GAO Recommends Changes to Form 5500

Stakeholders interviewed by the agency said the form’s information about service provider fees was misaligned with other required fee disclosures, and also cited various exceptions and gaps in current reporting requirements as major challenges. Specifically, the stakeholders said Form 5500 service provider fee information does not align with other information that service providers must disclose to plan sponsors, forcing providers to produce two different sets of information.

Also, differences in service provider compensation types and the lack of definitions for codes designating the types of services provided can result in inconsistent and incomplete data being reported. Other exceptions and gaps in service provider information result in an incomplete picture of plan fees. For example, large plans—those with 100 or more participants—are not required to report fee information for certain types of compensation and small plans file only limited fee information.

The Form 5500, filed annually by retirement plans subject to the Employee Retirement Income Security Act (ERISA), is the primary means of collecting information for use by the federal government and the private sector about retirement plan information and assets, GAO noted. The agency found weaknesses in the format of the form, challenges in finding key information and inconsistent data.

Specifically, plan asset categories break out plan assets differently from the investment industry, and provide little insight into plan investments, their structure, or the level of associated risk, GAO said. In particular, the majority of stakeholders GAO surveyed indicated that the “other” plan asset category in the form is too broad because it can include many disparate types of investments. Respondents also indicated challenges in identifying the underlying holdings of plan assets invested in indirect investments.

GAO said the form lacks detailed information about plan investments because there is no structured, data-searchable format for attachments to the form and the filing requirements about plan investments is limited for small plans. In addition, GAO’s survey found naming conventions and identification numbers may be inconsistent, making it difficult to collect and accurately match records.

The GAO said the Department of Labor (DOL), Treasury and the Pension Benefit Guaranty Corporation (PBGC) should look for options to conduct advance testing when making major revisions to the form. Stakeholder input could lower costs by reducing subsequent changes, improve filer comprehension, and increase the comparability and reliability of the form’s data. Additionally, the GAO noted a statutory prohibition against requiring electronic filing caused Treasury to remove certain data elements from the Form 5500 after DOL mandated electronic filing of the form. If Treasury were able to require electronic filing, it could add the data elements back to the form, which would improve its compliance, restore robust information to its enforcement activities, and decrease its data collection costs.

The full report may be downloaded from http://www.gao.gov/products/GAO-14-441.