 2011. Stakeholders, including those who prepare and use the form, have raised concerns about the quality and usefulness of form data. GAO was asked to review Form 5500 plan investment and fee information.
In this report, GAO examined: (1) stakeholder problems with Form 5500 plan investment information; (2) stakeholder problems with Form 5500 service provider fee information, and (3) challenges DOL, IRS, and PBGC face in collecting and revising Form 5500 information. GAO surveyed a panel of plan sponsors, service providers, representatives of plan participants, and researchers; interviewed agency officials; and reviewed studies on Form 5500 data.
Recommendations
GAO recommends DOL, Treasury, and PBGC consider modifying Form 5500 plan investment and service provider fee information to address challenges identified by our panel. DOL, Treasury, and PBGC should look for options to conduct advance testing when making major revisions to the form. Congress should consider granting Treasury authority to require Form 5500 data be filed electronically. PBGC agreed with the recommendations. DOL and Treasury did not state whether they agreed or disagreed with the recommendations; however, they identified actions underway to address the first recommendation. GAO continues to believe the recommendations are valid.
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| To improve IRS's enforcement and compliance efforts, decrease the administrative and financial burden of maintaining both electronic and paper-based form processing systems, and reduce plan reporting costs, Congress should consider providing the Department of the Treasury with the authority to require that the Form 5500 series be filed electronically. | As of March 2024, Congress has taken no action on this matter. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Labor | To ease the burden on preparers and ensure the collection of consistent and reliable data, the Secretaries of DOL and Treasury, and the Director of PBGC should conduct advance testing--such as focus groups, in-person observations and users' perception of forms and questions--as appropriate and before proposing major changes to the form for public comment, in addition to its other outreach efforts. |
IRS and PBGC have agreed to consult with DOL on the potential benefits and costs of conducting advanced testing, such as focus groups, in-person observations, and users' perceptions of forms and questions, before proposing major changes to the form for public comment.
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| Department of the Treasury | To ease the burden on preparers and ensure the collection of consistent and reliable data, the Secretaries of DOL and Treasury, and the Director of PBGC should conduct advance testing--such as focus groups, in-person observations and users' perception of forms and questions--as appropriate and before proposing major changes to the form for public comment, in addition to its other outreach efforts. |
IRS agreed to consult with the DOL and the PBGC on the potential benefits and costs of conducting advanced testing, such as focus groups, in-person observations, and users' perceptions of forms and questions, before proposing major changes to the form for public comment.
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| Pension Benefit Guaranty Corporation | To ease the burden on preparers and ensure the collection of consistent and reliable data, the Secretaries of DOL and Treasury, and the Director of PBGC should conduct advance testing--such as focus groups, in-person observations and users' perception of forms and questions--as appropriate and before proposing major changes to the form for public comment, in addition to its other outreach efforts. |
PGBC agreed with this recommendation, and stated that it would work with DOL and Treasury to explore options to conduct advance testing when making revisions to the form.
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| Department of Labor | To improve the usefulness, reliability, and comparability of Form 5500 data for all stakeholders while limiting the burden on the filing community, the Secretaries of DOL and Treasury, and the Director of PBGC should consider implementing the findings from our panel when modifying plan investment and service provider fee information, including: (1) revising Schedule H plan asset categories to better match current investment vehicles and provide more transparency into plan investments; (2) revising the Schedule of Assets attachments to create a standard searchable format; (3) developing a central repository for EIN and PN numbers for filers and service providers to improve the comparability of form data across filings; (4) clarifying Schedule C instructions for direct, eligible indirect, and reportable indirect compensation so plan fees are reported more consistently and, as we recommended in the past, better align with the 408(b)(2) fee disclosures; and (5) simplifying and clarify Schedule C service provider codes to increase reporting consistency. |
DOL has made significant efforts to improve form 5500 reporting, including most recently in 2023 when DOL issued a third final rule and final form revisions to address consolidated Form 5500 reporting by certain defined contribution plan groups and reporting by multiple-employer plans (including pooled employer plans). The final rule and forms revisions, as well as changes, intend to improve reporting of certain plan financial information regarding audits and plan expenses and enhance the reporting of certain tax qualification and other compliance information by retirement plans. There were also some minor changes that further improve defined benefit plan reporting by building on changes made to the forms for plan years beginning on or after January 1, 2022. Per the normal annual reporting schedule, the 2023 revised Form 5500 series of forms and instructions were scheduled to be released for filing as part of the EFAST2 electronic filing system on January 1, 2024. However, based on public comments, DOL decided not to include elements of its 2021 modification proposal that included improved financial transparency and data usability. While a separate Form 5500 project is on DOL's semi-annual regulatory agenda that includes consideration of broader improvements to the Form report requirements, DOL has not reached a final decision on what financial transparency data and usability elements will be included in the broader improvement project. With these actions, DOL has considered modifications to the Form 5500 to address challenges identified by our panel and implemented some revisions. However, DOL has not finalized a decision on what, if any, financial transparency data and usability element will be implemented as part of Form 5500 project. We encourage DOL to continue these efforts, which could lead to further modifications in Form 5500 address the financial transparency and data usability concerns identified by our panel. We will close the recommendation once modifications around further financial transparency and data utilization to the form are finalized.
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| Department of the Treasury | To improve the usefulness, reliability, and comparability of Form 5500 data for all stakeholders while limiting the burden on the filing community, the Secretaries of DOL and Treasury, and the Director of PBGC should consider implementing the findings from our panel when modifying plan investment and service provider fee information, including: (1) revising Schedule H plan asset categories to better match current investment vehicles and provide more transparency into plan investments; (2) revising the Schedule of Assets attachments to create a standard searchable format; (3) developing a central repository for EIN and PN numbers for filers and service providers to improve the comparability of form data across filings; (4) clarifying Schedule C instructions for direct, eligible indirect, and reportable indirect compensation so plan fees are reported more consistently and, as we recommended in the past, better align with the 408(b)(2) fee disclosures; and (5) simplifying and clarify Schedule C service provider codes to increase reporting consistency. |
IRS and PBGC have collaborated with DOL on developing proposed revisions to the Form 5500 Series, while DOL has separately led efforts to implement the proposed revisions given its primary use of the revised material. In July 2016 , the agencies issued a joint Notice of Proposed Forms Revisions and a related DOL Notice of Proposed Rulemaking as part of an overall re-examination of the Form 5500. The proposed revisions were later classified as a long-term action in DOL's spring 2018 regulatory agenda. In 2020, a new project to improve generally the Form 5500 report and data was added to the Fall 2020 regulatory agenda. A separate 5500 project is being added to the semi-annual agenda that is more narrowly focused on implementing certain annual reporting provisions in the Setting Every Community Up for Retirement Enhancement (SECURE) Act relating to consolidated reporting for certain groups of defined contribution plans (with a statutory deadline of December 31, 2021) and multiple employer plans. Both projects are tri-agency initiatives with Treasury/IRS and PBGC. Both projects are still in development and will consider this recommendation as part of the development process. In September 2021, DOL issued a proposed rule to revise the Form 5500 with the intent to make the reporting of financial information more useful and usable. With these actions, IRS has considered modifications to the Form 5500 to address challenges identified by our panel.
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| Pension Benefit Guaranty Corporation | To improve the usefulness, reliability, and comparability of Form 5500 data for all stakeholders while limiting the burden on the filing community, the Secretaries of DOL and Treasury, and the Director of PBGC should consider implementing the findings from our panel when modifying plan investment and service provider fee information, including: (1) revising Schedule H plan asset categories to better match current investment vehicles and provide more transparency into plan investments; (2) revising the Schedule of Assets attachments to create a standard searchable format; (3) developing a central repository for EIN and PN numbers for filers and service providers to improve the comparability of form data across filings; (4) clarifying Schedule C instructions for direct, eligible indirect, and reportable indirect compensation so plan fees are reported more consistently and, as we recommended in the past, better align with the 408(b)(2) fee disclosures; and (5) simplifying and clarify Schedule C service provider codes to increase reporting consistency. |
PBGC and IRS have collaborated with DOL on developing proposed revisions to the Form 5500 Series, while DOL has separately led efforts to implement the proposed revisions given its primary use of the revised material. In July 2016 , the agencies issued a joint Notice of Proposed Forms Revisions and a related DOL Notice of Proposed Rulemaking as part of an overall re-examination of the Form 5500. The proposed revisions later were classified as a long-term action in DOL's spring 2018 regulatory agenda. In 2020, a new project to improve generally the Form 5500 report and data was added to the Fall 2020 regulatory agenda. A separate 5500 project is being added to the semi-annual agenda that is more narrowly focused on implementing certain annual reporting provisions in the Setting Every Community Up for Retirement Enhancement (SECURE) Act relating to consolidated reporting for certain groups of defined contribution plans (with a statutory deadline of December 31, 2021) and multiple employer plans. Both projects are tri-agency initiatives with Treasury/IRS and PBGC that are still in development and will consider this recommendation as part of the development process. In September 2021, DOL issued a proposed rule to revise the Form 5500 with the intent to make the reporting of financial information more useful and usable. With these actions, PBGC has considered modifications to the Form 5500 to address challenges identified by our panel.
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