On November 21, 2013, the U.S. Government Accountability Office (GAO) issued a report entitled “Clarity of Required Reports and Disclosures Could Be Improved,”addressing the resources currently allocated by Congress to the oversight of private sector pension plans under ERISA by the Department of Labor (DOL), the Internal Revenue Service (IRS) and Pension Benefit Guaranty Corporation (PBGC). The report was commissioned to “look at how useful all the pension reporting and disclosure requirements are to sponsors, participants and government officials and determine whether there are ways to improve the system.” As plan sponsors know, participants are inundated with a deluge of disclosure requirements and there are multiple reporting requirements to various government agencies, both of which the GAO report essentially confirms.
Some of the more interesting observations of the GAO include:
- The GAO identified 70 different reports and 60 different disclosures arising from provisions of ERISA and the Internal Revenue Code.
- The GAO evaluated the DOL and other ERISA agencies online resources and found them to be “not clear, comprehensive or up-to-date.” Additionally, the GAO noted that the DOL’s guide listing required reports and disclosures had not been updated since October 2008 and did not include many of the IRS reports and disclosures and several of the reports and disclosures under the DOL’s and PBGC’s purview. The GAO also stated that neither the PBGC or IRS sites provide comprehensive information regarding reporting and disclosure requirements and noted that the PBGC site does not provide a central location for reporting and disclosure requirements.
- The GAO found poor management of data, spread across the three agencies, which it thought resulted in the potential for misleading information included in notices provided to some retirees. In particular, GAO pointed to Form 8955-SSA, the registration statement identifying separated participants with deferred vested benefits. GAO stated that the vested benefit data provided in such forms and notice was “not managed in a way that ensures their accuracy.” The data on the Form 8955-SSA is provided by plan sponsors to the IRS, which merely passes the form on to the Social Security Administration (the “SSA”), which in turn prepares notices for retirees without any verification of the data. The SSA also provides the DOL as the point of contact in such notices.
- The GAO tested ten model notices from the agencies against federal plain language guidelines and found that several of the model notices failed to meet such guidelines. Failures included not explaining technical terrms used in the notices and cross referencing other sources of information to understand the notices, not explaining what a participant is supposed to do with the information in the notice, and not providing language about assistance available to non-English speakers. Additionally, based on a “automated grade-level readability test,” the GAO found that some of the model notices ranged from requiring a tenth-grade reading level to a college senior reading level (including the form blackout notice and ERISA rights statement).
The GAO ultimately emphasized the need to enhance plan sponsor compliance and the efficiency and effectiveness of reports and disclosures in light of the “increasingly complex world of private sector pension plans.” As the current system leaves the DOL with the responsibility for retaining pension information, despite splitting the responsibility for collecting such information between the IRS and the SSA, the GAO suggested that Congress should shift responsibility to the DOL (perhaps in partnership with the PBGC) as central hub for collecting and managing private pension plan information. Additionally, the GAO suggested that the agencies collaborate to: (1) create (and regularly updating) a well-organized and complete guide for plan sponsors regarding their required reporting and disclosure requirements; (2) define criteria complying with the readability provisions in ERISA and the Internal Revenue Code, and apply the criteria to agency-generated model notices; and (3) direct plan sponsors to post to any intranet website maintained by the employer a copy of the most current Summary Plan Description and any Summaries of Material Modifications issued subsequent to such Summary Plan Description.
The responses to the report provided by the agencies indicate their willingness to consider collaborating on the points above. However, with limited government resources and, as the GAO notes, an increasingly complex world of benefits, it seems unlikely that such collaboration will be able to happen in the near future. Until then, plan sponsors should continue to do their best to communicate their benefits in a meaningful and understandable fashion, not just because it is the law, but also to help their employees understand, and value, the benefits they’re receiving.