Private Pensions: Government Actions Could Improve the Timeliness
and Content of Form 5500 Pension Information (03-JUN-05,
GAO-05-491).
The Form 5500 is the primary source of information for both the
federal government and the private sector regarding the
operation, funding, assets, and investments of private pension
and other employee benefit plans. Currently, the Department of
Labor (Labor) requires about 3 years to provide certain usable
Form 5500 information to the public, leading to complaints that
the information is not timely. We have prepared this report under
the Comptroller General's authority, and it is intended to assist
Congress in improving the timeliness and content of Form 5500
information. This report is addressed to the congressional
committees of jurisdiction. It examines: (1) the information
reported on the form and how it is used, (2) factors that affect
the timeliness of Form 5500 information, and (3) issues affecting
the content of the form.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-491
ACCNO: A25719
TITLE: Private Pensions: Government Actions Could Improve the
Timeliness and Content of Form 5500 Pension Information
DATE: 06/03/2005
SUBJECT: Data collection
Electronic forms
Employee retirement plans
Federal forms
Information resources management
Pensions
Records management
Reporting requirements
Retirement
Retirement benefits
Timeliness
DOL ERISA Filing Acceptance System
DOL Form 5500 Data Base
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GAO-05-491
United States Government Accountability Office
GAO
Report to Congressional Committees
June 2005
PRIVATE PENSIONS
Government Actions Could Improve the Timeliness and Content of Form 5500 Pension
Information
GAO-05-491
[IMG]
June 2005
PRIVATE PENSIONS
Government Actions Could Improve the Timeliness and Content of Form 5500 Pension
Information
What GAO Found
Detailed information on private pension plans is reported on the Form
5500, and Labor, IRS, and PBGC use the information for compliance,
research, and public disclosure purposes. Information collected on the
form includes basic plan identifying information as well as detailed
information including assets and liabilities, insurance, and financial
transactions. The principal users of Form 5500 Reports-Labor, IRS, and
PBGC-use the reports primarily as a compliance tool to identify actual and
potential violations of the Employee Retirement Income Security Act of
1974 and the Internal Revenue Code. Other federal agencies and policy
researchers also use Form 5500 information.
Statutory reporting requirements, processing issues, and current Labor
practices affect the timeliness of the release of Form 5500 information,
resulting in a 3 year lag, in some cases, in releasing certain usable
computerized Form 5500 information to the non-principal federal agencies
and others. First, under the current statutory reporting requirements,
filers can have up to 285 days after the end of the plan year to file
their Form 5500. Second, 98 percent of filings are in a paper format.
These take more than three times as long as electronic filings to process
and have twice as many errors. Third, the release of the Form 5500
information in the research file- the Form 5500's most practical form-is
further delayed because Labor waits until all filings for that plan year
are processed, which can take up to 2 years.
Despite the efforts of Labor, IRS, and PBGC to improve its content, the
Form 5500 lacks key information. These agencies have taken certain steps
to improve the content of the Form 5500, such as reviewing the Form 5500
annually to ensure that the form is collecting all the information
required by law. However, the form still lacks key information that could
better assist Labor, IRS, and PBGC in identifying and tracking all plans
over time and monitoring multiemployer plans. Federal and private sector
researchers also told us the form could collect better plan financial
information, such as 40l(k) plan fees. In addition, federal agency
officials told us certain information could be reported earlier than the
current filing deadline, such as information on a plan's funding status,
as well as its assets and liabilities.
Timeliness of the Processing and Release of Form 5500 Information
United States Government Accountability Office
Contents
Letter
Results in Brief
Background
Form 5500 Reports Provide Detailed Private Pension Plan
Information, Which Is Primarily Used to Determine Compliance with Federal
Laws Statutory Reporting Requirements, Current Processing Methods, and
Labor Practices Delay the Release of Form 5500 Information Despite Efforts
to Improve Its Content, the Form 5500 Lacks Key
Information Conclusions Recommendations Agency Comments
1
3 6
11
20
36 43 44 46
Appendix I Comments from the Department of Labor
Appendix IIComments from the Pension Benefit Guaranty Corporation
Appendix III Comments from the Internal Revenue Service
Appendix IV GAO Contacts and Staff Acknowledgments
Tables
Table 1: Information Reported on the Form 5500 and Schedules 12 Table 2:
Filing Requirements for Form 5500, Schedules, and Attachments 14 Table 3:
Examples of Federal Agencies That Use Form 5500 Information 18 Table 4:
Recommendations from Pension Practitioners and Service Providers for
Further Streamlining the Form 5500 43
Figures
Figure 1: Participants of Defined Benefit and Defined Contribution Pension
Plans, 1980-2000
Figure 2: Assets of Defined Benefit and Defined Contribution Pension
Plans, 1980-2000
Figure 3: Defined Benefit and Defined Contribution Pension Plans,
1980-2000
Figure 4: Example of Statutory Deadlines to File Form 5500 for Calendar
Year Plan
Figure 5: Timeline of Statutory Deadlines for a Calendar Year Plan
Figure 6: Example of Coordination and Information Flow Required for Form
5500 Preparation
Figure 7: Example of a Timeline of Form 5500 Preparation for a Calendar
Year Defined Benefit Plan
Figure 8: Form 5500 Reports
Figure 9: Example of a Form 5500 Being Processed through EFAST with Errors
Figure 10: Timeline for the Preparation of the 2000 Form 5500 Research
File
8
9
10
21 22
24
27 29
32
34
Abbreviations
ARC Actuarial Research Corporation
CCT common or collective trust
DFE direct filing entity
EBSA Employee Benefits Security Administration
EFAST ERISA Filing Acceptance System
EIN employer identification number
ERISA Employee Retirement Income Security Act of 1974
ESOP Employee Stock Ownership Plan
GDI gross domestic income
GDP gross domestic product
GIC guaranteed investment contract
IRC Internal Revenue Code
IRS Internal Revenue Service
Labor Department of Labor
MTIA master trust investment account
OCR Optical Character Recognition
OMB Office of Management and Budget
OPR Office of Policy and Research
PBGC Pension Benefit Guaranty Corporation
PIN personal identification number
PSA pooled separate account
RICS Returns and Inventory Classification System
SAR Summary Annual Report
SEC Securities and Exchange Commission
SSA Social Security Administration
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.
United States Government Accountability Office Washington, DC 20548
June 3, 2005
Congressional Committees
The Form 5500 Report is the primary source of information for both the
federal government and the private sector regarding the operation,
funding, assets, and investments of private pension plans and other
employee benefit plans.1 The Department of Labor (Labor), the Internal
Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC)
jointly developed the Form 5500 so employee benefit plans could satisfy
annual reporting requirements under the Employee Retirement Income
Security Act of 1974 (ERISA) and the Internal Revenue Code (IRC). Over
700,000 private pension plans must file the Form 5500 annually,
representing over $4.4 trillion in assets and covering over 100 million
participants.
Labor, IRS, and PBGC use the Form 5500 to collect information for their
various roles in regulating and monitoring private pension plans. Labor
enforces ERISA's reporting and disclosure provisions and fiduciary
responsibility standards, which among other things, concern the type and
extent of information provided to the federal government and plan
participants and how pension plans are operated in the interests of plan
participants. IRS enforces standards that relate to such matters as how
employees become eligible to participate in benefit plans, how they become
eligible to earn rights to benefits, and how much, at a minimum, employers
must contribute. PBGC insures the benefits of participants in defined
benefit private pension plans.2
We have prepared this report under the Comptroller General's authority,
and it is intended to assist the Congress in improving the timeliness and
content of Form 5500 pension information. As it may prove helpful in the
deliberations of committees with jurisdiction over pension issues, we have
1For the purposes of this report, we will be discussing Form 5500 Reports
as they relate to private pension plans.
2Some defined benefit plans are not covered by PBGC insurance; for
example, plans sponsored by professional service employers, such as
physicians and lawyers, with 25 or fewer employees. Some employers do not
include all their employees in their defined benefit plans.
addressed this report to each of these committees. Recent changes in
private pension finance have highlighted the need for timely and useful
Form 5500 information. Since 2000, private pension underfunding in defined
benefit plans has increased dramatically, and additional severe losses may
be on the horizon. Consequently, we placed PBGC's singleemployer insurance
program on our high-risk list of programs that present significant
vulnerabilities to the federal government, and policy makers have given
their attention to ways to strengthen and stabilize plan funding.3
In 1999, Labor, IRS, and PBGC implemented a new computerized system called
the ERISA Filing Acceptance System (EFAST) to improve the processing of
the forms. Because it is important that pension information be both timely
and useful, we are reporting on (1) the information reported on the Form
5500 and how it is used, (2) the factors that affect the timeliness of
Form 5500 information, and (3) issues affecting the content of the Form
5500.
To complete this work, we reviewed the Form 5500 and its filing
requirements and the laws that require the filing of regulatory reports on
pensions. We also interviewed officials from Labor, IRS, PBGC, and other
federal agencies as well as pension experts that use this information. In
addition, we analyzed documents regarding the Form 5500 information
federal agencies collect and their reasons for obtaining it. As a basis
for our analysis of the factors that affect the timeliness of Form 5500
information, we examined the Form 5500 statutory reporting requirements as
well as the preparation and processing procedures for the Form 5500. We
interviewed representatives of the contractor that operates EFAST to
determine the amount of time needed to process Form 5500 Reports. Further,
we reviewed EFAST operating procedures, contracts, and performance
reports, and conducted a site visit to the EFAST processing center to
examine how Form 5500 Reports are processed. We also conducted interviews
with parties involved in preparing and filing Form 5500 Reports, including
plan sponsor representatives, actuaries, accountants, service providers,4
insurance companies, and financial institutions to determine the time and
effort that is needed to prepare and file the forms.
3GAO, High Risk Series: An Update, GAO-05-207 (Washington, D.C.: January
2005).
4Throughout this report, the term "service providers" will be used to
refer to those private sector entities that prepare Form 5500 Reports on
behalf of plan sponsors.
To determine the factors affecting the release of usable Form 5500
information to the public, we interviewed Labor officials responsible for
releasing Form 5500 information products to the public and to government
users. We also interviewed the government contractors that participate in
the preparation of these Form 5500 products. To determine the issues
affecting the content of the Form 5500, we reviewed current initiatives
aimed at improving its content and conducted interviews with federal
agency officials, industry association representatives, service providers,
and pension experts that either use or prepare Form 5500 Reports. We
conducted our work between June 2004 and June 2005 in accordance with
generally accepted government auditing standards.
Results in Brief
Detailed information on private pension plans is reported on the Form
5500, and Labor, IRS, and PBGC use the information for compliance,
research, and public disclosure purposes. Information collected on the
form includes basic plan identifying information as well as detailed plan
information including assets, liabilities, insurance and financial
transactions plus financial statements audited by an independent public
accountant, and for defined benefit plans, an actuarial statement. In
addition, information about plan characteristics, such as plan type
(defined benefit or defined contribution),5 method of funding, numbers of
employees and participants, and employees who are excluded from the plan
for various reasons are also reported on the form. The principal users of
Form 5500 information include Labor, IRS, and PBGC. These agencies use
Form 5500 Reports primarily as a compliance tool to identify actual and
potential violations of ERISA and the IRC. They also use the Form 5500 to
develop pension plan statistics and support policy formulation. In
addition to the three principal users, other federal agencies,
researchers, and private sector entities also use Form 5500 information to
publish government statistics and assess employee benefit, tax, and
economic trends and policies. The Form 5500 is also made available to the
general public, and Labor makes the information available to public
agencies, private organizations, and individuals.
5Defined benefit plans provide a guaranteed benefit generally expressed as
a monthly benefit based on a formula that combines salary and years of
service to the company. These plans express benefits as an annuity, but
many offer departing participants the opportunity to receive lump sum
distributions. Defined contribution plans establish individual accounts
for employees to which employers, participants, or both make periodic
contributions. In addition, defined contribution plan participants may be
able to direct the investment of the assets in their accounts.
Statutory reporting requirements, processing issues, and current Labor
practices affect the timeliness of the release of available Form 5500
information, in some cases, resulting in a 3 year delay in non-principal
federal agencies, researchers, and others receiving usable computerized
Form 5500 information. First, under the current statutory reporting
requirements, filers have up to 285 days to file their Form 5500s-a plan
has 210 days from the end of the plan year to file its Form 5500, and
filers may apply for an extension of an additional 2 1/2 months. Service
providers have told us this time frame is necessary because of the
coordination with multiple parties, such as actuaries, accountants, and
insurance companies to obtain information. Second, once the form is
submitted, it must be processed through EFAST, which further affects the
timeliness. Given that there is no electronic filing requirement and the
process for plan sponsors to obtain and use an electronic signature to
authenticate filings is burdensome, 98 percent of filings are submitted in
a paper format, which Labor reported can take more than three times longer
to process than electronic filings and contain twice as many errors. Also,
EFAST's data correction process can add up to 120 days to the processing,
largely because once Form 5500s are submitted, the errors are caught and
corrections are done through a paper-based correspondence process with the
plan sponsors. Third, once the forms have been processed through EFAST,
Labor waits until it has processed all filings for that plan year before
releasing Form 5500 information in its most practical form-the research
file. Labor's practice results in additional delays, because some filings
may be caught up in EFAST's lengthy correspondence process to reconcile
errors, and non-calendar year plan filings could be submitted up to a year
later than calendar year plan filings but still be considered part of the
same plan year. Agency officials told us that the timeliness of Form 5500
Reports affects their use of the information.
Despite the efforts of Labor, IRS, and PBGC to improve its content, the
Form 5500 lacks key information. Each agency has taken steps to improve
the content of the form, such as reviewing the Form 5500 annually and
revising its content as needed to ensure that the form is collecting all
the information required by law. Labor, IRS, and PBGC officials told us
that to some extent, they use all of the information collected on the Form
5500. However, the form still lacks key information that could better
assist these three agencies in monitoring plans and ensuring that they are
in compliance with the law. For example, each agency is unable to
accurately identify and track all plans from one year to the next based on
Form 5500 information, which impairs Labor's ability to verify whether all
required employers are meeting the statutory requirement to file a Form
5500 annually. Additionally, PBGC is unable to identify employers
participating
in multiemployer pension plans and the risks attending their financial
condition, leaving the agency unable to gauge the impact that events such
as employer bankruptcies, withdrawals, and labor strikes would have on
multiemployer plans, their participants, and PBGC's multiemployer
insurance program. In addition, federal agency officials and researchers
who use Form 5500 information say that the form has not kept pace with
changes that have occurred in the pension plan universe, such as the shift
from defined benefit to defined contribution plans. Consequently, the form
lacks certain information on defined contribution plans that they say
would give them further insight into the condition of the private pension
plan universe, such as detailed financial information on plan fees and
401(k) plan matching contributions, which could be used for research or
regulatory purposes. With regard to defined benefit plans, federal and
private sector researchers said the form does not collect data that would
inform users whether defined benefit plans have sufficient assets to meet
their obligations in the event of the plan's termination. Although federal
agency officials and others said the form lacks certain information,
pension practitioners and service providers told us that it could be
further streamlined by removing certain items and consolidating schedules.
Because the Form 5500 is the only comprehensive source of financial and
other plan information on private pension plans collected on a regular
basis, and is therefore important to pension policy development and
enforcement, we make several recommendations to Labor, IRS, and PBGC that
are intended to improve the timeliness and content of Form 5500 pension
information. These recommendations include (1) requiring the electronic
filing of Form 5500 Reports, (2) working collectively to better identify
and track plans from year to year, and (3) modifying the Form 5500 to
collect additional information on multiemployer pension plans. In general,
Labor, IRS, and PBGC agreed with our recommendations. Additionally, PBGC
proposed an additional recommendation regarding the timeliness of defined
benefit pension plan funding information reported on Form 5500 Schedule B.
The Administration's pension reform proposal includes a provision that
would advance the statutory reporting date for the Schedule B to February
15 for certain large defined benefit plans. Although our work focused on
the timeliness of processing Form 5500 data, we agree that advancing the
reporting date for certain plans could be an important element of
comprehensive pension reform.
Background
ERISA and the IRC require administrators of pension and welfare benefit
plans (collectively referred to as employee benefit plans) to file annual
reports concerning, among other things, the financial condition and
operation of plans. Labor, IRS, and PBGC jointly developed the Form 5500
so that plan administrators can satisfy this annual reporting
requirement.6 The requirements for completing the form vary according to
the type of plan. If a company sponsors more than one plan, it must file a
Form 5500 for each plan. Additionally, ERISA and the IRC provide for the
assessment or imposition of penalties by Labor and IRS for plan sponsors
not submitting the required information when due.7
Form 5500 Reports are shared among Labor's Employee Benefits Security
Administration (EBSA), IRS, PBGC, and the Social Security Administration
(SSA), and each agency uses the Form 5500 to meet its statutory
obligations. EBSA is responsible for the administration and enforcement of
ERISA, and its primary purpose is to protect the pension, health, and
other benefits of participants in private sector employee benefit plans.
IRS oversees the tax code provisions of the law. PBGC is a federal
government corporation that guarantees the payments of pension plan
benefits to participants in the event that covered defined benefit pension
plans terminate while underfunded. SSA is responsible for notifying each
new Social Security or Medicare claimant for whom it has pension benefit
information. Form 5500 Reports are also made available to other federal
agencies and researchers through Labor. Once the forms for a given plan
year are processed by EFAST they are available for enforcement and public
disclosure purposes. In addition, after the forms are edited by Labor, the
information is compiled into a database of usable computerized Form 5500
information, known as the research file, which includes information from
all plans with over 100 participants and a 5 percent sample of all of the
smaller plans. The research file is used by various federal agencies and
pension researchers for conducting policy research and developing
government statistics.
6A plan administrator is the person specifically designated by the terms
of the instrument under which the plan is operated.
7A plan sponsor is defined as the employer, in the case of a
single-employer plan, or employee organization in the case of a plan
established or maintained by two or more employers or jointly by one or
more employers or employee organizations.
Beginning with plan year 1999, EBSA assumed the administrative
responsibility for accepting all Form 5500 filings, electronic and
otherwise, which had previously been filed with IRS. As part of the
switch, Labor, IRS and PBGC adopted EFAST, which was designed to expedite
the receipt and processing of Form 5500 filings by relying on paper forms
and electronic filing technologies. Collectively, all three agencies have
authority to mandate the electronic filing of the Form 5500.8
There are various types of Form 5500 filers. Filers are classified as
either single-employer plans, multiemployer plans, multiple-employer
plans, or direct filing entities (DFEs). In general, a separate Form 5500
must be filed for each plan or DFE. Single-employer plans are plans that
are maintained by one employer or employee organization. Multiemployer
plans are established pursuant to collectively bargained pension
agreements negotiated between labor unions representing employees and two
or more employers, and are generally jointly administered by trustees from
both labor and management. Multiple-employer plans are plans maintained by
more than one employer and are typically established without collective
bargaining agreements. DFEs are trusts, accounts, and other investment or
insurance arrangements that plans participate in and that are required to
or allowed to file the Form 5500.9
Filers have a normal deadline of 210 days after the end of the plan year
to submit their Form 5500 Reports. For example, under the filing deadlines
for plan year 2001, a calendar year filer must file its Form 5500 by July
31, 2002. However, a non-calendar year plan, for example, that has a plan
year that runs from October 1, 2001 to September 30, 2002 would have until
April 30, 2003 to file its Form 5500.10
When the Form 5500 was first developed, nearly 30 years ago, more
participants were covered by defined benefit plans than by defined
8Labor officials told us that under Title I of ERISA they have authority
to require the electronic filing of their respective components of the
Form 5500. PBGC officials said they have similar authority under Title IV
of ERISA. IRS officials also said that under IRC they have authority to
require the electronic filing of their respective components of the Form
5500.
9These trusts, accounts, and other investment arrangements include master
trust investment accounts (MTIAs), common or collective trusts (CCTs),
pooled separate accounts (PSAs), and 103-12 investment entities (103-12
IEs).
10Labor regulations operationalize the deadline to the end of the seventh
month after the close of the plan year (29 C.F.R. sec 2520.104a-5).
contribution plans. As shown in figure 1, in 2000, defined contribution
plans had about 62 million participants, while defined benefit plans had
about 41 million participants.
Figure 1: Participants of Defined Benefit and Defined Contribution Pension
Plans, 1980-2000
Participants (in thousands)
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Year
Defined contribution
Defined benefit
Source: Private Pension Plan Bulletin: Abstract of 1999 Form 5500 Annual
Reports, Labor. Data for year 2000 comes from Labor's 2000 preliminary
Form 5500 research file.
As shown in figure 2, as of 1997, assets held by defined contribution
plans exceed those held by defined benefit plans.
Figure 2: Assets of Defined Benefit and Defined Contribution Pension
Plans, 19802000
2004 dollars (in billions) 3,000
2,500
2,000
1,500
1,000
500
0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Year
Defined contribution
Defined benefit Source: Private Pension Plan Bulletin: Abstract of 1999
Form 5500 Annual Reports, Labor. Data for year 2000 comes from Labor's
2000 preliminary Form 5500 research file.
As shown in figure 3, as of 2000, employers sponsored over 687,000 defined
contribution plans compared with about 49,000 defined benefit plans.
Figure 3: Defined Benefit and Defined Contribution Pension Plans,
1980-2000
Plans (in thousands)
800
700
600
500
400
300
200
100
0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Year
Defined contribution
Defined benefit
Source: Private Pension Plan Bulletin: Abstract of 1999 Form 5500 Annual
Reports, Labor. Data for year 2000 comes from Labor's 2000 preliminary
Form 5500 research file.
Unlike defined contribution plans, where benefits are based on investment
returns on individual accounts, benefits provided by defined benefit
pension plans are partially insured by PBGC. In the case of a
singleemployer defined benefit plan, PBGC guarantees benefits when an
underfunded plan terminates. For multiemployer defined benefit pension
plans, the agency guarantees benefits when a plan becomes insolvent, which
is when a plan's available resources are not sufficient to pay the level
of benefits at PBGC's guaranteed level. PBGC's insurance programs and its
operations are financed through premiums paid annually by plan sponsors,
investment returns on PBGC assets, assets acquired from terminated
single-employer plans, and recoveries from employers responsible for
underfunded terminated single-employer plans.11 Premium revenue totaled
about $1.485 billion in 2004, of which $1.458 billion was
11PBGC receives no funds from federal tax revenues, but it is authorized
under ERISA to borrow up to $100 million from the federal treasury if it
has inadequate resources to meet its responsibilities.
paid into the single-employer insurance program and $27 million paid to
the multiemployer insurance program. This is the highest premium revenue
PBGC has ever received. In contrast, in 2004 PBGC paid $3.007 billion in
benefit payments and provided over $10 million in financial assistance to
insolvent multiemployer pension plans.
The termination of several large, underfunded defined benefit pension
plans of bankrupt firms in troubled industries has worsened the
singleemployer program's net financial position. After fluctuating over
the last decade, the single-employer insurance program now has a large and
growing accumulated deficit and has moved from a $9.7 billion accumulated
surplus in 2000 to a $23.3 billion accumulated deficit in 2004.
Additionally, the agency's multiemployer insurance program has a current
deficit of $236 million. Because of the decline in the financial condition
of the single-employer program, GAO placed it on its high-risk list of
programs with significant vulnerabilities to the federal government.
Detailed information on private pension plans is reported on the Form 5500
and is used by Labor, IRS, and PBGC for compliance, research, and public
disclosure purposes. Each agency uses data from Form 5500 Reports
primarily as a means to identify actual and potential violations of ERISA
and the IRC, as well as for research and policy formulation. Other federal
agencies, private sector entities, and researchers also use Form 5500 data
in assessing employee benefit, tax, and economic trends and policies. The
Form 5500 is also made widely available to the general public.12
Form 5500 Reports Provide Detailed Private Pension Plan Information, Which Is
Primarily Used to Determine Compliance with Federal Laws
12Although most of the Form 5500 information reported is made available,
certain information, including that reported on Schedule E and Schedule
SSA is not, as noted in table 1.
Form 5500 Reports The Form 5500 is used to collect important information
about the financial Provide Detailed health and operation of private
pension plans. Similar to the structure of Information about the an income
tax form, the Form 5500 has multiple parts. As shown in table 1, Financial
Condition and there is the Form 5500 and its 12 schedules. The main part
of the form
provides basic information to identify the plan and type of plan. The
form'sOperation of Private schedules provide more specific information
about the plan, such as Pension Plans financial information, actuarial
information, and insurance information.
Table 1: Information Reported on the Form 5500 and Schedules
Form 5500-Annual Report Identification
o Basic plan identification information and basic information about the
plan: Contact information is provided on the plan's sponsor and
administrator. Information on plan features and on the number of plan
participants is reported. Information on the general arrangements for
funding and benefits is reported on the form.
Plan Financial Information:
Schedule A-Insurance Information
o Insurance information is filed for every defined benefit pension plan,
defined contribution pension plan, and welfare benefit plan if any
benefits under the plan are provided by an insurance company, insurance
service, or other similar organization (such as Blue Cross, Blue Shield,
or a health maintenance organization). This includes investments with
insurance companies such as guaranteed investment contracts (GICs).
Schedule C-Service Provider Information
o Information on the service providers is for large plans mostly.
o Plans file this if their service provider was paid $5,000 or more
and/or if an accountant or actuary was terminated in the course of the
plan year.
Schedule D-DFE/Participating Plan Information
o Filed when the Form 5500 is filed for a DFE or a plan that invested or
participated in any DFEs, CCTs, MTIAs, 103-12 IEs, and/or PSAs,
Part I provides information about plan investment or participation in
these entities.
Part II provides information about plans participating in the DFE.
Schedule G-Financial Transaction Schedules
o Schedule G is used to report: loans or fixed income obligations in
default or determined to be uncollectible as of the end of the plan year,
leases in default or classified as uncollectible, and nonexempt
transactions.
Schedule H-Financial Information
o Information on the asset holdings of large plans and DFEs.
Schedule I-Financial Information-Small Plan
o Information on the asset holdings of small plans.
Schedule P-Annual Return of Fiduciary
o The statute of limitations under section 6501(a) for any trust
described in section 401(a), which is exempt from tax under section
501(a), will not start to run until this schedule is filed. The fiduciary
(trustee or custodian) must sign this schedule. If there is more than one
fiduciary, the fiduciary authorized by the section 501(a).
Accountant's Report
o The accountant's report is an audited financial statement of the
plan's operations. The report is prepared by an independent qualified
accountant and contains the accountant's opinion as to whether the
financial statements of the plan conform to generally accepted accounting
principles.
Pension Benefit Information:
Schedule B-Actuarial Information
o This schedule contains actuarial information on the plan assets and
liabilities and on the actuarial assumptions used to calculate these.
o Filed for defined benefit plans subject to minimum funding standards.
An enrolled actuary must sign Schedule B. A stamped or machine-produced
signature is not acceptable.
Schedule E-Employee Stock Ownership Plan (ESOP) Annual Information
o ESOPs complete and information only goes to IRS.
Schedule R-Retirement Plan Information
o Schedule R reports certain information on plan distributions, and
funding, and the adoption of amendments increasing the value of benefits
in a defined benefit pension plan.
Schedule SSA-Annual Registration Statement Identifying Separated
Participants With Deferred Vested Benefits
o Schedule SSA is used to report all participants with deferred vested
benefit rights who separate from a company during the plan year.
o This information goes to SSA and is not made available to the general
public.
Schedule T-Qualified Pension Plan Coverage
o Schedule T is used by certain qualified pension plans to provide
information concerning the plan's compliance with the minimum coverage
requirements of Code section 410(b), including the number of employees as
well as the number of employees who are excluded from the plan.
Source: 2004 Form 5500 Annual Report and its instructions.
Form 5500 schedules are used to collect more in-depth information,
including data on assets, liabilities, insurance, and financial
transactions. These schedules can be separated into two distinct groups:
those that contain financial information on the plan and those that
contain information on the benefits that the plan expects to pay out. For
example, the Schedule H is a key financial schedule and includes an
accountant's report along with an audited financial statement of the
plan's operations. Information from the financial schedules helps to
provide a picture of a plan's financial condition, while the benefit
schedules collect information on the contributions to and distributions
made from the plan in the current and future years. Information collected
on the benefit schedules helps to provide a picture of the pension plan's
benefits and benefit promises.
Different sizes and types of plans must meet different requirements. (See
table 2.) For example, small defined benefit and defined contribution
plans must file a Schedule I rather than the more detailed Schedule H
required for a large pension plan.13 Additionally, unlike defined
contribution plans, defined benefit plans are required to file Schedule B,
including the signature of an Enrolled Actuary attesting to the
completeness, accuracy, and reasonableness of the actuarial calculations,
along with an attachment of any clarifying material not reported on the
schedule itself.14
Table 2: Filing Requirements for Form 5500, Schedules, and Attachments
Quick Reference Chart for Form 5500, Schedules, and Attachmentsa
Large Pension Plan Small Pension Plan
Form 5500 Must complete. Must complete.
Schedule A (Insurance Information)
Must complete if plan has insurance contracts for benefits or investments.
Must complete if plan has insurance contracts for benefits or investments.
Schedule B (Actuarial Information)
Must complete if defined benefit plan and subject to minimum funding
standards.
Must complete if defined benefit plan and subject to minimum funding
standards.
Schedule C (Service Provider Information)
Must complete if a service provider was paid $5,000 or more and/or an
accountant or actuary was terminated.
Not required. Schedule D (DFE/ Participating Must complete Part I if plan
participated in a CCT,
Must complete Part I if plan participated in a CCT, PSA, MTIA, or 103-12
IE.
Plan Information) PSA, MTIA, or 103-12 IE.
Schedule E (ESOP Annual Information)
Must complete if ESOP. Must complete if ESOP.
Schedule G (Financial Must complete if Schedule H, line 4b, 4c, or 4d is
Not required. Transaction Schedules) "Yes."
Schedule H (Financial Must complete. Not required. Information)
Schedule I (Financial Not required. Must complete. Information- Small
Plan)
Schedule P (Annual Return of Must file to start running of statute of
limitations Must file to start running of statute of Fiduciary of Employee
Benefit under Code section 6501(a). limitations under Code section
6501(a). Trust)
13Small pension plans are also not generally required to file Schedule C,
Schedule G, and the Accountant's Report. A small plan is generally a plan
that has fewer than 100 participants.
14An Enrolled Actuary is any individual who has satisfied the standards
and qualifications as set forth in the regulations of the Joint Board for
the Enrollment of Actuaries and who has been approved by the Joint Board
to perform actuarial services required under ERISA.
Quick Reference Chart for Form 5500, Schedules, and Attachmentsa
Large Pension Plan Small Pension Plan
Schedule R (Retirement Plan Must complete. Must complete. Information)
Schedule SSA (Annual Must complete if plan had Must complete if plan
separated participants had separated
with deferred vested participants with
Registration Statement benefits to report. deferred vested benefits
to
Identifying Separated report.
Participants With
Deferred
Vested Benefits)
Schedule T (Qualified Pension Must complete if qualified plan unless
permitted to Must complete if qualified plan unless
Plan Coverage Information) rely on coverage testing information for prior
year. permitted to rely on coverage testing information for prior year.
Accountant's Report Must attach. Not required unless Schedule I, line 4k,
is checked "No."
Source: 2004 Instructions for Form 5500.
aThis chart provides only general guidance. Not all rules and requirements
are reflected. Refer to specific Form 5500 instructions for complete
information on filing requirements.
Form 5500 Reports
Are Used for Monitoring
Compliance and
Enforcement
Labor, IRS, and PBGC use Form 5500 Reports as a compliance tool to
identify actual and potential violations of ERISA and the IRC. Each agency
has a unique statutory responsibility and uses the information on the form
for monitoring and enforcement purposes. Agency officials said that each
agency has developed computerized systems that analyze the reported
information to help them ensure that plans are in compliance with
applicable laws.
Although Labor officials said that the most effective source of leads on
violations of ERISA, such as delinquent participant contributions, were
complaints from plan participants, computer searches and targeting of Form
5500 information on specific types of plans account for approximately 25
percent of case openings. Labor is currently using plan year 2002 and 2003
Form 5500 information for computer targeting. Labor officials told us that
they open about 4,000 investigations into actual and potential ERISA
violations annually. Labor officials said an early step when opening an
investigation is to review the available Form 5500 Reports to identify
names and contact information for the plan, its corporate sponsor, and its
plan administrator. Labor officials said they use Form 5500 data to
enforce ERISA reporting and disclosure provisions and fiduciary standards.
IRS officials told us that they use Form 5500 data to examine plan
financial transactions and to target plans for examination. Pension law
provides significant tax benefits for sponsors of certain retirement plans
and the
employees that participate in them. IRS enforces certain minimum funding
requirements of ERISA and the IRC. IRS officials said the purpose of IRS
examinations is to ensure plan sponsors are making contributions to the
plan as required, the assets truly exist to satisfy the liabilities and
are classified properly, and that plans are operating in accordance with
plan design. IRS can levy penalties, taxes, and interest charges as well
as completely disqualify a tax-exempt plan from tax-exempt status if major
violations are found.
In fiscal year 2004, IRS examined more than 10,700 plans and 91 percent of
these examinations were based solely on Form 5500 information, and an
additional 5 percent were based in part on Form 5500 information. IRS uses
its Returns and Inventory Classification System (RICS) to select plans for
review based on Form 5500 Reports. For example, after IRS had determined
that a pension practitioner was involved with tax-abusive schemes, it used
available contact information listed on the Form 5500 to create a list of
over 400 sponsors who had filed their Form 5500 Reports using the address
of the practitioner who allegedly designed these schemes.
PBGC uses Form 5500 information to monitor both single-employer and
multiemployer defined benefit pension plan activities, focusing on assets,
liabilities, number of participants, and funding levels. Form 5500
information is also used to forecast PBGC's potential liabilities. PBGC's
data on multiemployer plans currently come only from Form 5500 Reports,
while single-employer plan data are supplemented with information obtained
from other filings and submissions with the government and from corporate
annual returns.15 PBGC officials said the agency is particularly
interested in single-employer and multiemployer plans with financial
problems. For both types of plans, PBGC officials said they maintain a
database of financial information about such plans drawn from Form 5500
Reports, premium filings, and other data in order to determine which plans
may be at risk of requiring PBGC financial assistance.
PBGC officials also said they use the Form 5500 for participant notice and
PBGC insurance premium compliance. For example, PBGC reviews Form 5500
filings to ensure that plan sponsors of underfunded plans report
15Corporate annual returns mentioned here refer to Securities and Exchange
Commission (SEC) 10-K filings. The federal securities laws require certain
publicly traded companies to disclose financial information on an ongoing
basis. Domestic issuers (other than small business issuers) must submit
such reports annually to the SEC on Form 10-K.
sending required participant notices to plan participants notifying them
of the plan's funding status and the limits of PBGC's guarantee benefits.
If a participant notice is not issued as required, agency officials said
they may assess penalties. PBGC officials also said they use Form 5500
information on plan type and level of underfunding to help ensure that
plans are making the appropriate premium payments (which vary by type of
plan and the extent of underfunding). They also said the agency has an
"intercept program" arrangement with the EFAST processor. Through this
program, PBGC has identified over 2,000 plans it is most interested in and
has made arrangements for copies of these Form 5500 filings to be mailed
to PBGC before being processed.
Federal Agencies and Others Use Form 5500 Information for Research and
Statistical Purposes
Form 5500 information is also used for research and statistical purposes.
Labor and PBGC officials told us that Form 5500 information is an integral
part of their policy research. Labor officials said that EBSA's Office of
Policy and Research (OPR) uses Form 5500 information to assist in
developing regulations and to prepare its Private Pension Plan Bulletin.
OPR also uses Form 5500 information to develop aggregate pension
statistics and conduct economic research on relevant topics. OPR officials
said they plan and administer an employee benefits research and economic
analysis program to support EBSA policy and program priorities, respond to
requests for data and findings, and provide technical assistance to EBSA
offices, other Labor agencies, and external groups. Officials from PBGC's
Policy, Research, and Analysis Department said they use Form 5500 data to
develop policies for PBGC's insurance programs and conduct related
research and modeling.
SSA is also a direct recipient of Form 5500 Reports. SSA officials said
they receive information on name and address changes for plan
administrators and information on mergers from pension plans. Plans file
the Schedule SSA if they have vested participants who separated from the
plan during the prior reporting period. SSA officials said they use the
data to notify those participants or their survivors who apply for Social
Security that they may have benefits from one or more private pension
plans.
The Form 5500 is also a source of information that is used by other
federal agencies. In our discussions with federal agency officials, we
found they use Form 5500 information for government research and preparing
government statistics. For example, some federal agencies use the
information in assessing employee benefits and taxes, determining economic
trends, and evaluating policies. As shown in table 3, different federal
agencies use Form 5500 information for different purposes.
Table 3: Examples of Federal Agencies That Use Form 5500 Information
Bureau of Economic Analysis (Department of Commerce):
a
o Form 5500 data is incorporated into the compensation of employees
segment of the National Income and Product Accounts.
Census Bureau (Department of Commerce):
o Matches Form 5500 data to the Census Bureau's Business Register.
o Is exploring how the Form 5500 can improve coverage estimates and
reconcile inconsistencies in the current data collection (the Current
Population Survey and the Survey of Income and Program Participation).
Congressional Budget Office:
o Uses Form 5500 information to evaluate the financial condition of PBGC.
o Uses information to assess pension reform issues.
Congressional Research Service:
o Uses Form 5500 information to conduct pension research.
o Answer questions from members of the Congress regarding private pension
plans.
Employee Benefits Security Administration (Department of Labor):
o Uses Form 5500 information for enforcing ERISA pension requirements.
o Uses Form 5500 information for research and policy analysis.
o Discloses Form 5500 information to the public.
o Publishes aggregate summary information in its annual Private Pension
Plan Bulletin.
Federal Reserve Board:
b
o Primarily uses Form 5500 data for the Flow of Funds financial sectors.
o Form 5500 data is used as a benchmark for estimating current holdings
of pension plans.
o Form 5500 data is also used for other research purposes.
Government Accountability Office:
o Uses Form 5500 data for pension research.
o Conducts studies and prepares testimonies for the Congress.
Internal Revenue Service (Department of the Treasury):
o Enforce ERISA and IRC pension requirements.
o Conducts studies to identify and monitor pension plan noncompliance.
Joint Committee on Taxation:
o Uses Form 5500 data in calculating revenue estimates.
Office of Tax Policy (U.S. Department of the Treasury):
o Uses Form 5500 data in calculating revenue.
Pension Benefit Guaranty Corporation:
o Uses Form 5500 information for enforcing ERISA pension requirements.
o Uses Form 5500 information for research, and policy analysis.
o Uses Form 5500 information to monitor single-employer and multiemployer
plan activities.
o Uses Form 5500 information for its Pension Insurance Modeling System
and Multiemployer Evaluation System.
o Annually prepares the Pension Insurance Data Book which reports summary
information on pension plans and PBGC finances.
Social Security Administration:
o Uses Form 5500 and Schedule SSA information to comply with ERISA and
Social Security Act requirements.
o Uses information from the Schedule SSA to notify certain individuals
that they may be eligible for deferred vested benefits from private
pension plans.
Source: GAO analysis.
aThe National Income and Product Accounts provides an aggregated view of
the final uses of the nation's output, and the income derived from its
production; two of its most widely known measures are gross domestic
product (GDP) and gross domestic income (GDI).
bThe flow of funds accounts measure financial flows across sectors of the
economy, tracking funds as they move from those sectors that serve as
sources of capital, through intermediaries (such as banks, mutual funds,
and pension funds), to sectors that use the capital to acquire physical
and financial assets. Federal Reserve Board officials said they estimate
pension plan assets using the latest available information from EBSA's
Office of Policy Research and are currently using 1999 Form 5500
information.
Finally, others outside of the federal government use Form 5500
information. Pension researchers told us they use Form 5500 information to
determine employer contributions to defined benefit plans, employer
pension costs for defined contribution plans, and data on the relationship
between collective bargaining and pensions. Additionally, researchers said
they have used information from the Form 5500 to determine the extent of
cash balance defined benefit plans. Benefit consulting firms also use Form
5500 information. Consultants from one firm told us they use Form 5500
information for a variety of client-sponsored projects such as studying
the time it takes an active participant to become vested and comparing
singleemployer with multiemployer pension plans. Others said that they
repackage and sell information from Labor's Form 5500 data after editing
it and verifying contact information for large plans.
Form 5500 Reports Are Made Available to the Public
The Form 5500 is also an important public disclosure document. The public
disclosure of the form is a Labor function required by ERISA. According to
Labor officials, the form is the only source of detailed financial
information available to plan participants and beneficiaries, who upon
written request must be furnished a copy of the plan's latest Form 5500 by
the plan administrator. Moreover, the form serves as a basis for the
Summary Annual Report (SAR), which plan administrators are generally
required to furnish to each participant and beneficiary annually.
Labor also maintains a public disclosure room so that Form 5500 Reports
and related plan information are available to public agencies, private
organizations and individuals for review. Labor officials said in fiscal
year 2004, EBSA's Public Disclosure Office received about 1,800 requests
for Form 5500 Reports and provided about 5,200 documents in response to
these requests. Labor officials said making the form publicly available is
intended to serve as a deterrent to non-compliance with the statutory
duties imposed on plan fiduciaries. EBSA also makes its Form 5500 research
file available in electronic format to individuals and groups for research
purposes. In addition, separate from the research file, an electronic
database of all available publicly disclosable filings is made available
in response to Freedom of Information Act requests. Information from Form
5500 Reports is also made available through private parties. For example,
electronic facsimiles of publicly available Form 5500 filings can be
obtained free of charge at FreeErisa.com.
Statutory reporting requirements, EFAST processing issues, and current
Labor practices delay the release of Form 5500 information for up to 3
years in some cases. Current statutory requirements allow plan sponsors up
to 285 days following the end of their plan year to file their Form 5500
Reports. Once the reports are filed, processing of the reports is slowed
by some of EFAST's procedures. Labor's practice of not releasing the
research file-Form 5500 information in its most practical form-until it
has processed all forms from a plan year results in further delays. Agency
officials told us that the timeliness of Form 5500 Reports affects their
use of the information.
Statutory Reporting Requirements, Current Processing Methods, and Labor
Practices Delay the Release of Form 5500 Information
Current Statutory Reporting Requirements Limit the Timeliness of Form 5500
Information
The length of time plan sponsors have to file their Form 5500 Reports is
determined by the statutory reporting requirements. Under ERISA, plan
sponsors have a normal deadline of 210 days after the end of the plan year
to file and may then apply to IRS for an annual automatic one-time 2 1/2
month extension. Thus, plan sponsors can take up to 285 days from the end
of the plan year to file their Form 5500 reports. For example, as shown in
figure 4, for a calendar year plan that ends on December 31, a plan
sponsor has until July 31 to file the Form 5500. If the plan sponsor
requests an extension, the new deadline would be October 15.
Figure 4: Example of Statutory Deadlines to File Form 5500 for Calendar Year
Plan
Source: GAO analysis of Form 5500 filing deadlines.
Note: Labor regulations operationalize the deadline to the end of the
seventh month after the close of the plan year.
An additional 45-day extension from the normal statutory deadline is also
automatically given to corporations receiving an extension on their
federal income taxes.16 However, an extension granted by using this
automatic
extension procedure cannot be extended further by using the one-time 2
1/2 month extension. Labor, IRS, and PBGC may also grant special
extensions of time, beyond the 285 day extended deadline, for events such
as presidentially declared disasters or for service in, or in support of,
the armed forces of the United States in a combat zone.
The current statutory filing requirements are also intertwined with other
statutory deadlines relating to private pension plans (See fig. 5). For
example, under ERISA, certain providers, such as insurance companies
16This extension is granted as long as the following three conditions are
met: (1) the plan year and the employer's tax year are the same; (2) the
employer has been granted an extension of time to file its federal income
tax return to a later date than the normal due date for filing the Form
5500; and (3) a copy of the application for extension of time to file the
federal income tax return is attached to the Form 5500.
and financial institutions, have 120 days after the plan year to provide
information to the plan administrator.17 Then, under IRC and ERISA,
defined benefit plans have up to 8 1/2 months after the plan year end to
make contributions for minimum funding purposes.18 Finally, under Treasury
regulations, a plan has up to 9 1/2 months after the end of the plan year
to correct any coverage or nondiscrimination violations,19 which enables
any corrections to be made and timely reflected on Schedule T of Form
5500.
Figure 5: Timeline of Statutory Deadlines for a Calendar Year Plan
Source: GAO analysis of ERISA, IRC, and Treasury requirements.
Note: Labor regulations operationalize the deadline to the end of the
seventh month after the close of the plan year.
17ERISA S: 103(a)(2). 18IRC S: 412(c)(10). 1926 C.F.R. S:
1.401(a)(4)-11(g)
Service providers and plan sponsor representatives said that the 210 day
time frame with extensions is necessary, given the amount of coordination
with other parties that is needed to prepare the form and the obstacles
that exist. Plan sponsors are ultimately responsible for filing the Form
5500. However, industry association representatives told us that many plan
sponsors are relying heavily on service providers to help them prepare the
form. In addition, there are numerous parties that must provide
information to the plan sponsor or service provider in order to complete
the Form 5500. For example:
o Financial institutions provide information on plan assets held in
their custody.
o Insurance companies provide information about any benefits provided
through or investments made with them, including commissions and fees paid
by the plan sponsor for the year.
o Actuaries are responsible for preparing the Schedule B and attesting
that the information and any assumptions being presented are both
reasonable and represent the best estimates of anticipated experience
under the plan.
o Auditors are required to review plan financial statements as well as
any books or records of the plan that they deem necessary. This review
enables them to form an opinion as to whether the financial statements and
the schedules provided as part of the Form 5500 are presented fairly
according to generally accepted accounting principles. They also provide
an opinion as to whether the schedules present the information about the
plan fairly when examined in conjunction with the financial statements as
a whole.
Figure 6 shows an example of the coordination and information flow that
must occur for service providers or plan sponsors to obtain information
necessary to complete the Form 5500.
Figure 6: Example of Coordination and Information Flow Required for Form 5500
Preparation
Source: GAO analysis of ERISA requirements and testimonial evidence from
service providers, actuaries, insurance companies, financial institutions,
and accountants.
Parties involved in filling out the Form 5500 told us they face obstacles
that limit the timeliness of form preparation. For example, some officials
said that plan sponsors are busy preparing their corporate taxes, closing
their books for the year end, and preparing appropriate SEC filings during
the first quarter of the year and that these things cause them to be
unable to provide information for Form 5500 preparation until March or
April at the earliest.
Service providers, who often prepare the Form 5500 on behalf of plan
sponsors, told us that gathering information from many different parties
creates numerous obstacles that can delay preparation. Service providers
said that it can be difficult to receive timely information from insurance
companies, which is needed to complete the Schedule A. Service providers
also said that receiving complete census data from plan sponsors can be
difficult and often leads to delays in form preparation because of such
problems as merging information from different databases, dealing with
non-computerized retiree data, and identifying vested participants who
have left the company. The data collection and the analysis of census data
are further complicated when companies go through mergers, acquisitions,
or divestitures, which can result in further delays. In addition, service
providers said that many plan sponsors have outsourced their payroll
function, which means that they have to get data from another party, which
adds additional time.
Actuaries said they face certain obstacles that can affect the timeliness
of Schedule B preparation for defined benefit plans. These officials said
the biggest delay is due to funding rules that allow plan sponsors to make
contributions up to 8 1/2 months following the close of a plan year.
Actuaries said they need to know all of the contributions that have been
made in order to certify Schedule B of the form. In addition, actuaries
said they must wait for plan sponsors to give them information such as
asset valuations, which can take a long time to prepare; as a result, they
are generally unable to begin preparing the Schedule B until May or June
at the earliest for calendar year plans. In general, actuaries said that
once they have all the information they need, it typically takes them up
to 2 months to complete the Schedule B.
Audits are typically the last step in the preparation of the Form 5500 and
can hold up submission of the form in many cases.20 Auditors said that
20Most pension plans with 100 or more participants have an audit
requirement for the Form 5500.
scheduling a pension plan audit is often delayed because auditors are busy
performing corporate year-end audit work and preparing corporate tax
filings, and therefore they lack the time and resources to begin auditing
pension plans until after April at the earliest. Officials from the larger
auditing firms said that once they start working on pension plan audits,
corporate work still takes precedence and if issues relating to a
corporate audit arise, the pension plan audit will be put on hold. In
addition, depending on any issues uncovered during the pension plan audit,
auditors said they may need to go back to the plan sponsors, service
providers, actuaries, or even the insurance companies and financial
institutions to seek clarification or additional information. Auditors
also said that this back and forth can be very time consuming, and
sometimes small issues can hold up an entire audit. Once the audit is
completed, it is typically sent back to the service provider, and then the
completed Form 5500 Report is signed by the plan sponsor and submitted to
EFAST for processing.
Figure 7 shows an example of the preparation timeline for all the parties
involved in providing information to the service providers in order to
prepare Form 5500 Reports, as well as the other requirements that the
various parties must meet during this time frame.
Figure 7: Example of a Timeline of Form 5500 Preparation for a Calendar Year
Defined Benefit Plan
Source: GAO analysis of ERISA, IRC, and SEC requirements and testimony
from service providers, auditors, actuaries, insurance companies,
financial institutions, and accountants.
All of the service providers, actuaries, and auditors we talked to said
that given all the various commitments of the parties involved in
preparing the Form 5500, it would be very difficult to shorten the Form
5500 filing deadline. Even given the current time frame, filings can get
held up past the deadline and sponsors may be forced to file late. For
example, if the actuarial report is not prepared in time to finish the
plan audit by the October 15 deadline, a plan will have no choice but to
file late or file an incomplete filing. According to statistics provided
by Labor, 11 percent of all filers in 2001 filed late.
Paper Filings and EFAST Processes Further Affect the Timeliness of Form 5500
Information
The submission of numerous paper filings and certain EFAST processes limit
the timeliness of Form 5500 report processing. Labor officials reported
that the EFAST system processes approximately 25 million paper pages
annually and that 98 percent of filers used paper forms in 2001, the most
recent year for which data are available; this figure is consistent with
prior years. EFAST officials said that under the current system, all
filings are sent by the filers to a central processing facility in
Lawrence, Kansas, operated by an outside contractor. Paper filings, once
received and properly sorted, are scanned using advanced data capture
software,21 and in some cases must be entered manually if the software is
unable to process the form. After the forms are processed and scanned,
they are run through edit checks and any errors are corrected. When the
processing of the form is considered final, meaning any necessary
corrections have been made, the information from the form is posted to the
EFAST database. From there the information is then distributed to Labor,
IRS, and PBGC on digital media. According to Labor officials, paper
filings take more than three times as long as electronic filings to
process and have nearly twice as many errors. As shown in figure 8, the
abundance of paper filings results in long processing times, which delay
the availability of the forms to the agencies.
21EFAST uses optical character recognition (OCR) software and 2D bar code
technology to capture data from paper Form 5500 filings.
Figure 8: Form 5500 Reports
Source: Department of Labor.
According to Labor officials and the ERISA Advisory Council's22 working
paper on electronic reporting, the electronic filing option of the current
EFAST system has been underutilized by plan sponsors largely because of
the fact that electronic filing is entirely voluntary.23 In addition,
service providers told us there are some obstacles to electronic filing.
First, they said the current process of obtaining an electronic signature
and personal identification number (PIN) is burdensome and time consuming.
For example, in order to receive a PIN, a plan sponsor must file a paper
application with Labor, a process that takes from 3 to 4 weeks. Second,
plan sponsors also reported that currently there is little economic
benefit to filing electronically because purchasing the software needed
for electronic filing can be more costly than generating paper filings,
with no corresponding benefit. Third parties such as actuaries and
accountants must sign certain portions of the Form 5500 filings, which
complicates the electronic filing process. These officials said they want
to ensure that any information developed by them and attributed to them is
not changed or altered after it leaves their control. Labor and others
have made attempts to address these issues. In 2002, the ERISA Advisory
Council issued a report recommending the use of Web-based technologies and
requiring that Form 5500 Reports be filed electronically.24
Resolving errors on Form 5500 filings, another paper-based process, can
add up to 120 days to the processing of a form. EFAST officials said that
whether a form is submitted in a paper format or electronically, the
process for resolving errors or problems is paper based. We found that the
EFAST system locates errors only after a form has been processed and seeks
to resolve the error by mailing letters to plan sponsors. Labor will send
up to two letters to receive clarification, providing plan sponsors up to
30 days to respond to each letter. In addition, Labor officials estimate
22Section 512 of ERISA provides for the establishment of an Advisory
Council on Employee Welfare and Pension Benefit Plans. The council
consists of 15 members appointed by the Secretary of Labor: three
representatives of employee organizations (at least one of whom represents
an organization whose members are participants in a multiemployer plan),
three representatives of employers (at least one of whom represents
employers maintaining or contributing to multiemployer plans); one
representative each from the fields of insurance, corporate trust,
actuarial counseling, investment counseling, investment management, and
accounting; and three members of the general public.
23"Report of the Working Group on Electronic Reporting," ERISA Advisory
Council, November 8, 2002.
24"Report of the Working Group on Electronic Reporting," ERISA Advisory
Council, November 8, 2002.
that it takes roughly 30 days for mailing and processing, thereby adding
up to 60 days in total for each letter to the overall processing time of
Form 5500 Reports. Once two letters are sent, a filing is marked complete
whether a resolution was achieved or not. As shown in figure 9, a Form
5500 Report can be initially processed by January 15, but if there are
errors it may not be completed until May 14.
Figure 9: Example of a Form 5500 Being Processed through EFAST with Errors
EFAST processing cycle plan year 2000: 7/1/2001-6/30/2003
2001
July 1 EFAST processing of 2000 plan year forms begins (as submitted).
Any forms submitted prior to this date are held until now.
October 15 Extended deadline for calendar year plan Form 5500 filings. The
form is submitted, marking the beginning of processing.
2002
January 15 The Form 5500 Report is initially processed by January 15. If
errors are found, a letter is sent out to the filer seeking clarification.
March 15 A filer response is received and processed by this date. If the
response is insufficient to correct the error, a second letter is sent to
the filer.
May 14 The second filer response is received and processed by this date.
The filing is marked as complete, regardless of whether the error has been
resolved.
2003
June 30 EFAST processing of 2000 plan year forms officially closes.
Source: GAO analysis of EFAST procedures manual.
Note: The processing cycle remains open for 2 years to account for all
filings, including non-calendar year filings that may be due up to a year
after the filing used in the above example.
Labor officials said they initiated EFAST with the hope of achieving
certain advantages provided by an electronic system, including better
dissemination of information to the public, better access to data for
regulatory agencies, and availability of more current data for
participants and beneficiaries. Currently, Labor is looking into a new
system to replace EFAST when its contract ends. The new system would build
on the gains achieved through EFAST, utilizing Web-based technologies and
mandatory electronic filing, as recommended by the 2002 ERISA Advisory
Council Working Group report on electronic filing.
Labor's Need for Complete and Accurate Filing Records for a Plan Year Also
Delays the Release of Certain Form 5500 Information
We found that currently Labor waits until EFAST has processed all filings
for a plan year before finalizing work on the Form 5500 research file-
Form 5500 information in its most practical form for producing aggregate
statistics and conducting policy research. Labor officials said that
waiting for all processing to be completed allows Labor to be more
accurate and not be forced to use estimates for information in the
research file. Under EFAST, the processing cycle for a plan year lasts 2
years to account for all types of filings, including non-calendar year
plan filings. Since noncalendar year plan filings can be due up to a year
later than calendar year plan filings,25 the research file is often not
available to end users until about 3 years after the end of the plan year.
For example, in plan year 2001, 74 percent of all filings were calendar
year plans, and for those plans that were filed on time, processing under
the EFAST contract standards was to be completed by May 13, 2003. Labor
began work on the 2001 research file in mid-2004. The long delay in
releasing the research file results in a lack of timely information on the
current state of pension plans for policy makers and researchers.
The need for adjustments to the EFAST system and the switch to an outside
contractor, Actuarial Research Corporation (ARC), to prepare the research
file have also delayed the release of the research file. Officials from
ARC told us that part of the recent delays in releasing the 1999 Form 5500
research file is that the switch to EFAST in 1998 resulted in changes to
the way that the data are collected and therefore new processes were
required to develop the research file. In addition, Labor has included new
25For example, under the current deadlines for plan year 2001, a calendar
year filer must file its Form 5500 by July 31, 2002. However, a
non-calendar year plan, for example, that has a plan year that runs from
October 1, 2001 to September 30, 2002, would have until April 30, 2003 to
file a Form 5500, or even longer if the filer receives available deadline
extensions.
variables that are not in the raw dataset, adding more time. Plan year
2000 marks the first year that the research file will be produced by ARC;
previously the file was produced within Labor. Because of the long delay
in releasing the 1999 research file, ARC has gotten off to a delayed start
on subsequent years. ARC officials said that they are currently working on
the 2000, 2001, and 2002 research files. ARC officials also said that
there is a significant learning curve associated with preparing the
research file, and therefore they expect the time frame needed to prepare
the research file to be shorter in the future. They estimated that once
the processes for developing the file are in place, it should take roughly
4 months to produce a preliminary version. As shown in figure 10, they
began work on the 2000 research file in early 2004 and expect to release
it in the summer of 2005.
Figure 10: Timeline for the Preparation of the 2000 Form 5500 Research
File
Although Labor, IRS and, PBGC have access to the Form 5500 information
sooner than other federal agencies and the general public, the agencies
are affected by the long processing times for paper filings and EFAST's
paperbased correction process. Each agency receives processed Form 5500
information on individual filings on a regular basis once a form is
completely processed, which means that any necessary corrections have been
made. As stipulated in the EFAST contract, IRS and PBGC receive weekly
updates of processed Form 5500 information, while Labor and SSA receive
updated information on a monthly basis. These agencies are also
2003
June 1 EFAST processing of 2000 plan year forms officially closes.
2004
2005
In early 2004, ARC began working on 2000 plan year
data for the Form 5500 research file. A preliminary Form 5500
research file was completed and made available later that year.
ARC expects to have the 2000 Form 5500 research file finalized
and detailed statistics published by the summer of 2005.
Source: GAO analysis of testimonial evidence from ARC.
The Timeliness of Form 5500 Reports Affects Federal Agencies' Use of the
Information
able to view images of the forms immediately after being scanned by EFAST.
However, agency officials told us that as with the release of the Form
5500 research file, they still have to wait for a sufficiently complete
universe of plan filings from any given plan year to be processed in order
to begin their compliance targeting programs.
Federal agency officials said that old Form 5500 information may paint a
distorted picture of the current financial condition of defined benefit
pension plans. The value of plan assets can change significantly over a
period of time, and the value of plan liabilities can also change because
of changes in interest rates, plan amendments, layoffs, early retirements,
and other factors. For plans that experience a rapid deterioration in
their financial condition, the funding measures may not reveal the true
extent of a plan's financial distress to relevant federal agencies and
plan participants.
Federal agency officials also said that it would be useful to have certain
Form 5500 information reported prior to the lengthy Form 5500 filing
deadline. For example, Labor, IRS and PBGC officials told us that Form
5500 Schedule B information, including information about a defined benefit
pension plan's funding status, is outdated by the time it is filed. As a
result, these agencies are not notified of a plan's funding status until
almost 2 years after the actual valuation date. These officials said this
makes the Form 5500 an unreliable tool for determining a plan's current
funding financial condition. They also told us other information could be
reported earlier than the filing deadline, including Schedule H and I
information, which would provide them with more timely plan financial
information, including plan assets and liabilities.
Labor, IRS, and PBGC officials told us that because of the timeliness of
the information received, their ability to carry out various statutory
responsibilities is hampered. Labor officials said that, in some cases,
untimely Form 5500 Reports affects their ability to identify financially
troubled plans whose sponsors may be on the verge of going out of business
and abandoning their pension plans, because these plans may no longer
exist by the time that Labor receives the processed filing or is able to
determine that no Form 5500 was filed by those sponsors. IRS officials
said the timeliness of Form 5500 Reports also affects their enforcement
efforts, because the IRS has a 3 year statute of limitations. These
officials said that working with older Form 5500 information raises the
time and cost required to complete an investigation because retrieving the
required information becomes more difficult with each passing year.
Finally, the timeliness of Form 5500 reporting affects PBGC's ability to
monitor
multiemployer plans. PBGC officials said that it is a challenge to get
current information on the stability of defined benefit pension plans,
especially multiemployer plans, because of the unavailability of current
Form 5500 data. Multiemployer plan data come only from Form 5500 Reports
and are much less current and complete than single-employer plan data-such
data are generally 2 to 3 years older. According to PBGC officials, a
major reason for this is that PBGC can identify the corporate sponsor of a
single-employer plan from the Form 5500 and is often able to obtain
financial information from the sponsor's corporate 10-K filing. They said
obtaining such data is not possible for multiemployer plans because
participating corporate employers cannot be identified from Form 5500
information.
Officials from other federal agencies that use Form 5500 information also
told us that the information is not current, a fact that affects their
ability to use the information to conduct program activities, inform
policy makers, and evaluate the condition of the private pension plan
universe. Some federal agency officials told us that they would develop
modeling programs to explore more uses of Form 5500 information if it were
available in a timelier manner.
Labor, IRS, and PBGC have taken steps to improve the content of the Form
5500, including reviewing the form annually and revising the content as
needed to ensure that the form is collecting all required information
while not overburdening plan sponsors. Despite the content changes that
have been made, the Form 5500, in its current form, lacks key information
that could better assist Labor, IRS, and PBGC in tracking and identifying
plans from year to year and monitoring multiemployer plans. In addition,
federal agency officials and researchers that use Form 5500 information
said the form has not kept pace with changes in the private pension
universe. Although federal agency officials and others said the form lacks
certain information, pension practitioners and service providers told us
that it could be further streamlined by removing certain items and
consolidating schedules.
Despite Efforts to Improve Its Content, the Form 5500 Lacks Key Information
Federal Agencies Have Labor, IRS, and PBGC annually review and revise Form
5500 content as Taken Steps to Improve needed to ensure that the form is
collecting all information required under the Content of Form 5500 ERISA.
These agencies conduct a review of the Form 5500 as part of the
Information process by which they publish updated versions of the form and
its
instructions on an annual basis. The agencies receive public input
throughout the course of the year from interested parties, such as plan
sponsors and service providers, either asking questions about the form or
suggesting areas where the instructions can be improved. Federal agency
officials told us that these questions and comments are taken into account
as part of the annual process of reviewing the Form 5500.
Agency officials said the process of revising the form, which can include
adding or removing items, can be triggered by a number of events, such as
a statutory requirement to change the form or a requirement for agencies
to collect certain information. Revisions to the form can also result from
recommendations from entities such as the ERISA Advisory Council. After
the triggering event, if the respective agency deems that a change is
appropriate, it starts the process of developing the proposed change. The
proposed change then goes through an approval, public comment, and
clearance process at the agency level and the Office of Management and
Budget (OMB). The process provides the general public and federal agencies
an opportunity to comment on the proposed changes as well as helping to
ensure, among other things, that any additional information can be
reported in a way that minimizes respondent reporting burden (time and
financial resources). The process to change the Form 5500 can take
anywhere from 1 to 2 years, depending on the nature of the revisions.
Efforts to minimize plan sponsors' reporting burden may limit the
collection of Form 5500 information. Legislation requires OMB to review
forms before they are used to collect data. The Paperwork Reduction Act of
1995 (Pub. L. No. 104-13) and similar previous legislation26 are designed
to minimize the paperwork burden on the public while at the same time
recognizing the importance of information to the successful completion of
agency missions. The act requires OMB to approve all existing and new
collections of information by federal agencies. In approving agency
collection efforts, OMB must weigh the burden to the public against the
practical utility of the information to the agency. Revisions to the Form
5500 can also include eliminating duplicate or obsolete items. Agency
officials said that they were reluctant to propose additional Form 5500
data collection unless they could clearly establish that the benefit
outweighed the perceived burden. They also said that efforts to reduce
existing data collection requirements sometimes result in a loss of
information.
26Previous legislation includes the Paperwork Reduction Act of 1980 (Pub.
L. No. 96-511) and the Paperwork Reduction Reauthorization Act of 1986
(Pub. L. No. 99-500).
Over the years Labor, IRS, and PBGC have made revisions to the Form 5500.
The last major revision occurred in 1999, as part of a multiyear project,
and followed Labor, IRS, and PBGC's evaluation of public comments on their
1997 proposal from employer groups, employee representatives, financial
institutions, service providers, and others.27 This resulted in these
three agencies, in an effort to streamline the form, replacing the Form
5500, Form 5500-C, and Form 5500-R with one Form 5500 (the current form)
to be used by all filers as well as more detailed schedules customized to
each filer's type of plan. In addition, the revisions eliminated duplicate
or obsolete items. Since 1999, other annual revisions have included
clarifying the Form 5500, its schedules, and instructions; adding items on
Employee Stock Ownership Plans, frozen plans, and floor offset plans;
removing items concerning delinquent participant contributions and fringe
benefit plans; and changing the small plan audit requirements.
Other changes have been proposed that relate to information associated
with the Form 5500. In January 2005, the Secretary of Labor announced the
Administration's proposal to improve retirement security. The proposal
presented three areas of change, one of them to increase the disclosure of
information about private, single-employer defined benefit pension plans
to workers, investors, and regulators.28 The proposal would increase
disclosure in four ways: (1) reporting ongoing and at-risk liability on
the Form 5500, (2) shortening the deadline for the Schedule B report of
the actuarial statement, (3) publicly disclosing Section 4010 information,
and (4) expanding the information reported on the SAR.
The Form 5500 Still Lacks Key Information
The Form 5500 lacks key information that could better assist Labor, IRS,
and PBGC in monitoring plans and ensuring that they are in compliance with
the law. Federal agency officials and pension researchers acknowledge that
the form does not collect certain information, such as information that
could help them to better track plans from year to year,
27A Notice of Proposed Forms Revisions soliciting public comments on
proposed revision of the Form 5500 was published in the Federal Register
on September 3, 1997 (62 Fed. Reg. 46556).
28The three areas to strengthen retirement security for Americans in
private defined benefit pension plans are (1) reforming the funding rules
to ensure that employer fully fund their retirement promises, (2)
reforming the PBGC premiums to better reflect the real risks and costs,
and (3) increasing the disclosure of information about private defined
benefit to workers, investors, and regulators.
and certain information on multiemployer plans and defined contribution
plans.
Labor, IRS, and PBGC officials said that they have experienced
difficulties when relying on Form 5500 information to identify and track
all plans across years. Although these agencies have a process in place to
identify and track plans filing a Form 5500 from year to year, problems
still arise when plans change employer identification numbers (EIN) and/or
plan numbers. Currently, Labor, IRS, and PBGC use the EINs and plan
numbers listed on the form to identify and track individual plans from one
year to the next.29 However, officials from these agencies reported they
are having problems using EINs and plan numbers to consistently and
accurately track all plans because many employers have numerous plans and
each plan files Form 5500 Reports using the same EIN. As a result, only
the three-digit plan number assigned by the plan administrator uniquely
identifies plan filings that have identical EINs. However, when plan
administrators do not file their Form 5500 with the same plan number each
year, absent a unique EIN, it is difficult for federal agencies to track
the same plan from year to year. Identifying plans is further complicated
when plan sponsors are acquired, sold, or merged. In these cases, agency
officials said that there is an increased possibility of mismatching of
EINs, plans, and their identifying information.
Agency officials also told us that without a reliable way to identify and
track plans a number of problems occur. For example, Labor officials said
they are unable to (1) verify if all required employers are meeting the
statutory requirement to file a Form 5500 annually, (2) identity all late
filers, and (3) assess and collect penalties from all plans that fail to
file or are late. IRS officials said that EINs reported on the Form 5500
do not always match EINs listed on a corporate tax return of a business;
this makes it difficult for IRS to individually match businesses' Form
5500 Reports with their corporate tax returns. PBGC officials said they
must spend additional time each year trying to identify and track certain
defined benefit pension plans so that they can conduct their compliance
and research activities. Furthermore, other federal agencies and
researchers said that the inability to identify and track plans limits
their ability to effectively identify all of the pension plans associated
with a particular company, track changes over time in certain types of
pension plans, and match Form 5500 information with other data sources.
Labor, IRS, and
29The EIN is also used in a wide variety of employer tax filings.
PBGC officials said they are considering measures to better track and
identify plans but have not reached any conclusions.
We were also told that the Form 5500 lacks certain information on
multiemployer plans that would enable PBGC, other federal regulators, and
pension researchers to (1) identify all of the participating employers in
a particular multiemployer plan; (2) determine a multiemployer plan's
basis for making contributions; and (3) determine the amount of unfunded
liabilities attributable to each participating employer. Currently, the
form does not collect information that identifies the employers
participating in a particular multiemployer plan. Thus, PBGC and other
regulators are unable to identify all the employers upon whose financial
health multiemployer plans depend or link the financial health of these
employers to the condition of the particular multiemployer plans that
these employers are participating in. PBGC officials said they are unable
to gauge the full impact that events such as employer bankruptcies,
withdrawals, and labor strikes would have on multiemployer plans, their
participants, and the agency's multiemployer insurance program, which they
emphasized as important, given that with multiemployer plans, an
employer's pension liabilities can be affected by the financial health of
other employers in the plan. The form also lacks information that shows a
multiemployer plan's basis for employer contributions, which means that
PBGC cannot determine the impact that events, such as labor strikes, would
have on an employer's ability to make plan contributions and its effect on
the financial condition of that particular plan. Finally, the Form 5500
does not capture information on each participating employer's
responsibility for unfunded liabilities. Thus, PBGC is unable to assess
the financial risk to an insured multiemployer plan posed by the financial
collapse or withdrawal of one or more contributing employers, which PBGC
officials said is an important piece of information because of its role in
monitoring multiemployer plans for financial problems, providing financial
and technical assistance to troubled plans and guaranteeing a minimum
level of benefits to participants in insolvent multiemployer plans.30 PBGC
officials said that the agency needs relevant information on multiemployer
plans to fully assess the financial health of and potential risks faced by
multiemployer plans, and they said that this information is currently
lacking on the Form 5500. PBGC officials also said they are exploring ways
to obtain more useful information on multiemployer plans.
30A multiemployer plan is insolvent when its available resources are not
sufficient to pay the level of benefits at PBGC's multiemployer guaranteed
level.
However, their plans are still in the developmental stages. In addition,
officials from Labor, IRS, and other federal agencies and pension
researchers said it would be useful if the Form 5500 captured more
information on multiemployer plans.
Federal and Private Sector Researchers Said the Form 5500 has Not Kept Pace
with Changes in the Private Pension Universe
Federal and private sector researchers said the Form 5500 has not kept
pace with changes in the private pension universe, where defined
contribution plans have become the more prevalent type of private pension
plan offered by employers and more employees are increasingly being
covered by defined contribution plans. They said the Form 5500 is geared
more toward defined benefit plans rather than toward defined contribution
plans and suggested that the form could collect detailed information on
the range of investment options that are available to participants
(employer securities and mutual funds), 401(k) plan matching
contributions, employee contribution limits, as well as more detailed
information on the asset allocations of pooled accounts. They also said
that the form could collect better information to determine the true cost
of administering a defined contribution plan and 401(k) plan fees. For
example, the ERISA Advisory Council Working Group recently reported that
the Form 5500, as currently structured, does not reflect the way that the
defined contribution plan fee structure works. The Advisory Council
concluded that Form 5500s filed by defined contribution plans are of
little use to policy makers, government enforcement personnel, plan
sponsors, and participants in terms of understanding the cost of a plan.
The Advisory Council also recommended that Labor modify the Form 5500 and
the accompanying schedules so that total fees incurred either directly or
indirectly by these plans can be reported or estimated.31 This information
could be used for research or regulatory purposes.
In addition to having more information on defined contribution plans,
federal and private sector researchers also said that it would be useful
if information reported on Section 4010 filings, such as information about
the ability of a defined benefit plan to meet its obligations to
participants if
31One of Labor's objectives in requiring a plan to file a Form 5500 report
is to ensure that plan fiduciaries are monitoring the operations of the
plan, including costs. This is consistent with the overarching fiduciary
responsibility provisions of ERISA, which require plan fiduciaries to
review and monitor fees for reasonableness on a periodic basis.
the plan were to be terminated,32 were captured on the Form 5500. Section
4010 filings (named after the ERISA section that requires companies to
submit such reports) also include proprietary information about the plan
sponsor and its pension assets. However, this information is available
only to PBGC and by law may not be publicly disclosed. Some officials told
us that participants should be provided with the necessary information,
including Section 4010 data, to inform them when their plan is underfunded
and when the sponsor's financial condition may impair the ability of the
company to fund or maintain the plans.
Pension Practitioners and Others Said the Form Can Be Further
Streamlined
Despite federal agencies' attempts to streamline the form, pension
practitioners and service providers said that the Form 5500 can be further
streamlined by removing duplicate items and consolidating certain
schedules. Pension practitioners and service providers told us that
opportunities exist to modify and consolidate certain financial schedules
and provided us with recommendations that in their opinion would better
capture relevant information about pension plans for the federal
government, participants, plan sponsors, and pension practitioners, as
shown in table 4. However, Labor, IRS, and PBGC officials told us that, to
some extent, they use all of the information reported on the Form 5500. In
addition, pension researchers told us that removing certain information
from the form, such as plan financial information, may limit their ability
to use the form for research and statistical purposes.
32Terminating an underfunded single-employer defined benefit plan is
termed a distress termination if the plan sponsor requests the termination
or an involuntary termination if PBGC initiates the termination. PBGC
assumes responsibility for terminated underfunded plans and pays the
pension obligations to plan participants up to the amount guaranteed under
Title IV of ERISA. PBGC also makes a claim on the employer's assets in
bankruptcy proceedings as an unsecured creditor. However, PBGC officials
told us that the agency's claims usually amount to only a few cents per
dollar claimed.
Table 4: Recommendations from Pension Practitioners and Service Providers for
Further Streamlining the Form 5500
Financial Schedules
Schedule A-Insurance Information
o Schedule A commission information could be captured on the Form 5500.
o Items relating to the reporting of Pooled Separate Accounts on
Schedule A could be removed since the information is already required to
be reported for Schedule D.
Schedule D-Direct Filing Entities/Participant Plan Information
o Schedule D could be limited to reporting information by Direct Filing
Entities.
o Plans that invest in Direct Filing Entities should not file Schedule D
because the current reporting format is very cumbersome and it does not
appear to provide useful information to plan sponsors, participants, and
the government.
Schedule G-Financial Transaction Schedules
o Schedule G should be discontinued because this information appears in
supplemental schedules that is a required part of the auditor's report.
o Information that appears in the auditor's report, including footnotes
and supplemental schedules, should not be duplicated on the Form 5500 or
its schedules since its considered part of the Form 5500 filing.
Schedule P-Annual Return of Fiduciary
o Schedule P should be removed and have the filing of the Form 5500
start the statute of limitations instead of the signing of Schedule P.
However, eliminating the Schedule P would require changes to the current
statutory framework.
Schedules H and I-Financial Information
o Schedules H and I can be simplified into a single format because some
information on these schedules is already provided in the auditor's
report.
Benefit Schedules
Schedule B-Actuarial Information
o Schedule B attachments could be eliminated or the actuarial valuation
report substituted for the attachments.
Schedule E-ESOP Annual Information
o Schedule E could be streamlined by capturing some of its information
using codes on the Form 5500.
Schedules R (Retirement Plans Information) and T (Qualified Pension Plan
Coverage)
o Schedules R and T could be modified to codes on the Form 5500.
o Questions 1 and 2 on the Schedule R relating to distributions could be
moved to Schedules H and I, which would eliminate the need to file the
Schedule R for every plan.
Conclusions
Source: Pension practitioners and service providers.
The Form 5500 is the primary source of information available concerning
the operation, funding, assets, liabilities, and investments of private
pension plans. Because these data are important to enforcement of federal
pension laws and to pension policy development, it is important that Form
5500 information be timely and useful. Changes in the private pension
world illustrate why improvements to the Form 5500 and its processing are
so important. For example, the private pension environment has been
changing fundamentally in the types of plans offered today's workers, yet
little has been done to reflect these changes in the types of data
collected.
In addition, the sudden deterioration in funding levels for some large
defined benefit plans has brought financial pressures to PBGC and led to
calls for comprehensive reforms, but Form 5500 data are not timely enough
to help policy makers in developing effective responses. Untimely pension
plan information forces policy makers to make key pension policy decisions
based on data that are about 3 years old. It also hampers regulators'
ability to enforce ERISA and other laws and results in users getting an
outdated picture of the financial condition of the private pension plan
environment.
Although Labor has made significant progress in implementing EFAST, more
should be done to reduce the time it takes to process and release usable
computerized Form 5500 information. Changes to the current system, such as
utilizing its electronic filing capabilities and improving its paper-based
correspondence process, could speed up the processing of Form 5500 Reports
and provide more timely data for all users. Alternatively, certain types
of information could be reported earlier than the current filing deadline,
such as information on a plan's funding status, which could also provide
regulators with more timely information.
Content issues also remain a problem, despite Labor's, IRS's, and PBGC's
periodic revisions to the form. Information currently collected on the
form, while useful to some extent, does not permit these agencies to be in
the best position to ensure compliance with federal laws and accurately
assess the financial condition of private pension plans. Given the
increase in the number of defined contribution pension plans and the need
for relevant information on multiemployer plans, providing better
information on these plans would help policy makers and others make
informed decisions about the financial risks posed by private pension
plans. However, any improvement to the content of the Form 5500 must be
done in such a way that does not pose an undue burden on plan sponsors.
Given the improved timeliness and reduced errors associated with
electronic filing, Labor, IRS, and PBGC should require the electronic
filing of the Form 5500. In doing so, Labor should also make improvements
to the current electronic filing process to make it less burdensome, such
as revising the procedure for signing and authenticating an electronic
filing.
To improve timeliness, reduce errors, and maximize efficiency, Labor
should modify its current EFAST processing methods. In doing so, the
following steps should be considered:
Recommendations
o Labor should streamline its data correction processes by ensuring that
filings are checked for errors before they are accepted for processing by
the EFAST system.
o It should develop an electronic-based correspondence process, whereby
the agencies can notify filers of errors electronically, thereby
eliminating the 30 days that officials at Labor estimate it takes to mail
the paper-based correspondence back and forth. Also this will allow for
filers to be notified of errors on a more timely basis.
Considering the need for federal agencies, Congress, and the public to
have access to timely and usable Form 5500 information as soon as
possible, we recommend that Labor evaluate ways to speed up the release of
its research file, including considering making information available from
the file on an interim basis prior to its completion and final release to
the public.
To more effectively identify and track individual plans across years,
especially when plans change EINs and plan numbers, and to take into
account Labor's need to be able to verify if all required employers are
meeting the statutory requirement to file a Form 5500 annually, we
recommend that Labor, IRS, and PBGC work collectively to better identify
and track the same plan from one year to the next.
To improve the federal government's ability to regulate multiemployer
defined benefit pension plans and improve participant information, we
recommend that Labor, IRS, and PBGC modify the Form 5500 to collect
additional information on multiemployer pension plans that would enable
Labor, IRS, and PBGC to monitor and manage potential risks associated with
events such as employer bankruptcies, withdrawals, and labor strikes and
the attendant consequences for these plans, plan participants, and PBGC's
multiemployer insurance program. In doing so, Labor, IRS, and PBGC should
consider requiring multiemployer plans to report the following information
on the Form 5500:
o information sufficient to identify all of the employers associated
with a particular plan and their annual contributions to the plan,
o plan specifics on determining employer contributions (per hour, per
unit of output, etc.), and
o the distribution by employer of responsibility for unfunded or
underfunded plan liabilities.
Agency Comments
We provided a draft of this report to Labor, PBGC, IRS, and SSA. Labor,
PBGC, and IRS provided written comments, which appear in appendix I,
appendix II, and appendix III. Labor's, PBGC's and IRS's comments
generally agree with the findings and conclusions of our report. Labor,
PBGC, IRS, and SSA also provided technical comments on the draft. We
incorporated each agency's comments as appropriate.
Labor suggested that we clarify our assertion that the Form 5500 could
collect information that could help agencies better identify and track
plans across years. Labor stated that the Agencies currently apply
computerized "entity control" tests to Form 5500 filings as part of the
EFAST processing system that are designed to track individual plans and
determine if consistent identifying data are reported each year for a
particular filer in order to maintain accurate year-to-year records for
each filer. We have clarified that section of our report by noting that
the agencies' have a system in place to identify and track plans and the
shortcomings of this method. However, although a system is in place to
track plans from year to year, officials from all the principal agencies
said that it is very difficult to track plans from year to year if plans
change EINs and plan numbers.
Labor and PBGC suggested that the section of our report on the timeliness
of available Form 5500 information further clarify that generally
individual Form 5500 filings are made available for enforcement and for
public disclosure as soon as they are processed by EFAST. We agree and did
note that in the appropriate section of the report. We have also revised
our report in various sections to state that Form 5500 information is
available for enforcement and public disclosure purposes prior to the
release of the Form 5500 research file.
PBGC proposed an additional recommendation regarding the timeliness of
defined benefit pension plan funding information reported on Form 5500
Schedule B. The Administration's pension reform proposal includes a
provision that would advance the reporting date for the Schedule B to
February 15 for certain large defined benefit plans. We agree with PBGC
that advancing the reporting date for the Schedule B to provide more
timely information on such plans to Labor, IRS, and PBGC could be an
important piece of comprehensive pension reform.
IRS specifically stated that, with electronic filing, EFAST can validate
filings as received, reject filings with errors or incomplete responses,
and minimize or eliminate error correction using electronic
correspondence. IRS also stated its support for our recommendations to
require the electronic filing of Form 5500 Reports, evaluate ways to
better identify and
track plans from year to year, and to modify the Form 5500 to collect
additional information on multiemployer pension plans.
We are sending copies of this report to the Secretary of Labor, the
Commissioner of Internal Revenue, the Executive Director of the Pension
Benefit Guaranty Corporation, the Commissioner of Social Security,
appropriate congressional committees, and other interested parties. We
will also make copies available to others on request. In addition, the
report will be available at no charge on GAO's Web site at
http://www.gao.gov.
If you have any questions concerning this report please contact me at
(202) 512-7215 or Tamara Cross at (202) 512-4890. Other contacts and
acknowledgments are listed in appendix IV.
Barbara D. Bovbjerg Director, Education, Workforce, and Income Security
Issues
List of Congressional Committees
The Honorable Charles E. Grassley
Chairman
The Honorable Max S. Baucus
Ranking Minority Member
Committee on Finance
United States Senate
The Honorable Michael B. Enzi
Chairman
The Honorable Edward M. Kennedy
Ranking Minority Member
Committee on Health, Education, Labor, and Pensions
United States Senate
The Honorable John A. Boehner
Chairman
The Honorable George Miller
Ranking Minority Member
Committee on Education and the Workforce
House of Representatives
The Honorable William M. Thomas
Chairman
The Honorable Charles B. Rangel
Ranking Minority Member
Committee on Ways and Means
House of Representatives
Page 49 GAO-05-491 Private Pensions
Appendix I: Comments from the Department of Labor
Appendix I: Comments from the Department of Labor
Appendix II: Comments from the Pension Benefit Guaranty Corporation
Appendix II: Comments from the Pension Benefit Guaranty Corporation
Appendix III: Comments from the Internal Revenue Service
Appendix IV: GAO Contacts and Staff Acknowledgments
Contacts
Staff Acknowledgments
(130375)
Tamara Cross, Assistant Director (202) 512-4890 Raun Lazier,
Analyst-in-Charge (202) 512-8386
In addition to those named above, Joseph Applebaum, Richard Burkard, Scott
Heacock, Gene Kuehneman, Michael Maslowski, Robert Parker, Roger J.
Thomas, and Gail Vallierers made important contributions to this report.
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