CHANGES ARE NEEDED IN ERISA
REPORTING AND DISCLOSURE
REQUIREMENTS AND PROCESSES
MEMORANDUM FOR:
OLENA BERG
Assistant Secretary for Pension
and Welfare Benefits
/ s /
FROM:
JOHN J. GETEK
Assistant Inspector General
for Audit
SUBJECT:
Changes are Needed in ERISA Reporting and Disclosure
Requirements and Processes
Final Report No. 09-97-004-12-121
Attached is our final report on the Employee Retirement Income Security Act of 1974 (ERISA) reporting and disclosure requirements and processes.
Our audit work disclosed that the Pension and Welfare Benefits Administration (PWBA) is generally enforcing ERISA reporting and disclosure requirements, that plan participants use the information reported and disclosed, and PWBA makes extensive use of the information contained in the annual reports (Form 5500). We also concluded that the reporting and disclosure requirements are generally necessary to achieve the intent of ERISA.
However, PWBA cannot enforce the reporting requirement for Direct Filing Entities (DFEs). The DFE information submitted is (1) not reported in a useful manner, (2) not monitored by PWBA for completeness and accuracy, and (3) not available for use in PWBA's enforcement program.
The audit also concluded that the specific ERISA reporting requirements for Summary Plan Descriptions (SPD) and Summary Material Modifications (SMM) were unnecessary. This supported previous conclusions and recommendations made by PWBA and the National Performance Review.
Public funds of $290,000 annually could be put
to better use if regulations regarding reporting and disclosure requirements
were revised to require DFEs to file annual reports on a standard form
and the DFE information were entered into PWBA's ERISA Information System.
Also, we estimate that the change eliminating filing requirements for SPDs
and SMMs will save an additional $210,000, mainly through a reduction in
contract personnel costs. In addition,
according to a PWBA estimate, private sector annual costs of approximately $2.5 million and 150,000 burden hours will be saved with the elimination of the filing of SPDs and SMMs with DOL.
We recommend that the Assistant Secretary for Pension and Welfare Benefits:
Our recommendations on DFEs will not be resolved until we receive and confirm PWBA's final Request for Proposal (RFP) for the new ERISA system development which includes processing requirements for DFE filings. Despite PWBA's response to the draft report, we point out OIG alerted PWBA that pages 59-60 of their initial draft RFP contained the following language: "The following miscellaneous forms . . . will not be processed by EFAST (emphasis added): Direct Filing Entity Reports. Direct Filing Entity (DFE) Annual Report. . . ." The recommendations will not be closed until final regulations implementing new DFE reporting requirements are issued.
The Taxpayer Relief Act of 1997, Public Law 105-32, eliminated SPD and SMM filing requirements. Our recommendations regarding SPDs and SMMs are resolved and closed. However, we request PWBA provide us with assurances that the KRA contract for the Public Disclosure Room will be amended to reflect the decreased workload. Further, we request PWBA include the contractor staff reductions and total projected savings in the assurances.
We would appreciate receiving your written response within 60 days. If you have any questions regarding this report, please contact Warren A. Seitz, Regional Inspector General for Audit, at (415) 975-4030.
Attachment
OBJECTIVES, SCOPE AND METHODOLOGY 4
FINDINGS
AND RECOMMENDATIONS
6
Requirements
to File SPDs and SMMs with DOL are Unnecessary and
PWBA
Does Not Enforce Compliance with These ERISA Requirements
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APPENDIX B - OIG Evaluation of PWBA's Comments 22
CCT Common/Collective Trust
CFR Code of Federal Regulations
DFE Direct Filing Entity
DOL U.S. Department of Labor
EIN Employer Identification Number
ERISA Employee Retirement Income Security Act of 1974
IBS Individual Benefit Statement
IRS Internal Revenue Service
KRA KRA Corporation
MT Master Trust
NPR National Performance Review
OIG Office of Inspector General
OPS Office of Program Services
PWBA Pension and Welfare Benefits Administration
RMI Records Management Inc.
SAR Summary Annual Report
SMM Summary of Material Modifications
SPD
Summary Plan Description
The Employee Retirement Income Security Act of 1974 (ERISA) established a significant number of reporting and disclosure requirements to protect employee benefit plan participants and beneficiaries. The Office of Inspector General (OIG) conducted a performance and compliance audit of the Pension and Welfare Benefits Administration's (PWBA) reporting and disclosure function.
Our audit work disclosed:
B. Plan participants use the information reported and disclosed and PWBA makes extensive use of the information contained in the annual reports (Form 5500). However, PWBA is not generally using information contained in the DFE annual reports, the SPDs or the SMMs.
C. Public funds ($500,000 annually)
could be put to better use if regulations regarding reporting and disclosure
requirements were revised to (1) require DFEs that file to use a standard
form which can be used with PWBA's ERISA Information System ($290,000)
and (2) eliminate filing requirements for SPDs and SMMs ($210,000). In
addition, according to a PWBA estimate, private sector annual costs of
approximately $2.5 million and 150,000 burden hours would be saved if Congress
amends ERISA to eliminate filing SPDs and SMMs with DOL.
1. Private Pension Plan Bulletin, Abstract of 1993 Form 5500 Annual Reports, Number 6, Winter 1997, published by PWBA's Office of Research and Economic Analysis.
We recommend that the Assistant Secretary for Pension and Welfare Benefits:
In the response to the draft report, PWBA stated that the OIG recommendations essentially concurred in two PWBA initiatives that predated the OIG audit and did not take issue with the substance of the recommendations. They stated that the OIG audit report provided an independent confirmation that initiatives already being pursued are in the public interest and consistent with PWBA's statutory mission.
The legislative changes needed to discontinue SPD and SMM filings became effective on August 5, 1997, with the passage of the Taxpayer Relief Act of 1997, Public Law 105-32. Our two recommendations regarding SPDs and SMMs are resolved and closed.
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Background
Congress passed the Employee Retirement Income Security Act of 1974 (ERISA) to remedy abuses in the private employee benefit plan system. Congress considered employee benefit plan reporting and disclosure to be an important part in strengthening plan operations. Employee benefit plan reporting and disclosure requirements provide plan participants and beneficiaries information to interpret plan benefits and monitor plan operations. Reporting and disclosure documents that generally must be filed with the U.S. Department of Labor (DOL) and/or the Internal Revenue Service (IRS) include:
b) Summary of Material Modifications (SMM) - Summarizes changes made to the plan and/or information required to be included in the SPD.
c) Annual Report (Form 5500 Series) - Provides detailed financial and operational information on plan operations.
e) Individual Benefit Statement (IBS) - Provides each requesting plan participant or beneficiary with a statement of accrued and vested benefits.
Principal Criteria
The principal criteria included: (1) ERISA Sections 101 through 107, 109, and 110; and (2) Federal regulations at 29 Code of Federal Regulations (CFR), Part 2520, entitled "Rules and Regulations for Reporting and Disclosure."
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Objectives
The objectives of our audit were to answer the following questions:
B. Is the information reported and disclosed by plans used by PWBA and the plan participants? (Finding 1-A, B and Finding 2-B)
C. Are there more economical ways to obtain the information, store it, and make it available to the public? (Finding 1-A and Finding 2-C)
D. Are the reporting and disclosure requirements necessary to achieve the intent of ERISA? (Finding 2-B)
Our audit covered Fiscal Years 1994 through 1996. Where necessary, other years were used to obtain complete information and provide a clearer picture of ERISA reporting and disclosure activities.
We held an entrance conference on July 16, 1996, with PWBA representatives in Washington, D.C. We conducted field work between September 1996 and March 1997 at PWBA headquarters. We also conducted field work at sponsors of eight employee benefit plans.
The scope of our audit initially included review of the interagency processes between PWBA and the IRS related to Form 5500 Series annual report processing. However, based upon our preliminary audit work and information provided by PWBA, we subsequently decided that it would be more appropriate to evaluate the Form 5500 reporting and disclosure process as a separate project since that process is currently undergoing major revisions.
Our audit was conducted in accordance with Government Auditing Standards (1994 Revision) issued by the Comptroller General of the United States.
Methodology
We identified, obtained, and reviewed prior audit
reports, as well as other relevant publications by the Office of Inspector
General (OIG), the General Accounting Office and the American Institute
of Certified Public Accountants. We reviewed statutes and regulations related
to reporting and disclosure.
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We also performed a comparison of PWBA's ERISA Information System for plan year 1994 annual report (Form 5500) filings (the latest available year) against PWBA's current SPD database as of November 30, 1996, to determine whether corresponding SPDs were on file or missing from PWBA's records.
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Our audit work disclosed that ERISA reporting and disclosure requirements protect participants and beneficiaries, and plan administrators are generally complying with ERISA disclosure requirements to provide plan participants and beneficiaries with copies of SPDs, SMMs, SARs and IBSs. Further, we learned plan participants used these disclosure items to varying degrees in monitoring their plans' activities and understanding their benefits.
1.
PWBA Does Not Monitor or Efficiently Use DFE Annual Reports
to Meet Its ERISA Responsibilities
The DFE annual reporting process is inadequate because the information submitted is (1) not reported in a useful manner, (2) not monitored by PWBA for completeness and accuracy, and (3) not available for use in PWBA's enforcement program. This inadequacy has been caused by PWBA assigning a low priority to DFE reporting because of limited resources. According to PWBA, they made policy decisions to devote resources to other higher priority areas, including revising the existing ERISA Information System.
According to PWBA information, the Public Disclosure Room received approximately 3,000 DFE annual reports for Fiscal Year 1996. However, PWBA does not know whether it received all DFE annual reports due, whether the reports it received are accurate and complete, or whether the filings on hand contain information participants need concerning irregularities such as prohibited transactions in Master Trusts (MTs). The annual reports so lack consistency of format as to defy comparison, analysis, and reasonable use. Ultimately, PWBA cannot efficiently meet its ERISA responsibilities to use this information for enforcement targeting, disclosure monitoring, statistical analysis, or research study.
The annual reports from plans are one of the most important reporting and disclosure mechanisms required by ERISA. The annual report is the primary source of information for PWBA, IRS and plan participants about the operation, funding, assets, and investments of employee benefit plans. The annual report is not only an important compliance and research tool for the Department and a disclosure document for plan participants and beneficiaries but is a critical source of information and data for use by other Federal agencies, Congress, and the private sector in assessing employee benefit, tax, and economic trends and policies.
To avoid a "needless burden on plans and the duplication of statements," PWBA has instituted regulations that simplify the detail required to be reported by employee benefit plans if the plans have funds in an investment arrangement that files annual financial reports directly with DOL. These investment arrangements take the form of MTs, common/collective trusts (CCTs), pooled separate accounts and other forms, all of which are defined by ERISA or PWBA regulations. Investment arrangements that file annual reports directly with DOL are called DFEs. These investment arrangements offer the participating plans significant economies in record keeping and asset management expenses.
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The information DFEs report to PWBA differs depending on the type of DFE filing the report. MTs, for example, are required to report annually and the reports must contain the same comparative financial statements as the Form 5500. CCTs, however, have the option of reporting each year or not and the only financial statement they need to include is a current year Statement of Assets and Liabilities. There are other technical reporting differences, depending on the type of investment arrangement reporting.
The plans investing in a DFE are provided reporting relief involving the DFE filing financial information on behalf of the plans participating in the DFE. The DFE is responsible for filing the detailed financial report with DOL that the plan or plans would normally have had to file. While the intent of the regulations was to simplify reporting, the regulations have actually resulted in reports that are not useful and do little more than take up storage space.
As DFE annual reports arrive at the Public Disclosure Room, the PWBA contractor only verifies certain identifying information deemed essential such as a plan name and Employer Identification Number (EIN). The information is then input into a DFE database which identifies the date information was entered into the system along with storage location data identifying the box number where the DFE annual reports are filed. The DFE annual reports are then shipped and stored until needed. This is the extent of the DFE annual report process. This process is entirely separate from the regular Form 5500 annual report process.
A. DFEs Information is Not Reported in a Useful Manner
Employee benefit plans covered by ERISA are generally required to file an annual report. A standard form, the Form 5500 series, was developed for plans to use for their annual report. While additional information is attached to the Form 5500, the basic information for all plans is contained in the Form 5500 series. The plans submit Form 5500 series annual reports to the IRS which subsequently distributes the information to PWBA. The purpose of this reporting and disclosure requirement is to enable both PWBA and plan participants to monitor the covered employee benefit plans' operations.
For DFEs, PWBA established separate reporting instructions. These instructions do not require the use of the Form 5500 as a reporting vehicle to the IRS, but instead allow a "free-form" report to be submitted directly to DOL. The instructions do establish a minimum of information which must be submitted but do not specify how the information is to be reported. As a result, DFE annual reports are submitted in varying forms, most presenting a mass of information that is essentially irrelevant, immaterial and useless for ERISA disclosure purposes.
We randomly selected ten DFEs and requested their latest annual reports from the Public Disclosure Room. We then attempted to review these reports for compliance with PWBA's reporting instructions and tried to determine if the reports could be useful to plan participants.
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For example, one DFE submitted an annual report which was 3 ½ inches thick, an estimated 900 pages. While the report met the basic disclosure requirements, the information was exceedingly difficult to follow. In our opinion, a plan participant would find this information overwhelming and useless.
Another DFE sent in an annual report which measured 5 ½ inches thick. We estimate that this report had over 2,500 pages of data, most of which was not required to be submitted. The report was dutifully assigned a box location number and shipped to storage.
The lack of a standard report form, when coupled with the lack of review and the non-integration into the ERISA Information System has prevented PWBA from meeting its responsibilities relative to DFE annual reports. Specifically, PWBA cannot enforce the reporting requirements involving DFEs or efficiently use the data for its enforcement, statistical, or research needs. This has also contributed to unnecessary expenditure of about $290,000 annually as explained later in this report.
Standardizing the DFE report format would improve the usefulness of DFE annual reports although it may also add costs to DFE operations. However, we believe that there also may be savings to DFE operations by eliminating voluminous reports which are mailed to DOL but rarely used. Whatever the net effect, costs will be expended only to produce an effective disclosure document for plan participants and beneficiaries and provide a necessary source of information for Federal agencies, Congress and the private sector.
B. DFE Information is Not Monitored by PWBA for Completeness and Accuracy
The Form 5500 annual reports for most employee benefit plans are subjected to a very comprehensive review before they are accepted. According to information provided by PWBA, the IRS receives the Form 5500 and then enters the Form 5500 information, and information from some supporting schedules, into its computer database. The IRS does over 150 edit checks on the Form 5500 series to check for errors and apply tests for compliance with ERISA reporting requirements and the tax code. The IRS then corresponds with individual plan sponsors to correct erroneous or incomplete data identified by the edit checks. Every 4 weeks, the IRS provides the Form 5500 information on computer tapes to PWBA.
PWBA then downloads selected information from the IRS database into the ERISA Information System to further target those Form 5500s that appear problematic. It also examines the Form 5500 filings directly for additional deficiencies. PWBA also attempts to get plans to correct identified reporting problems. The goal is to get accurate Form 5500 information available for disclosure to the public and Congress and for enforcement, statistical, and research purposes.
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This lack of review and lack of incorporation of DFE data into the ERISA Information System raises concerns regarding DFE filings. There are no assurances that the filings are accurate or complete nor can PWBA be aware of any critical disclosures made in the filings.
C. DFE Information is Not Available for Use in PWBA's Enforcement Program
DFE information cannot be used for enforcement purposes because DFE information is not in the ERISA Information System. PWBA uses its ERISA Information System extensively for enforcement purposes. There are over 80 targeting programs which identify potential ERISA violations from the data in the ERISA Information System. However, the DFEs cannot be examined in this manner since they are not in the system.
Additionally, there is no overall enforcement program or special project directly tied to DFEs. We were informed that PWBA has looked at a few cases where there was a specific allegation contained in a complaint, but DFEs are not part of any regular enforcement plan.
Further, PWBA does not have a tracking system in place to determine whether it has received all DFE annual report filings. Therefore, PWBA cannot determine whether all DFEs have filed annual reports and consequently, whether all plans using DFEs meet ERISA reporting requirements.
Using the Form 5500 annual report filings, PWBA goes through its ERISA Information System and specifically looks for plans which did not file. PWBA contacts the nonfiling plans to request the filing and, if necessary, take enforcement action against the plan. PWBA has had some big cases in this regard recently, one of which had in excess of $500,000 in assessed fines.
This type of review and control is not possible with DFEs under current regulations and procedures. The essential enforcement information is not even reported in all cases. For example, plans invested in MTs are required to report on the Form 5500 identifying information related to the MT financial institution. Therefore, it is theoretically possible, using available computer databases, to determine whether any MTs are failing to file DFE annual reports with PWBA by comparing names and addresses of investments and DFEs. However, with the different variations in how names and addresses are actually put on the Form 5500, any such matches would probably not be effective.
Conversely, plans invested in CCTs are not required
to report on the Form 5500 the name or address of the CCT financial institution.
While this information is available on an attached certification, it is
not captured in the ERISA Information System. Without this information
in
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Due to the weaknesses discussed, we could not determine if or how many DFEs may not have filed annual reports. However, considering there is at least an estimated $954 billion (41 percent)(2) in pension assets invested in entities that could file DFE annual reports, PWBA needs to develop controls over DFE filings.
Conclusions
The annual reporting process for DFEs, representing at least an estimated $954 billion (41 percent) in plan assets, is inadequate. The information submitted is (1) not reported in a useful manner, (2) not monitored by PWBA for completeness and accuracy, and (3) not available for use in PWBA's enforcement program. Plans whose information is reported via DFEs are not subjected to the same level of monitoring and enforcement efforts as those plans filing individual annual reports (Form 5500 series). Also, PWBA has had to expend additional public resources to develop information not available in the current DFE annual reporting process.
PWBA has spent approximately $868,000 for Plan Years 1991 through 1993 to hire a private contractor to create a database of DFE information that is needed for research and statistical purposes. The contractor went through the DFE filings to extract information that could be used to project to the DFE universe. This information was then provided to PWBA for use in statistical studies, policy decisions, legislative analysis and research. If the DFEs had been in the regular Form 5500 process, this extra contract would not have been necessary.
We calculated approximately $290,000 annually which PWBA can put to better use if reporting requirements and related regulations are revised so that DFEs file information on the Form 5500 -- a standard report format that could be entered into the ERISA Information System.
Recommendations
We recommend that the Assistant Secretary for
Pension and Welfare Benefits:
2. Private Pension Plan
Bulletin, Abstract of 1993 Form 5500 Annual Reports, Number 6, Winter
1997, published by PWBA's Office of Research and Economic Analysis.
10
On August 1, 1997, PWBA provided comments on the draft report. They are included in their entirety in Appendix A.
Overall, while agreeing with the recommendation, PWBA stated: "The draft audit report, and especially the failure to credit our DFE initiatives in the streamlined Form 5500 project, create the misleading impression that the OIG audit not only uncovered a need to improve the DFE reporting system, but also that the OIG independently arrived at the conclusion that the DFE reports should be merged into the information management system being used for the streamlined Form 5500."
In response to the first and second recommendations, PWBA stated: ". . . most efficient solution to this problem would be to require DFEs that file annual reports to use a standard format compatible with our Form 5500 information processing system. We have incorporated that approach into the overall streamlining of the Form 5500 annual/return report being done as part of the Administration's pension simplification initiative announced in 1995."
PWBA did not specifically comment on the third recommendation.
OIG Evaluation of PWBA's Comments
We commend PWBA's efforts to include revised DFE reporting requirements as part of the Form 5500 streamlining project. However, the draft Request for Proposal (RFP) for the new Form 5500 series processing system specifically excluded processing the DFE annual reports. Therefore, the recommendations will not be resolved until the DFE processing requirements are included in the final RFP. They will be closed when PWBA publishes final rules and regulations requiring DFEs to file annual reports with DOL that can be processed in the streamlined Form 5500 system.
The third recommendation remains open and unresolved. We are aware of PWBA's efforts in redesigning the Form 5500 process and that this process will include the means to identify non-filers of Form 5500, including DFEs. However, we need PWBA's specific comments on this recommendation.
A more detailed evaluation of PWBA's comments
is included in Appendix B.
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The current framework for SPDs and SMMs needs to be improved. Specifically, (1) PWBA is not effectively enforcing ERISA requirements for plans to submit SPDs and SMMs to DOL; (2) PWBA does not need SPDs or SMMs to be submitted to DOL to meets its responsibilities under ERISA; and (3) public and private funds are being wasted by current ERISA filing requirements for SPDs and SMMs. While these documents are important to plan participants, the filing with DOL serves little purpose and both public and private funds and human resources are being wasted.
ERISA Section 104 generally requires employee benefit plan administrators to file a copy of the SPD with DOL within 120 days after the plan is adopted. It further states that an SMM of the SPD must be filed with DOL within 210 days after the close of the plan year in which a modification was adopted. These requirements are implemented in the regulations at 29 CFR § 2520.104a-3 and 2520.104a-4.
To comply with these and other disclosure requirements, PWBA maintains a Public Disclosure Room. This room is open to the public and is operated under a fixed price contract with a private contractor, KRA Corporation (KRA). For Fiscal Year 1996, KRA received $533,654 to run the Public Disclosure Room. PWBA estimated that one-third of this cost was attributable to SPD and SMM processing.
As SPDs and SMMs arrive at the Public Disclosure Room, KRA verifies that certain identifying information deemed essential such as plan name and EIN are in the filing. The basic information is then entered into a database system that identifies the location where the SPDs and SMMs are stored.
The SPDs and SMMs are then boxed, shipped, and stored indefinitely in an offsite warehouse operated by a second private contractor, Records Management Inc. (RMI). Upon request, RMI retrieves boxes containing the SPDs or SMMs and sends them to the Public Disclosure Room so document requests can be filled.
When KRA personnel cannot find a requested SPD or SMM filing in PWBA records, they contact the plan sponsor to request a copy of the missing document in order to respond to the document requester.
According to information provided by PWBA, there were 194,345 SPDs and SMMs processed by the Public Disclosure Room for Fiscal Year 1996. PWBA also estimated that it had about one million SPDs and SMMs on file.
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PWBA does not have a reporting compliance program to determine whether it has received all SPD and SMM filings. PWBA does review for SPD and SMM filings when conducting individual plan investigations. However, this has not ensured that all SPDs and SMMs are filed as required. Therefore, PWBA is not effectively enforcing compliance with the reporting requirements contained in ERISA Sections 104(a)(1)(C) and (D) which generally require plans to submit copies of SPDs and SMMs directly to DOL.
To determine wether PWBA was receiving SPDs from
all plans required by ERISA to file SPDs, we performed a comparison of
plans filing Form 5500 to the SPDs PWBA has on file. The following table
summarizes the results of our comparison of PWBA's ERISA Information System
against PWBA's SPD/SMM filings database.
| Form
Type |
Reports Filed |
Missing SPDs |
Variance |
| 5500 | 163,840 | 106,734 | 65% |
| 5500-C | 360,441 | 219,508 | 61% |
| 5500-R | 336,364 | 183,770 | 55% |
| Total | 860,645 | 510,012 | 59% |
As can be seen, of the 860,645 Form 5500s filed for plan year 1994, there were 510,012 (59 percent) missing SPDs.
To verify the accuracy of the comparison, we drew a random sample of 50 plans from the ERISA Information System and requested PWBA's Public Disclosure Room to locate each SPD in PWBA's storage. The results of our comparison indicated there was no match between the two PWBA databases for 33 of the 50 plans (66 percent). The Public Disclosure Room staff could not locate 33 of the 50 requested SPDs, the same 33 our comparison indicated were missing from PWBA's files. Thus, our random sample verified the results of our comparison of PWBA's two databases.
Our analysis of PWBA's two databases shows 59 percent of plan administrators may not be in compliance with ERISA since the SPDs are not in PWBA's system.
PWBA agreed that a substantial number of SPDs are not in its database. However, PWBA felt that the actual percentage of missing SPDs may be lower than 59 percent due to: (1) some SPDs being on microfiche rather than in its computerized system; and (2) a backlog of unprocessed SPDs. PWBA also stated the agency has not had sufficient resources to devote to
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PWBA would need significant staff and budget increases to effectively enforce compliance with current ERISA filing requirements for SPDs and SMMs. We estimate that PWBA would need (1) approximately 244 staff years to obtain the 510,012 missing SPDs and (2) an additional $315,000 in annual contract funds to continue enforcing compliance. However, this approach would result in an even greater waste of public funds which should not be necessary if Congress passes the proposed legislation discussed in the following section.
In fact, it may be possible and more economical for PWBA to eliminate the filing and storage of the SPDs and SMMs even before any legislative changes are made. Since 59 percent, or a substantial number, of the SPDs are not being received, and those being received are not being used, PWBA could possibly eliminate all SPD and SMM filing and storage immediately. We believe that PWBA should seek a legal opinion from the Office of the Solicitor regarding possible elimination of SPD and SMM filing requirements prior to legislative change, along with any potential changes to record retention requirements for these documents. PWBA should also determine whether stored SPDs and SMMs can be destroyed.
Responses to document requests could be handled by direct contact with plan administrators as is currently done for any unlocated documents. If PWBA did not receive the SPDs or SMMs at all, it would have to obtain copies from plan administrators in all cases. Since PWBA does not have a substantial number of the SPDs in its files anyway, over the long-term, it will have to request copies of the SPDs from plan administrators in order to respond to most document requests. Thus, a change to make this the normal procedure would not be drastic.
B. PWBA Does Not Need SPD or SMM Filings to Meet Its Responsibilities Under ERISA
PWBA has little use for the SPDs and SMMs other than to respond to document requesters or to infrequently use them for internal purposes. Under the current process, SPDs and SMMs are not reviewed or monitored by PWBA for compliance with ERISA, and with minimal verification, are mainly just received and stored in case copies are ever requested. However, during Fiscal Year 1996, PWBA received only 668 requests for copies, or less than 0.07 percent of the estimated one million SPDs stored.
For several years, PWBA has recognized that the SPD and SMM filing requirements are unnecessary. In addition, the National Performance Review (NPR) recommended that legislative changes be made to eliminate the filing requirement. PWBA concurred with this recommendation. Specifically, in proposing the Retirement Savings and Security Act in May 1996, the Department stated:
The proposal would amend ERISA to eliminate the requirement that SPDs and SMMs be filed with the DOL. . . .
C. Public and Private Funds are Wasted by Current ERISA Requirements for SPDs and SMMs
The NPR, PWBA and OIG agree that the current SPD and SMM reporting requirements waste public and private funds. The Retirement Savings and Security Act, as proposed, also states:
Using PWBA's assumptions, we estimated PWBA could
save approximately $210,000 annually if Congress amends ERISA and eliminates
the requirements for SPDs and SMMs to be filed with PWBA. In addition,
based upon the estimates contained in the NPR and PWBA's
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Conclusions
The current framework for SPDs and SMMs needs to be improved since (1) PWBA is not effectively enforcing ERISA requirements for plans to submit SPDs and SMMs to DOL; (2) PWBA does not need SPDs or SMMs to be submitted to DOL to meets its responsibilities under ERISA; and (3) public and private funds are being wasted by current ERISA filing requirements for SPDs and SMMs. If the current procedures are not changed, PWBA will continue to be unable to locate and retrieve a substantial number of SPDs and SMMs and will continue to unnecessarily spend over $210,000 annually. Private funds of $2.5 million and 150,000 human resource hours annually will continue to be wasted complying with these requirements.
Recommendations
We recommend that the Assistant Secretary for
Pension and Welfare Benefits:
On August 1, 1997, PWBA provided comments on the draft report. They are included in their entirety in Appendix A.
Overall, PWBA stated: "PWBA has long been of the view that filing SPDs/SMMs was not a cost-effective requirement and that our response was to target our limited human and capital resources on more important ERISA reporting and disclosure requirements while also working to get legislation enacted to eliminate this filing requirement."
Specifically, PWBA stated: ". . . the SPD/SMM legislative changes that we proposed are in the Budget Reconciliation spending and revenue bills (H.R. 2015 and H.R. 2014) that were passed by the House and Senate on July 30, 1997 and July 31, 1997."
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The legislative changes needed became effective August 5, 1997 with the enactment of the Taxpayer Relief Act of 1997, Public Law 105-32. No further action is necessary. These two recommendations are resolved and closed.
A more detailed evaluation of PWBA's comments is included in Appendix B.
We have reviewed PWBA's August 1, 1997, response to the draft report and have the following comments.
PWBA stated the OIG report could have acknowledged several initiatives PWBA made in the reporting and disclosure area, especially the annual report process. However, in our scope and objectives we clearly stated that our audit did not cover the annual report (Form 5500) process or the other PWBA initiatives. We cannot comment on areas not included in our audit scope and objectives.
Regarding our three recommendations addressing DFEs, PWBA stated that OIG statements "create the misleading impression that the OIG audit not only uncovered a need to improve the DFE reporting system, but also that the OIG independently arrived at the conclusion that the DFE reports should be merged into the information management system being used for the streamlined Form 5500."
Despite PWBA's contention that PWBA has been planning action regarding DFEs, adequate corrective action is not yet assured. During our audit, several PWBA managers interviewed expressed the desire to have OIG recommend improvements in the DFE process because PWBA management had not done anything to fix the problem. We point out that during our audit PWBA developed a draft Request for Proposal (RFP) to design and implement a streamlined Form 5500 processing system. However, this RFP specifically excluded DFEs from the new Form 5500 process. It was not until OIG raised the issue of DFE filings that PWBA agreed to include DFE annual report processing in the final RFP. While PWBA later stated this was an oversight, it clearly points out the need for OIG to make recommendations for corrective actions and enter the recommendations into the audit followup system so that this type of oversight does not occur again.
Also, PWBA's regulatory and procedural changes are not firm yet. PWBA announced the simplification of the Form 5500 series over 2 years ago but final regulations have not yet been issued. The new Form 5500 series processing system is not scheduled to be implemented until January 1999. With the uncertainties in the regulatory and system development processes, there are no assurances that PWBA's final regulations or the new Form 5500 series processing system will include the changes necessary for DFE reporting requirements.
Our audit report points out the severity and magnitude of the DFE problem. An estimated $954 billion in plan assets are involved. These plan assets are not included in current filing processes and are not directly subjected to PWBA's monitoring and enforcement efforts.
In addition, even if PWBA changes the DFE reporting requirements, the changes will not take effect until plan year 1999. Until then, we estimate that PWBA will expend another $1.5 million capturing DFE information it needs.
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PWBA did not specifically comment on the third recommendation to develop procedures to identify DFEs not filing annual reports and take appropriate action. This recommendation remains open and unresolved.
PWBA also stated that they objected to, and found inconsistent, the OIG statements that PWBA was not effectively enforcing the ERISA requirements regarding SPDs and SMMs, yet further stating these requirements were not necessary or effective.
During our audit period, there was an ERISA requirement
that plan administrators file their SPDs and SMMs with DOL. Based on our
audit tests, we estimated that 59 percent of the plans had not complied
with this ERISA requirement. PWBA did not have a reporting compliance program
to enforce this section of the law.
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