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Users Question Worth of Form 5500, But GAO Offers Answers

Is the Form 5500 worth filling out and filing in the first place? Not everyone is convinced, reports Benefitspro. But file they must, and the Government Accountability Office (GAO) has come to the rescue, offering suggestions in its recent report, “Private Pensions: Targeted Revisions Could Improve Usefulness of Form 5500 Information” regarding how the form could be made more useful.

Among the flaws with the form that Benefitspro cites are confusion regarding reporting service provider fees, the way assets are classified, a lack of data on plan investments and how they perform, and failure to keep pace with changes in retirement plans and how they are invested. The GAO had similar findings, and went into more depth regarding the form’s shortcomings. The key problems the GAO identified include:

  • Weaknesses in the format. The GAO said that the form breaks out plan asset categories differently than does the investment industry. It also says that the form provides little insight into plan investments, structure, holdings and risk levels. 
  • Challenges in finding key information. The GAO said that the Form 5500 lacks detailed information on plan investments because (1) there is no structured format for attachments to the form; (2) the filing requirements regarding plan investments is limited for small plans; and (3) there are gaps in information about plan fees — plans with 100 or more participants are not required to report fee information for certain types of compensation, and small plans only file limited fee information. 
  • Inconsistent data. The GAO says that naming conventions and identification numbers may be inconsistent, which makes it difficult to collect and accurately match records. 

What to do? The GAO’s suggestions regarding how to address the Form 5500’s flaws include: 

  • Seek stakeholder input, which could reduce changes to the form, make it more comprehensible for filers and make the data contained on the form more reliable and useful for comparisons. 
  • Enable the IRS to require electronic filing, as does the Department of Labor (DOL); this would make it possible for the IRS to restore elements to the form that it had to remove when the DOL required electronic filing. That, in turn, would improve compliance and the information gathered and cut the IRS’ data collection costs. 
  • The DOL, Treasury Department and Pension Benefit Guaranty Corporation (PBGC) should: (1) consider modifying the way it collects information on plan investment and service provider fees; and (2) conduct advance testing — such as working with focus groups and obtaining in-person observations — when making major revisions to the form.  

The GAO says that the PBGC agreed with the recommendations. The DOL and Treasury did not express agreement or disagreement with the recommendations; however, they identified actions underway to address the provider fee recommendation.