Private Pensions
Government Actions Could Improve the Timeliness and Content of Form 5500 Pension Information Gao ID: GAO-05-491 June 3, 2005The 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.
Detailed information on private pension plans is reported on the Form 5500, and Labor, the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (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.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-491, Private Pensions: Government Actions Could Improve the Timeliness and Content of Form 5500 Pension Information
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
June 2005:
Private Pensions:
Government Actions Could Improve the Timeliness and Content of Form
5500 Pension Information:
GAO-05-491:
GAO Highlights:
Highlights of GAO-05-491, a report to congressional committees
Why GAO Did This Study:
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.
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:
[See PDF for image]
[End of figure]
What GAO Recommends:
GAO makes recommendations to Labor, the Internal Revenue Service, and
the Pension Benefit Guaranty Corporation aimed at improving the
timeliness and content of Form 5500 information such as requiring the
electronic filing of Form 5500 and making modifications to the form.
Labor, IRS, and PBGC generally agreed with our recommendations. Also,
Labor, IRS, PBGC, and the Social Security Administration provided
technical comments on the draft. We incorporated each agency‘s comments
as appropriate.
www.gao.gov/cgi-bin/getrpt?GAO-05-491.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Barbara Bovbjerg at (202)
512-7215 or bovbjergb@gao.gov.
[End of section]
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:
Appendix I: Comments from the Department of Labor:
Appendix II: Comments 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:
Table 2: Filing Requirements for Form 5500, Schedules, and Attachments:
Table 3: Examples of Federal Agencies That Use Form 5500 Information:
Table 4: Recommendations from Pension Practitioners and Service
Providers for Further Streamlining the Form 5500:
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:
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:
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.[Footnote 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.[Footnote 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 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 single-employer 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.[Footnote 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,[Footnote 4] insurance companies, and financial institutions
to determine the time and effort that is needed to prepare and file the
forms.
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),[Footnote 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.
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 ½
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.[Footnote 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.[Footnote 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.
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.[Footnote 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.[Footnote 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.[Footnote 10]
When the Form 5500 was first developed, nearly 30 years ago, more
participants were covered by defined benefit plans than by defined
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:
[See PDF for image]
[End of figure]
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, 1980-2000:
[See PDF for image]
[End of figure]
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:
[See PDF for image]
[End of figure]
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
single-employer 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.[Footnote
11] Premium revenue totaled about $1.485 billion in 2004, of which
$1.458 billion was 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 single-
employer 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.
Form 5500 Reports Provide Detailed Private Pension Plan Information,
Which Is Primarily Used to Determine Compliance with Federal Laws:
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.[Footnote 12]
Form 5500 Reports Provide Detailed Information about the Financial
Condition and Operation of Private Pension Plans:
The Form 5500 is used to collect important information about the
financial health and operation of private pension plans. Similar to the
structure of an income tax form, the Form 5500 has multiple parts. As
shown in table 1, 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's schedules provide more specific information
about the plan, such as financial information, actuarial information,
and insurance information.
Table 1: Information Reported on the Form 5500 and Schedules:
Form 5500--Annual Report Identification;
* 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;
* 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;
* Information on the service providers is for large plans mostly;
* 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;
* 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;
* 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;
* Information on the asset holdings of large plans and DFEs.
Schedule I-Financial Information-Small Plan;
* Information on the asset holdings of small plans.
Schedule P-Annual Return of Fiduciary;
* 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;
* 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;
* This schedule contains actuarial information on the plan assets and
liabilities and on the actuarial assumptions used to calculate these;
* 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;
* ESOPs complete and information only goes to IRS.
Schedule R-Retirement Plan Information;
* 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;
* Schedule SSA is used to report all participants with deferred vested
benefit rights who separate from a company during the plan year;
* This information goes to SSA and is not made available to the general
public.
Schedule T-Qualified Pension Plan Coverage;
* 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.
[End of table]
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.[Footnote 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.[Footnote 14]
Table 2: Filing Requirements for Form 5500, Schedules, and Attachments:
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Form 5500;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Must complete;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Must complete.
Schedule A (Insurance Information);
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Must complete if plan has insurance contracts for
benefits or investments;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Must complete if plan has insurance contracts for
benefits or investments.
Schedule B (Actuarial Information);
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Must complete if defined benefit plan and subject
to minimum funding standards;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Must complete if defined benefit plan and subject
to minimum funding standards.
Schedule C (Service Provider Information);
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Must complete if a service provider was paid $5,000
or more and/or an accountant or actuary was terminated;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Not required.
Schedule D (DFE/ Participating Plan Information);
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Must complete Part I if plan participated in a CCT,
PSA, MTIA, or 103-12 IE;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Must complete Part I if plan participated in a CCT,
PSA, MTIA, or 103-12 IE.
Schedule E (ESOP Annual Information);
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Must complete if ESOP;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Must complete if ESOP.
Schedule G (Financial Transaction Schedules);
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Must complete if Schedule H, line 4b, 4c, or 4d is
"Yes.";
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Not required.
Schedule H (Financial Information);
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Must complete;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Not required.
Schedule I (Financial Information--Small Plan);
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Not required;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Must complete.
Schedule P (Annual Return of Fiduciary of Employee Benefit Trust);
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Must file to start running of statute of
limitations under Code section 6501(a);
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Must file to start running of statute of
limitations under Code section 6501(a).
Schedule R (Retirement Plan Information);
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Must complete;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Must complete.
Schedule SSA (Annual Registration Statement Identifying Separated
Participants With Deferred Vested Benefits);
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Must complete if plan had separated participants
with deferred vested benefits to report;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Must complete if plan had separated participants
with deferred vested benefits to report.
Schedule T (Qualified Pension Plan Coverage Information);
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Must complete if qualified plan unless permitted to
rely on coverage testing information for prior year;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Must complete if qualified plan unless permitted to
rely on coverage testing information for prior year.
Accountant's Report;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Large Pension Plan: Must attach;
Quick Reference Chart for Form 5500, Schedules, and Attachments[A]:
Small Pension Plan: Not required unless Schedule I, line 4k, is checked
"No.".
[End of table]
Source: 2004 Instructions for Form 5500.
[A] This 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.[Footnote 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
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):
* Form 5500 data is incorporated into the compensation of employees
segment of the National Income and Product Accounts.[A].
Census Bureau (Department of Commerce):
* Matches Form 5500 data to the Census Bureau's Business Register;
* 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:
* Uses Form 5500 information to evaluate the financial condition of
PBGC;
* Uses information to assess pension reform issues.
Congressional Research Service:
* Uses Form 5500 information to conduct pension research;
* Answer questions from members of the Congress regarding private
pension plans.
Employee Benefits Security Administration (Department of Labor):
* Uses Form 5500 information for enforcing ERISA pension requirements;
* Uses Form 5500 information for research and policy analysis;
* Discloses Form 5500 information to the public;
* Publishes aggregate summary information in its annual Private Pension
Plan Bulletin.
Federal Reserve Board:
* Primarily uses Form 5500 data for the Flow of Funds financial
sectors.[B];
* Form 5500 data is used as a benchmark for estimating current holdings
of pension plans;
* Form 5500 data is also used for other research purposes.
Government Accountability Office:
* Uses Form 5500 data for pension research;
* Conducts studies and prepares testimonies for the Congress.
Internal Revenue Service (Department of the Treasury):
* Enforce ERISA and IRC pension requirements;
* Conducts studies to identify and monitor pension plan noncompliance.
Joint Committee on Taxation:
* Uses Form 5500 data in calculating revenue estimates.
Office of Tax Policy (U.S. Department of the Treasury):
* Uses Form 5500 data in calculating revenue.
Pension Benefit Guaranty Corporation:
* Uses Form 5500 information for enforcing ERISA pension requirements;
* Uses Form 5500 information for research, and policy analysis;
* Uses Form 5500 information to monitor single-employer and
multiemployer plan activities;
* Uses Form 5500 information for its Pension Insurance Modeling System
and Multiemployer Evaluation System;
* Annually prepares the Pension Insurance Data Book which reports
summary information on pension plans and PBGC finances.
Social Security Administration:
* Uses Form 5500 and Schedule SSA information to comply with ERISA and
Social Security Act requirements;
* 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.
[A] The 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).
[B] The 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.
[End of table]
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 single-employer 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, Current Processing Methods, and Labor
Practices Delay the Release of Form 5500 Information:
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.
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 ½ 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:
[See PDF for image]
Note: Labor regulations operationalize the deadline to the end of the
seventh month after the close of the plan year.
[End of figure]
An additional 45-day extension from the normal statutory deadline is
also automatically given to corporations receiving an extension on
their federal income taxes.[Footnote 16] However, an extension granted
by using this automatic extension procedure cannot be extended further
by using the one-time 2 ½ 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 and financial institutions, have 120 days after the plan year
to provide information to the plan administrator.[Footnote 17] Then,
under IRC and ERISA, defined benefit plans have up to 8 ½ months after
the plan year end to make contributions for minimum funding
purposes.[Footnote 18] Finally, under Treasury regulations, a plan has
up to 9 ½ months after the end of the plan year to correct any coverage
or nondiscrimination violations,[Footnote 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:
[See PDF for image]
Note: Labor regulations operationalize the deadline to the end of the
seventh month after the close of the plan year.
[End of figure]
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:
* Financial institutions provide information on plan assets held in
their custody.
* 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.
* 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.
* 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:
[See PDF for image]
[End of figure]
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 ½ 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.[Footnote 20]
Auditors said that 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:
[See PDF for image]
[End of figure]
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,[Footnote 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.
Figure 8: Form 5500 Reports:
[See PDF for image]
[End of figure]
According to Labor officials and the ERISA Advisory Council's[Footnote
22] 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.[Footnote 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.[Footnote 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 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:
[See PDF for image]
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.
[End of figure]
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 non-calendar year plan
filings can be due up to a year later than calendar year plan
filings,[Footnote 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 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:
[See PDF for image]
[End of figure]
The Timeliness of Form 5500 Reports Affects Federal Agencies' Use of
the Information:
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
paper-based 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 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.
Despite Efforts to Improve Its Content, the Form 5500 Lacks Key
Information:
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.
Federal Agencies Have Taken Steps to Improve the Content of Form 5500
Information:
Labor, IRS, and PBGC annually review and revise Form 5500 content as
needed to ensure that the form is collecting all information required
under ERISA. These agencies conduct a review of the Form 5500 as part
of the 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 legislation[Footnote
26] 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.
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.[Footnote 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.[Footnote
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, 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.[Footnote 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 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.[Footnote 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. 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.[Footnote 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 the plan were to be terminated,[Footnote
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.
Table 4: Recommendations from Pension Practitioners and Service
Providers for Further Streamlining the Form 5500:
Financial Schedules:
Schedule A-Insurance Information;
* Schedule A commission information could be captured on the Form 5500;
* 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;
* Schedule D could be limited to reporting information by Direct Filing
Entities;
* 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;
* Schedule G should be discontinued because this information appears in
supplemental schedules that is a required part of the auditor's report;
* 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;
* 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;
* 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;
* Schedule B attachments could be eliminated or the actuarial valuation
report substituted for the attachments.
Schedule E-ESOP Annual Information;
* 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);
* Schedules R and T could be modified to codes on the Form 5500;
* 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.
Source: Pension practitioners and service providers.
[End of table]
Conclusions:
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.
Recommendations:
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:
* 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.
* 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:
* information sufficient to identify all of the employers associated
with a particular plan and their annual contributions to the plan,
* plan specifics on determining employer contributions (per hour, per
unit of output, etc.), and:
* 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.
Signed by:
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:
[End of section]
Appendix I: Comments from the Department of Labor:
U.S. Department of Labor:
Assistant Secretary for Employee Benefits Security Administration:
Washington. D.C. 20210:
May 20, 2005:
Barbara D. Bovbjerg:
Director, Education, Workforce and Income Security Issues:
United States Government Accountability Office:
Washington, D.C. 20548:
Dear Ms. Bovbjerg:
Thank you for affording the Department of Labor the opportunity to
review the Government Accountability Office's (GAO) draft report
entitled "Government Actions Could Improve the Timeliness and Content
of the Form 5500 Pension Information." This letter provides comments on
the recommendations contained in the draft report: technical comments
were provided directly to you and your staff.
In general. we believe the subject report provides a good overview of
the Form and its use by the Department of Labor. Pension Benefit
Guaranty Corporation (PBGC) and Internal Revenue Service (IRS). as well
as plan participants and beneficiaries, other Federal agencies and
members of the research community. We also believe the report provides
a good overview of the current forms processing system (EFAST) and the
impediments to receiving timely information.
With regard to the content of the Form 5500, we note the GAO's
assertion that the form "lacks key information that could better assist
[the] three agencies in monitoring plans and ensuring that they are in
compliance with the law." The Agencies review the Form 5500 annually
and revise the content as needed to ensure the collection of relevant
information. As part of this review, the Agencies individually and
collectively determine what information they need on the Form 5500 to
carry out their respective responsibilities and adjust the Form as
appropriate. This review necessarily entails consideration of the
benefits of the requested information to the Agencies, as well as plan
participants and beneficiaries. and the costs and burdens on filers
attendant to filing the requested information and the costs to the
government of systems and other modifications attendant to receiving
and processing the requested information. In no event, however. would
the Agencies not include information on the form determined to be
necessary to the carrying out of their respective statutory obligations.
GAO recommends in its report that the Agencies work collectively to
develop a system that helps them track individual plans from year to
year and verify if all required employers are meeting their statutory
obligation to file a Form 5500 annually. We note 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. The Agencies will continue to work
together to explore means by which to monitor compliance with the
annual reporting requirements. In this regard, we should note that over
the last three years 36.600 delinquent filers have been brought into
the filing system through our Delinquent Filer Voluntary Compliance
Program.
GAO also recommends that the Form 5500 be modified to collect
additional information on multiemployer defined benefit pension plans,
including information sufficient to identify all of the employers
associated with a particular plan and their annual contributions; plan
specifics on determining employer contributions (per hour, per unit of
output, etc.) and the distribution of employer responsibility for
unfunded or underfunded plan liabilities. As noted in the report, the
PBGC is currently exploring ways to obtain more useful information
about multiemployer plans and we will consider GAO's recommendation in
that context.
Concerning the Form 5500 research file, the report emphasizes the
importance of the Form 5500 research file and says that this file is
"often not available to end users until about 3 years after the end of
the plan year." The Department agrees that the research file is an
essential product. The research file is a specialized version of Form
5500 information designed to support the production of aggregate
pension statistics and conduct of pension-related economic and policy
research. Its annual production generally involves editing, assembling
and assigning statistical weights to a year's worth of EFAST-processed
pension filings. The Department is undertaking efforts to eliminate
avoidable delays in its production and release, and is confident that
substantial improvements can be made. The Department agrees with GAO
that elimination of paper filings in favor of universal electronic
fling has the potential to help improve the timeliness of the research
file.
It is important to note, however. that the Department currently
delivers Form 5500 information more promptly for other purposes through
other pipelines. Generally, individual filings are made available for
enforcement and for public disclosure as soon as they are processed by
EFAST. (They are also made immediately available to PBGC and IRS.) As
part of EBSA's public disclosure program, an electronic database of all
disclosable EFAST-processed filings is available to the staff of EBSA's
Public Disclosure . Office to respond to public requests for filings
and to FOIA requests for data files. The research file is neither
intended nor suited for enforcement or public disclosure purposes, and
the timing of its release does not hinder the Department's performance
of its pension enforcement and public disclosure functions.
TO reduce filer errors and improve the timeliness of fled information,
the GAO recommends that the Agencies require the electronic filing of
the Form 5500. In doing so, the GAO indicates that the current filing
process (EFAST) should be improved to make the electronic filing
process more streamlined and less burdensome. Specific steps identified
in the report include: revising the electronic signature process;
streamlining the data correction process by ensuring filings are
checked for errors prior to submission; development of an electronic-
based correspondence system for notifying filers of errors; and
evaluating ways to speed up the release of Form 5500 data to the
public.
The Department, in coordination with the IRS and PBGC, is reviewing the
current EFAST system. EFAST, in its current form, is outdated and needs
to be replaced. The current EFAST system receives and processes
approximately 1.4 million flings annually. As noted in the report,
these filings translated into approximately 25 million paper pages for
the 2002 plan year. While 87 percent of the 2002 filers used some form
of software to prepare their filings, only l percent actually submitted
their filing electronically. As also noted in the report. the rate of
errors in non-electronically submitted filings is more than twice that
in electronically filed documents. It is clear that there are
inefficiencies inherent in the maintenance of any form of a paper
filing system - a large number of filer errors, increased likelihood of
correspondence and penalties, and delays in reviews of filings and
release of data to the public. These inefficiencies not only result in
increased costs to filers, the government and taxpayers generally, but
also result in increased risks to the benefit security of participants
and beneficiaries due to erroneous data or delayed enforcement.
Consistent with GAO's recommendation. the Agencies believe that the
only effective means by which to address the inefficiencies in the
current EFAST system is to move to a wholly electronic system for the
receipt and processing of Form 5500 data. As part of the EFAST review
process, the Agencies currently are considering approaches to
implementing a wholly electronic filing system. As we move forward to
update the EFAST system, we are committed to addressing impediments to
electronic filing, such as the process by which electronic signatures
are obtained. and streamlining the data correction and correspondence
processes. An updated and streamlined process will ensure that timely
and useable employee benefit plan data is available to the Agencies,
participants and beneficiaries, researchers and the general public as
soon as possible.
Again, thank you for the opportunity to submit comments on the report.
Sincerely.
Signed by:
Ann L. Combs:
[End of section]
Appendix II: Comments from the Pension Benefit Guaranty Corporation:
Pension Benefit Guaranty Corporation:
1200 K Street, N.W.,
Washington, D.C. 20005-4026:
Office of the Executive Director:
MAY 20 2005:
Barbara D. Bovbjerg:
Director, Education, Workforce And Income Security Issues:
U. S. Government Accountability Office:
Washington, D.C. 20548:
Dear Ms. Bovbjerg:
Thank you for providing the Pension Benefit Guaranty Corporation with a
draft copy of your report "Private Pensions: Government Actions Could
Improve the Timeliness and Content of Form 5500 Pension Information."
We appreciate the opportunity to comment.
The report fairly describes the content of the Form 5500 and Schedules
and of the EFAST processing procedures. In general, the report presents
an accurate picture of the issues related to the current Form 5500
package. We especially agree that electronic filing of the Form 5500
will reduce errors and speed processing time after the forms are
received.
However, we believe an even more important issue is the timeliness of
the pension funding information required to be reported as part of the
Form 5500. Electronic filing does not address the problem that the
pension funding data needed to monitor the financial condition of the
plans we insure may be almost two years old when filed. Given the
dynamic nature of financial markets and rapidly changing business
conditions, it is critically important that all stakeholders in the
defined benefit system have more timely information about the financial
status of pension plans. In this regard, the Administration's pension
reform proposal includes a provision that would advance the reporting
date for the Schedule B to February 15th for large defined benefit
plans that are subject to quarterly contribution requirements. While
some of these Schedule B's would have to be amended to account for
subsequent employer contributions, PBGC would have timelier access to
the asset and liability data it needs to better monitor the financial
condition of these plans. We would strongly encourage the GAO to
include this needed change as part of its recommendations.
We are pleased that the report recognizes the need for better
information about multiemployer plans. The PBGC currently is
considering what information it needs concerning such plans and the
best means for the collection of that information.
We have several technical comments that will be provided directly to
your staff. Thank you again for providing us the opportunity to comment
on this important study.
Sincerely,
Signed by:
Bradley D. Belt:
[End of section]
Appendix III: Comments from the Internal Revenue Service:
DEPARTMENT OF THE TREASURY:
INTERNAL REVENUE SERVICE:
WASHINGTON, D.C. 20224:
COMMISSIONER:
May 20, 2005:
Ms. Barbara D. Bovbjerg:
Director, Education, Workforce, and Income Security Issues:
United States Government Accountability Office:
441 G Street, N.W.:
Washington, DC 20548:
Dear Ms. Bovbjerg:
We appreciate the opportunity to review your draft report entitled
Private Pensions: Government Actions Could Improve the Timelines and
Content of Form 5500 Pension Information. We believe the draft report
fairly represents both the progress made and the remaining challenges
of administering the Form 5500 process.
The Internal Revenue Service (IRS) is committed to working
collaboratively with the Department of Labor (DOL), the Pension Benefit
Guaranty Corporation (PBGC), and the Social Security Administration
(SSA) to ensure that Form 5500 is processed in a timely manner and
collects all relevant information.
The IRS, DOL, PBGC, and SSA have been working together to improve
timeliness and reduce errors in Employee Retirement Income Security Act
Filing Acceptance System (EFAST) processing. We support your
recommendation that the Form 5500 be filed electronically. 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.
Similarly, we support your recommendations to improve EFAST to track
more effectively plans from year to year and to modify Form 5500 as
necessary to collect all relevant information, particularly with
respect to multiemployer pension plans. We will continue to work with
our partner agencies to improve all aspects of pension data collection
and processing.
In closing, thank you for reviewing this critical process. If you have
any questions please contact me or Steven T. Miller, Commissioner, Tax
Exempt and Government Entities at (202) 283-2500.
Sincerely,
Signed by:
Mark W. Everson:
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgments:
Contacts:
Tamara Cross, Assistant Director (202) 512-4890;
Raun Lazier, Analyst- in-Charge (202) 512-8386:
Staff Acknowledgments:
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.
FOOTNOTES
[1] For the purposes of this report, we will be discussing Form 5500
Reports as they relate to private pension plans.
[2] Some 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.
[3] GAO, High Risk Series: An Update, GAO-05-207 (Washington, D.C.:
January 2005).
[4] Throughout 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.
[5] Defined 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.
[6] A plan administrator is the person specifically designated by the
terms of the instrument under which the plan is operated.
[7] A 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.
[8] Labor 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.
[9] These 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).
[10] Labor 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).
[11] PBGC 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.
[12] Although 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.
[13] Small 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.
[14] An 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.
[15] Corporate 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.
[16] This 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.
[17] ERISA § 103(a)(2).
[18] IRC § 412(c)(10).
[19] 26 C.F.R. § 1.401(a)(4)-11(g)
[20] Most pension plans with 100 or more participants have an audit
requirement for the Form 5500.
[21] EFAST uses optical character recognition (OCR) software and 2D bar
code technology to capture data from paper Form 5500 filings.
[22] Section 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.
[25] For 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.
[26] Previous 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).
[27] A 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).
[28] The 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.
[29] The EIN is also used in a wide variety of employer tax filings.
[30] A multiemployer plan is insolvent when its available resources are
not sufficient to pay the level of benefits at PBGC's multiemployer
guaranteed level.
[31] One 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.
[32] Terminating 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.
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