WORKPLACE 

RETIREMENT 

ACCOUNTS

Better Guidance and 

Information Could 

Help Plan Participants 

at Home and Abroad 

Manage Their 

Retirement Savings

Report to the Ranking Member, 

Committee on Finance

United States Senate

January 2018

GAO-18-19

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-18-19, a report to the 

Ranking Member, Committee on Finance, 

United States Senate. 

January 2018

WORKPLACE RETIREMENT ACCOUNTS

Better Guidance and Information Could Help

Plan Participants at Home and Abroad 

Manage Their Retirement Savings

What GAO Found

Plan participants in the United States face challenges after they change jobs, 

including not receiving communications from their plan sponsor and being 

vulnerable to unforeseen tax consequences that can result in a loss of retirement 

savings. GAO previously reported that when participants leave savings in a plan 

after separating from a job, the onus is on them to update former employers with 

their new address and to respond to their former employer’s communications.

GAO found that although an employer may incur costs searching for separated 

participants, there are no standard practices for the frequency or method of 

conducting searches. GAO reported that from 2004 through 2013, over 25 million 

participants in workplace plans separated from an employer and left at least one 

retirement account behind, despite efforts of sponsors and regulators to help 

participants manage their accounts. Department of Labor (DOL) officials told 

GAO that some sponsors do not search for participants when disclosures are 

returned as undeliverable. DOL has issued guidance on searching for missing 

participants for some plans that are terminating, but guidance does not exist on 

what actions DOL expects ongoing plan sponsors to take to keep track of 

separated participants. A key element of DOL’s mission is to protect the benefits

of workers and families. However, without guidance on how to search for 

separated participants who leave behind retirement accounts, sponsors may 

choose to do little more than remove unclaimed accounts from the plan when 

possible, and workers may never recover these savings.

Stakeholders told GAO that U.S. individuals who participate in foreign workplace 

retirement plans face challenges reporting their retirement savings for tax 

purposes because of complex federal requirements governing the taxation of 

foreign retirement accounts and a lack of clear guidance on how to report these 

savings. For example, stakeholders told GAO it is not always clear to U.S 

individuals or their tax preparers how foreign workplace retirement plans should 

be reported to the Internal Revenue Service (IRS) and the process for 

determining this can be complex, time-consuming, and costly. In the absence of 

clear guidance on how to correctly report these savings, U.S. individuals who 

participate in these plans may continue to run the risk of filing incorrect returns. 

Further, U.S. individuals in foreign retirement plans also face problems 

transferring retirement savings when they switch jobs. In the United States, 

transfers of retirement savings from one qualified plan to another are exempt 

from U.S. tax. However, foreign plans are generally not tax-qualified under the 

Internal Revenue Code, according to IRS officials, and such transfers could have 

tax consequences for U.S. individuals participating in foreign retirement plans. 

Officials from the Department of the Treasury (Treasury) told GAO that a change 

to the U.S. tax code could improve the tax treatment of transfers between foreign 

retirement plans that Treasury has already examined. Without action to address 

this issue, U.S. individuals may not consolidate their foreign retirement accounts 

or may have to pay higher U.S. taxes on transfers than taxpayers participating in 

qualified plans in the United States, threatening the ability of U.S. individuals to 

View GAO-18-19. For more information, save for retirement abroad.

contact Charles Jeszeck at (202) 512-7215 or 

jeszeckc@gao.gov.

Why GAO Did This Study

Saving for retirement can be difficult.

However, when participants lose their 

workplace retirement accounts when 

they change employers or participate 

in a workplace retirement plan abroad 

they can encounter additional 

challenges in securing adequate 

retirement savings. GAO was asked to 

review steps federal agencies might 

take to assist participants with these 

challenges. 

This report examines key challenges 

U.S. participants face with: (1) 

unclaimed retirement accounts in the 

United States, and (2) complying with 

U.S. tax reporting requirements on 

their foreign retirement savings. GAO 

reviewed relevant federal laws and 

regulations, and reviewed selected tax 

treaties. GAO interviewed stakeholders 

in the United States and in Australia, 

Canada, Hong Kong, Switzerland, and 

the United Kingdom—chosen because 

these locations host relatively large 

populations of U.S. individuals and 

have well-developed workplace 

retirement systems. 

What GAO Recommends

GAO recommends Congress consider 

addressing taxation issues affecting

the transfer of retirement assets 

between plans within the same foreign 

country. GAO is making seven 

recommendations, including that DOL 

issue guidance to help ongoing plan 

sponsors search for separated 

participants, and that IRS issue 

guidance to clarify how U.S. individuals 

should report foreign retirement 

savings to the IRS. The agencies 

generally agreed with GAO’s 

recommendations. IRS disagreed with

two of GAO’s recommendations. 
Page i GAO-18-19 Workplace Retirement Accounts

Letter 1

Background 5

Participants Face Challenges Managing Unclaimed Retirement 

Accounts and Agencies Have Not Provided Sufficient Guidance 

and Information to Assist Them or Plan Sponsors 18

Complex Tax Requirements and a Lack of Guidance Can Hinder 

U.S. Individuals’ Ability to Correctly Report Foreign Retirement 

Accounts 34

Conclusions 51

Matter for Congressional Consideration 53

Recommendations 53

Agency Comments and Our Evaluation 54

Appendix I IRS Instructions on Reviewing Tax Treaty Provisions 

Related to Foreign Retirement Accounts 59

Appendix II Estimated Number of U.S. Citizens Living Abroad 60

Appendix III Efforts to Link Participants to Dormant or Unclaimed 

Retirement Accounts in Case Study Locations 61

Appendix IV Comments from the Department of Labor 70

Appendix V Comments from the Internal Revenue Service 72

Appendix VI Comments from the Social Security Administration 76

Appendix VII Comments from the Pension Benefit Guaranty Corporation 78

Contents
Page ii GAO-18-19 Workplace Retirement Accounts

Appendix VIII GAO Contact and Staff Acknowledgments 80

Tables

Table 1: A Variety of Approaches to Tax Withholding for 

Distributions from Workplace Retirement Plans 24

Table 2: U.S. Citizens Abroad by Geographic Region as of April 

21, 2015 60

Figures

Figure 1: Illustrating Possible Double Taxation of a Small 

Unclaimed Workplace Retirement Account Involuntarily 

Cashed Out and Later Claimed 26

Figure 2: One Way Erroneous Information on Unclaimed 

Workplace Retirement Accounts Accumulates in the 

Social Security Administration (SSA) Pension Benefit 

Record 31

Figure 3: Two Options that Could Identify Workplace Retirement 

Plan Sponsors with Form 8955-SSA Reporting Failures 33

Figure 4: U.S. Taxation of Transfers between Defined Contribution 

Workplace Retirement Plans 49

Figure 5: Estimates of U.S. Citizens Living Abroad 60

Figure 6: Transfer Process for Dormant Workplace Retirement 

Accounts Belonging to Separated Employees in 

Switzerland 63
Page iii GAO-18-19 Workplace Retirement Accounts

Abbreviations

ATO Australian Taxation Office

DB defined benefit

DC defined contribution

DOL Department of Labor 

EBSA Employee Benefits Security Administration 

ERISA Employee Retirement Income Security Act of 1974 

FATCA Foreign Account Tax Compliance Act

FBAR Report of Foreign Bank and Financial Accounts

IGA Intergovernmental Agreement

IRA individual retirement account 

IRC Internal Revenue Code 

IRS Internal Revenue Service 

MOU memorandum of understanding

MPF Mandatory Provident Fund

MPFA Mandatory Provident Fund Schemes Authority

PBGC Pension Benefit Guaranty Corporation 

PFIC Passive Foreign Investment Company 

PLR private letter ruling

PTIN preparer tax identification number

SSA Social Security Administration 

Social Security Old Age and Survivors’ Insurance program

State U.S. Department of State 

TBOR Taxpayer Bill of Rights

TPA third-party administrator

Treasury Department of the Treasury

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Page 1 GAO-18-19 Workplace Retirement Accounts

441 G St. N.W.

Washington, DC 20548

January 31, 2018

The Honorable Ron Wyden

Ranking Member

Committee on Finance

United States Senate

Dear Senator Wyden:

Saving for retirement through workplace plans can be difficult for U.S. 

citizens, whether they are participants in U.S workplace plans or 

participants in foreign workplace plans.1 Regardless of whether the plan 

is a U.S. or a foreign workplace retirement plan, participants encounter 

challenges that go beyond finding ways to save enough for retirement. 

For example, workers can accumulate multiple workplace retirement 

accounts as they change jobs over the course of their careers. Former 

employers may merge causing the retirement plan to change names and 

administrators, making it more difficult for plan participants to locate their 

 1

The term “U.S. individuals,” as used in this report, refers to (a) U.S. citizens and (b) U.S. 

resident aliens. According to IRS, section 7701(b) of the Internal Revenue Code provides 

that U.S. resident aliens generally include U.S. lawful permanent residents (also known as 

Green Card holders) and individuals (who are not U.S. citizens or U.S. lawful permanent 

residents) who are present in the United States for a certain number of days over a 

specified testing period. IRS officials told us U.S. citizens and U.S. resident aliens are 

generally subject to the same U.S. income tax and information reporting rules with respect 

to their U.S. or foreign workplace retirement accounts. This report focuses on (a) U.S. 

individuals participating in plans sponsored by private-sector U.S. employers for work 

generally performed in the United States (U.S. workplace retirement plans); and (b) U.S. 

individuals participating in plans sponsored by private-sector foreign employers for work 

generally performed abroad (foreign workplace retirement plans). 

Letter
Page 2 GAO-18-19 Workplace Retirement Accounts

original plan accounts.2 In the United States, plan participants are 

responsible for keeping track of their unclaimed accounts3 by continuing 

to communicate with their previous employers by updating contact details 

to receive important information about their accounts. In addition, plan 

sponsors also generally have a responsibility to act solely in the interest 

of the participants, which includes an obligation to attempt to locate 

separated participants in some circumstances. Despite the efforts of plan 

participants, plan sponsors, and regulators to manage unclaimed 

accounts in the U.S. workplace retirement plan system, accounts can 

remain unclaimed for multiple reasons, which may eventually affect the 

retirement security of plan participants.4

As we previously reported, other countries have made it easier for U.S. 

individuals who work abroad and save for retirement through workplace 

retirement plans to manage their accounts by providing mechanisms to 

track and consolidate them.5 However, U.S. individuals who participate in 

foreign workplace plans face different challenges than their counterparts 

in U.S. workplace retirement plans. For example, foreign plans may not 

 2

In the United States, employers choosing to offer plans generally sponsor two broad 

types of workplace retirement plans: (1) defined contribution (DC) plans, in which benefits 

are based on contributions and the performance of the investments in participants’

individual accounts; and (2) defined benefit (DB) plans, generally funded by the employer, 

which promise participants a specified monthly benefit in retirement generally based on 

factors such as an employee’s years of service and salary, regardless of the performance 

of the plans’ investments. In this report, unless otherwise clear from context, we use the 

term workplace retirement accounts, or simply retirement accounts to refer to both DC 

accounts and DB benefits within workplace retirement plans (i.e., private-sector singleemployer plans), even though DB plans do not typically have individualized accounts. 

These are accounts that private-sector employers provide to employees in the workplace 

as a vehicle for saving for retirement. For the purpose of this report, workplace retirement 

accounts do not include individual retirement accounts (IRA), benefits under the Social 

Security Old-Age and Survivors’ and Disability Insurance program (Social Security) in the 

United States, or government programs in foreign countries that may be similar to Social 

Security. We also excluded retirement savings vehicles that are not employer-sponsored.

3

For this report we define unclaimed retirement accounts as accounts belonging to 

separated participants with deferred vested benefits left in a previous employer’s 

retirement plan. The definition includes accounts of separated participants for whom the 

plan has an incorrect mailing address, and accounts of separated participants for whom 

the plan has an accurate address but the participant is unresponsive. 

4

From 2004 through 2013, separated employees left more than 16 million accounts of 

$5,000 or less in workplace plans, with an aggregate value of $8.5 billion. See GAO, 

401(k) Plans: Greater Protections Needed for Forced Transfers and Inactive Accounts, 

GAO-15-73 (Washington, D.C.: Nov. 21, 2014).

5

See GAO-15-73. 
Page 3 GAO-18-19 Workplace Retirement Accounts

be eligible for preferential tax treatment under U.S. law, and U.S. 

participants in those plans may be subject to additional reporting 

requirements. As of April 2015, the U.S. Department of State (State) 

estimated that 8.7 million U.S. citizens lived abroad, more than the 

populations of 39 individual U.S. states. Given the issues facing 

participants managing workplace retirement accounts in the United States 

and abroad, you asked us to review steps federal agencies might take to 

assist them. This report examines key challenges U.S. participants face

1. with unclaimed workplace retirement accounts in the United States, 

and

2. complying with U.S. tax reporting requirements on their foreign 

workplace retirement savings.

To understand the key challenges U.S. participants face with unclaimed 

workplace retirement accounts in the United States, we interviewed 

officials from the Department of Labor (DOL), the Pension Benefit 

Guaranty Corporation (PBGC), the Internal Revenue Service (IRS), and 

record keepers and third-party administrators (TPA) that provide search 

and other services to plan sponsors. We also reviewed relevant federal 

laws and regulations, as well as guidance and other related documents 

from DOL and IRS. We also reviewed reports from the 2013 ERISA 

Advisory Council on Missing or Lost Participants.

To understand the challenges faced by U.S. individuals who participate in 

foreign workplace retirement plans to comply with U.S. tax reporting 

requirements on their foreign workplace retirement savings,6 we selected 

five international case study locations with well-developed workplace 

retirement systems to examine. Each of the case study locations have 

relatively large populations of U.S. workers and high total amounts of 

foreign earned income reported by U.S. taxpayers living in that location.7

We deliberately included case study locations with and without a bilateral 

tax treaty with the United States, based on Department of the Treasury 

 6

For purposes of this report, we focused on applicable U.S. income tax requirements for 

U.S. individuals. Unless otherwise indicated, we excluded issues such as: taxation of 

employers or plan sponsors; other types of U.S. taxes participants may be subject to, such 

as Social Security or unemployment taxes; U.S. taxation of plan participants who are not 

U.S. citizens; and any taxes imposed by a foreign country.

7

We reviewed data on foreign earned income reported by the IRS Statistics of Income 

Division. Foreign earned income is generally income received, such as wages, salaries or 

professional fees, for personal services a taxpayer performs in a foreign country during a 

period the taxpayer’s tax home is in a foreign country.
Page 4 GAO-18-19 Workplace Retirement Accounts

(Treasury) information.8 Our case study locations were Australia, Canada, 

Hong Kong, Switzerland, and the United Kingdom. For each case study 

we reviewed documentation related to the tax treatment of workplace 

retirement accounts accumulated in that location by U.S. individuals, such 

as tax treaties and Intergovernmental Agreements (IGAs) related to the 

Foreign Account Tax Compliance Act (FATCA).9 We also reviewed 

publicly available research and reports about each case study location’s 

retirement system, and interviewed relevant stakeholders. For each case 

study we interviewed government officials, plan sponsors, and service 

providers. Where available, we reviewed relevant data provided to us by 

relevant government officials. We did not conduct an independent legal 

analysis to verify the information provided about the laws or regulations in 

the locations we selected for this study. Instead, we relied on appropriate 

secondary sources and interviews with relevant officials to support our 

work. We also interviewed IRS and Treasury officials, including those in 

the Office of Chief Counsel, the Office of Tax Policy, the Tax Exempt and 

Government Entities Division, and the Taxpayer Advocate Service. We 

also spoke with organizations representing U.S. expatriates, foreign and 

domestic retirement experts, tax advisors, and tax preparers who 

specialize in assisting individuals with foreign income and assets when 

filing their U.S. tax returns. We also reviewed transcripts of testimonies 

the National Taxpayer Advocate gave before Congress pertaining to 

 8

The United States has income tax treaties with a number of foreign countries. As 

described on IRS’ website, under these treaties, residents (not necessarily citizens) of 

foreign countries are taxed at a reduced rate, or are exempt from U.S. income taxes on 

certain items of income they receive from sources within the United States. According to 

IRS, these reduced rates and exemptions vary among countries and specific items of 

income and treaty provisions generally are reciprocal (i.e., apply to both treaty countries). 

9

According to IRS, FATCA is a colloquial term commonly used to refer to certain 

provisions of Subtitle A of Title V of the Hiring Incentives to Restore Employment Act, Pub. 

L. No. 111-147, §§ 501-541, 124 Stat. 71, 97-117 (2010). Specifically, IRS told us that 

FATCA is commonly used to refer to section 501 of that law (Reporting on certain foreign 

accounts), which added chapter 4 to the Internal Revenue Code (IRC) (codified at 26 

U.S.C. §§1471-1474), and section 511 (Disclosure of information with respect to foreign 

financial assets), which added section 6038D to the IRC (codified at 26 U.S.C. § 6038D). 

According to IRS, chapter 4 and section 6038D are separate and distinct reporting 

regimes. Chapter 4 generally requires foreign financial institutions and certain other 

foreign entities to report to the IRS on foreign financial accounts held by U.S. taxpayers. 

IRS has entered into Intergovernmental Agreements (IGAs) with foreign countries to 

implement these requirements. Section 6038D of the IRC requires individual U.S. 

taxpayers to report foreign financial assets that exceed a certain threshold amount. For 

the remainder of this report, we generally use “IRC section 6038D” to refer to this 

provision, and “FATCA” to refer to Chapter 4. However, in describing stakeholder 

discussions, we use the term “FATCA” when stakeholders used this term but did not 

specify which provisions were being referred to.
Page 5 GAO-18-19 Workplace Retirement Accounts

international tax issues and FATCA, as well as IRS and Treasury 

documentation on foreign workplace retirement plans and reporting 

foreign income and assets. 

GAO conducted this performance audit from July 2015 to October 2017 in 

accordance with generally accepted government auditing standards. 

Those standards require that GAO plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. GAO believes 

that the evidence obtained provides a reasonable basis for the report’s 

findings and conclusions based on the report’s audit objectives.

The Employee Retirement Income Security Act of 1974 (ERISA) contains 

various provisions intended to protect the interests of plan participants 

and beneficiaries in workplace retirement plans.10 These protections 

include requirements related to reporting and disclosure, participation, 

vesting, and benefit accrual, as well as plan funding. For example, ERISA 

requires plans to provide plan participants with a summary plan 

description, including information on their rights under ERISA, periodic 

benefit statements, and upon request, a copy of the annual report 

including a financial statement, according to DOL. ERISA sets fiduciary 

standards that generally require workplace retirement plan funds to be 

handled prudently and in the sole interest of participants.11 ERISA also 

 10Pub. L. No. 93-406, 88 Stat. 832 (codified as amended in scattered sections of 26 and 

29 U.S.C.). Title I of ERISA, including the reporting and disclosure and fiduciary 

responsibility requirements, does not generally cover plans sponsored by government 

entities or plans “maintained outside of the United States primarily for the benefit of 

persons substantially all of whom are nonresident aliens,” among others. 29 U.S.C. § 

1003.

11Under ERISA, a fiduciary is any person, to the extent they (1) exercise any discretionary 

authority or control over plan management or any authority or control over the 

management or disposition of plan assets, (2) render investment advice with respect to 

plan money or property for a fee or other compensation, or (3) have any discretionary 

authority or responsibility for plan administration. 29 U.S.C. § 1002(21)(A). Plan fiduciaries 

are required to act prudently, solely in the interest of plan participants and beneficiaries,

and for the exclusive purpose of providing benefits and defraying reasonable expenses of 

administering the plan. Fiduciaries are also required to diversify the investments and act in 

accordance with plan documents, which set the terms of the retirement plan, insofar as 

such documents are consistent with ERISA. 29 U.S.C. § 1104(a). 

Background

Employee Retirement 

Income Security Act of 

1974 (ERISA) and the 

Internal Revenue Code 

(IRC)
Page 6 GAO-18-19 Workplace Retirement Accounts

establishes certain requirements related to plan termination.12 ERISA 

does not require employers to provide workplace retirement plans, but 

those that do must comply with applicable requirements and standards.

The Internal Revenue Code (IRC) provides favorable tax treatment for 

workplace retirement plans that meet certain qualification requirements 

set out in the IRC.13 For example, employees are generally not taxed on 

contributions made on their behalf but instead are taxed on benefits 

received.

Several federal agencies play a role with respect to U.S. workplace 

retirement plans. Responsibility for enforcing ERISA is shared by DOL, 

Treasury, and PBGC. Treasury, through IRS, is primarily responsible for 

enforcing the IRC.

The mission of DOL’s Employee Benefits Security Administration (EBSA) 

is to assure the security of retirement, health, and other workplace-related 

benefits of U.S. workers and their families. DOL administers Title I of 

ERISA, which includes the fiduciary standards and disclosure and 

reporting requirements. To carry out its responsibilities, EBSA issues 

regulations in these and other areas, and conducts programs and 

initiatives to assist and educate workers, plan sponsors, fiduciaries, and 

service providers on their rights and obligations under ERISA. EBSA also 

issues guidance and field assistance bulletins to assist plan sponsors and 

plan fiduciaries with managing retirement plans. For instance, in 2014, 

EBSA issued Field Assistance Bulletin (FAB) 2014-01 to assist fiduciaries 

of terminating DC plans in fulfilling their obligations under ERISA to locate 

 12See Congressional Research Service: Summary of the Employee Retirement Income 

Security Act (ERISA), (Washington, D.C., April 10, 2008). 

13The IRC is codified in Title 26 of the U.S. Code. 

Federal Agencies’ Roles 

with Respect to U.S. 

Workplace Retirement 

Plans

Department of Labor’s 

Employee Benefits Security 

Administration (EBSA)
Page 7 GAO-18-19 Workplace Retirement Accounts

missing participants14 and properly distribute their account balances.15

EBSA also maintains an outreach program employing approximately 100 

benefits advisors throughout the country in 13 field offices. The program 

offers services to educate U.S. workers, beneficiaries, and plan sponsors 

about their rights and obligations under federal employee benefit laws, 

and helps individuals obtain retirement benefits that have been improperly 

denied.16

Under Title II of ERISA and subsequent amendments to the IRC, IRS 

issues and enforces rules that plans must meet to be qualified for 

preferential tax treatment. IRS also enforces certain provisions in Title I of 

ERISA regarding participation, vesting, benefit accrual, and minimum 

funding. IRS’ mission is to help U.S. taxpayers understand and meet their 

tax responsibilities and to enforce the law with integrity and fairness. To 

help achieve its mission, IRS issues tax regulations and other guidance to 

help taxpayers comply with the IRC.17 IRS guidance provides detailed 

and technical explanations of tax laws for professional tax preparers as 

well as taxpayers.18 IRS also manages a number of initiatives, programs, 

 14According to the bulletin, under the IRC, plan administrators are required to distribute all 

plan assets as soon as administratively feasible after plan termination, and before making 

a distribution, the plan administrator has a responsibility to contact the plan’s participants 

for directions on how to distribute their account balances. See 26 U.S.C. § 402(f). In the 

bulletin, DOL used the term “missing participants” to refer broadly to those participants 

who fail to respond to these notices or for whom mail is returned. The bulletin provided 

guidance on what steps plan fiduciaries should take to search for these unresponsive 

participants. See DOL Field Assistance Bulletin 2014-01. With respect to DB plans, the 

Pension Benefit Guaranty Corporation has a Missing Participants Program for searching 

for and distributing benefits on behalf of missing participants of terminating DB plans 

covered by Title IV of ERISA. Under ERISA, the term “missing participant” is defined as a 

participant or beneficiary under a terminating plan whom the plan administrator cannot 

locate after a diligent search. See 29 U.S.C. § 1350.

15We previously recommended that DOL convene a taskforce to consider establishing a 

national pension registry to assist participants with locating unclaimed retirement 

accounts; DOL agreed to evaluate the possibility of doing so. See GAO-15-73.

16According to EBSA, in fiscal year 2016, the benefits advisors closed 193,669 

inquiries/complaints and recovered just over $394 million in benefits for participants who 

had been improperly denied through an informal negotiation process with the employer. 

17Treasury also participates in the formulation of certain forms of guidance.

18Other IRS sources of information include forms, instructions, and publications for 

taxpayers to use in preparing their returns; news releases, fact sheets, and tax tips to the 

news media; online interactive tools in which taxpayers can receive answers after asking 

general or taxpayer-specific questions; and instructional audio and video presentations. 

These various communication tools are intended to help taxpayers understand tax laws, 

improve voluntary compliance with the IRC, and control IRS’ administrative costs. 

Internal Revenue Service (IRS)
Page 8 GAO-18-19 Workplace Retirement Accounts

and systems to enforce federal tax law and assist taxpayers that are 

related to our review of unclaimed retirement accounts.19 For example, to 

assist taxpayers, IRS adopted a Taxpayer Bill of Rights in 2014 to provide 

a better understanding of taxpayers’ rights under the IRC. IRS also 

periodically publishes a strategic plan for a given period that outlines how 

it will improve service to taxpayers and enforce the law. To help ensure 

that taxpayers are paying the correct amount of tax due and to identify 

discrepancies, IRS’ Automated Underreporter Program matches taxpayer 

income and deductions submitted on information returns by third parties 

against amounts reported by taxpayers on their individual income tax 

returns. IRS also assists taxpayers and payors with information about 

federal tax withholding obligations. To assist taxpayers with foreign 

accounts, since 2003 IRS has offered an Offshore Voluntary Disclosure

Program. This program provides a way for taxpayers with previously 

undisclosed income and undisclosed offshore accounts that need to be 

reported to contact IRS and resolve their tax matters.

IRS also assists sponsors that administer qualified retirement plans 

through a number of systems and programs. For example, IRS offers 

assistance to plan sponsors through the Employee Plans Compliance 

Resolution System, which helps sponsors of qualified plans remedy 

operational and form mistakes made in the course of administering a 

retirement plan and avoid plan disqualification. IRS also forwards letters 

to missing individuals on behalf of private individuals or government 

agencies for a “humane purpose” when there is no other way to relay the 

information to the individual.20 Between 1994 and 2012, IRS forwarded 

letters through a letter forwarding program on behalf of entities that 

control assets that may be due a taxpayer, such as from sponsors of 

qualified plans that are attempting to locate missing participants.

 19In addition to the IRS, other entities within Treasury are responsible for various aspects 

of tax law administration. For instance, Treasury’s Office of Tax Policy develops and 

implements tax policies and programs and reviews regulations and rulings to administer 

the IRC. Treasury’s Office of International Tax Counsel is responsible for negotiating and 

reviewing income tax and estate and gift tax treaties with foreign countries, and for 

coordinating tax treaty matters with the U.S. Department of State and Congress.

20A “humane purpose” is one in which a person is seeking to find a missing person to 

convey a message of an urgent or compelling nature, or is seeking to find a missing 

person because of an emergency situation. For example, these would include letters to 

notify a person of a serious illness, imminent death, or the death of a close relative, to 

locate a missing relative to convey an urgent or compelling message, or to help locate 

persons being sought for a medical study to detect and treat medical defects or diseases.
Page 9 GAO-18-19 Workplace Retirement Accounts

Title IV of ERISA created PBGC as a U.S. government corporation to 

provide plan termination insurance for certain DB plans that are unable to 

pay promised benefits. For example, when a PBGC-insured singleemployer DB plan fails, PBGC trustees the plan and pays benefits up to 

statutory limits. PBGC also oversees the voluntary (“standard”) 

termination of fully funded PBGC-insured single-employer DB plans to 

ensure participants will receive the benefits to which they are entitled. As 

part of the standard termination process, PBGC’s Missing Participants 

Program connects participants—missing when the plan closes out—to 

their retirement benefits, in part by maintaining a centralized, online 

database the public can use to find lost retirement benefits.21

SSA provides retirement benefits to eligible individuals under the federal 

Social Security Old Age and Survivors’ Insurance program (Social 

Security). Although SSA does not oversee workplace retirement plans, 

SSA maintains data that are reported to IRS by plans using Form 8955-

SSA on separated participants with vested but undistributed benefits.22

When individuals claim Social Security benefits, SSA may provide them 

with a “Potential Private Pension Benefit Information” notice that indicates 

they may be entitled to a retirement benefit through a past employer.

 21PBGC recently issued a final rule that expanded the Missing Participants Program to DC 

plans. Missing Participants, 82 Fed. Reg. 60,800 (Dec. 22, 2017). According to PBGC 

officials, although current statute gives PBGC the authority to compel plans to provide 

information to the agency on the disposition of participant retirement accounts, PBGC 

made this optional in the final rule. In other words, with respect to missing participants, a 

DC plan choosing to participate can choose to transfer account balances directly to PBGC 

or to provide PBGC with information about where the account balances were transferred. 

Either way, according to officials, the agency will try to find the missing participant and 

when located, will provide either benefits or information (depending on which approach the 

plan used). With both approaches, PBGC will add the missing participants to its public online database, according to PBGC officials.

22Plan administrators must complete IRS Form 8955-SSA to satisfy the reporting 

requirements of section 6057(a) of the IRC (which requires plan administrators of plans 

subject to the vesting standards of ERISA to report certain information about separated 

participants with deferred vested benefits under the plan.)

Pension Benefit Guaranty 

Corporation (PBGC)

Social Security Administration 

(SSA)
Page 10 GAO-18-19 Workplace Retirement Accounts

DOL reported that in 2014 there were just over 639,000 DC plans and 

nearly 43,500 DB plans in the United States. These plans were 

sponsored by individual employers (i.e., private single-employer plans) 

and provided benefits to nearly 118 million participants.23 When a 

qualified plan terminates24—whether it is a DB or DC plan—federal law 

requires plan participants to immediately be 100 percent vested in all 

accrued benefits (to the extent funded in the case of a DB plan)25

regardless of the vesting schedule in the plan document, according to 

IRS. A plan sponsor is required to distribute assets from a terminated 

plan as soon as administratively feasible, but generally within 1 year after 

plan termination.26 For terminated DC plans, such as 401(k) plans, 

participants generally receive the full amount of their vested account 

balance upon plan termination, according to IRS.

When an employee separates from an employer but still has vested 

savings in a qualified defined contribution retirement plan, the plan can, 

under certain conditions and without the participant’s consent, transfer 

accounts out of the plan—commonly referred to as a “forced transfer.”27

Before the Economic Growth and Tax Relief Reconciliation Act of 200128

was enacted, ongoing DC plans could, in the absence of participant 

instructions, distribute balances of $5,000 or less by paying them directly 

to the participant, referred to as a “cash-out.” This law sought to protect 

participants’ retirement savings by requiring ongoing plans that have a 

cash-out limit that exceeds $1,000 (up to $5,000), in the absence of 

 23See Employee Benefits Security Administration, United States Department of Labor, 

Private Pension Plan Bulletin Historical Tables and Graphs, 1975-2014. Washington, 

D.C., Sept. 2016.

24In this report, we refer to DC and DB plans that have not been terminated as “ongoing 

plans.”

2526 U.S.C. § 411(d)(3); 26 C.F.R. § 1.411(d)-2(a)(1). 

26Rev. Rul. 89-87, 1989-2 C.B. 81. In an involuntary termination, if a terminated DB plan 

that is covered by Title IV of ERISA has insufficient funds to pay all of the benefits, the 

PBGC will become the plan’s trustee and will guarantee the payment of vested pension 

benefits up to limits set by law. In fiscal year 2017, PBGC paid retirement benefits to 

nearly 840,000 retirees in more than 4,800 plans totaling over $5.7 billion.

27See 26 U.S.C. § 401(a)(11), (a)(31)(B) and 26 U.S.C. § 417(e). We have reported on 

forced transfers in GAO-15-73. 

28Pub. L. No. 107-16, 115 Stat. 38.

Ongoing and Terminated 

Workplace Retirement 

Plans

Transferring Savings of 

Missing Participants in 

U.S. Defined Contribution 

Retirement Plans
Page 11 GAO-18-19 Workplace Retirement Accounts

participant instructions and subject to certain notice requirements, to 

transfer balances that exceed $1,000 (up to $5,000) to an individual 

retirement account (IRA), preserving their tax-preferred status.29

Terminating plans are subject to different requirements. Fiduciaries of 

terminating plans are obligated to search for missing participants, to notify 

them of the termination and pending distribution of benefits before 

transferring participants’ unclaimed accounts to an IRA or elsewhere, 

according to DOL guidance.30 The guidance further provides that 

fiduciaries of terminating plans who are unable to locate missing 

participants may also be permitted to transfer accounts belonging to 

missing participants, without consent, to a federally-insured bank account 

or to a state’s unclaimed property fund. This occurs if the plan fiduciary 

cannot find an IRA provider to accept a direct rollover distribution for a 

missing participant or otherwise determines not to roll over the distribution 

to an IRA, for some other compelling reason. For tax reporting purposes, 

transfers made to a bank or a state unclaimed property fund are generally 

subject to income taxation, according to the guidance. This contrasts with 

rollovers to IRAs in which transferred retirement savings remain taxfavored. Plan sponsors are generally required to withhold 20 percent of 

the account balance on transfers to a bank or state unclaimed property 

fund and will send the withheld amount to Treasury to be used toward any 

potential taxes due on the distribution.31

 29In these circumstances, the plan may transfer eligible account balances to an IRA. IRAs 

are a type of retirement savings vehicle–different from workplace retirement plans–that 

generally allow eligible individuals to save for retirement on a tax-deferred basis. See 26 

U.S.C. § 408. After the account is transferred into an IRA, it is generally subject to the 

rules governing IRAs and no longer subject to ERISA. Ongoing plans generally may not 

distribute vested accounts of more than $5,000 without the consent of the participant. 26 

U.S.C. § 411(a)(11).

30DOL FAB 2014-01. According to this guidance, if a plan follows certain required search 

steps, but does not find the missing participant, the duties of prudence and loyalty require 

the fiduciary to consider if additional search steps are appropriate. A plan fiduciary should 

consider the size of a participant’s account balance and the cost of further search efforts 

in deciding if any additional search steps are appropriate. See GAO-15-73 for additional 

information on specific requirements for forced transfers and the differences between 

terminating plans and ongoing plans.

31Sponsors will also generate a form 1099-R to report the income and tax withholding to 

both the IRS and the participant. 
Page 12 GAO-18-19 Workplace Retirement Accounts

In the United States, employee and employer contributions and 

investment earnings in a qualified retirement plan are generally not taxed 

as income until the employee receives the benefit. For example, 

employees participating in a 401(k) plan can generally elect to have their 

employer contribute a portion of their compensation to their account on a 

pretax basis. This deferred compensation (commonly referred to as a pretax elective contribution by IRS) is not subject to income tax withholding, 

and employees are not required to report it as wages on their individual 

U.S. tax returns at the time of the contribution. In addition, employers can 

provide matching or non-elective contributions to an employee’s 401(k) 

account; these matching or non-elective contributions are generally taxdeductible by the employer and employees also are not required to report 

these contributions as wages on their U.S. tax returns or pay income tax 

on these contributions at the time the contributions are made. 

Distributions from a qualified DC plan in the United States made to 

participants, including those who have separated from their employer, 

may be treated differently for tax purposes, depending on the nature and 

timing of the distribution. For example, a direct rollover, in which money is 

transferred directly from one qualified workplace retirement plan or IRA to 

another eligible retirement plan or IRA, is not taxable at the time of the 

rollover but should be reported on the participant’s federal tax return. By 

contrast, a distribution that is not rolled over32 is generally taxable income 

in the year in which it is received by the participant, according to IRS.

Foreign workplace retirement plans are generally not tax-qualified under 

the IRC or covered by ERISA, according to IRS officials and tax experts 

with whom we spoke. They are, however, generally subject to the 

regulatory structure in place in the country where the retirement plan 

exists.33 Foreign workplace retirement plans that cover U.S. individuals 

may be subject to certain provisions of the IRC and other federal laws 

governing reporting and taxation of these retirement assets, as well as 

 32Participants may be able to defer tax on all or part of an eligible rollover distribution by 

requesting the payor to directly roll over the taxable portion into an IRA or to an eligible 

retirement plan. If the distribution is made before the occurrence of certain events (and not 

timely rolled over), such as before the participant reaches age 591⁄2, it may also be subject 

to a 10 percent additional tax on early withdrawals. See 26 U.S.C. § 72(t).

33In addition, in two of our case study locations, participation by workers in a workplace 

retirement plan is mandatory under certain conditions, according to government officials 

with whom we spoke. For this report, we did not conduct a legal review of the regulations 

or laws in the case study locations that pertain to workplace retirement plans.

Tax Treatment of U.S. and 

Foreign Workplace 

Retirement Plans in which 

U.S. Individuals 

Participate
Page 13 GAO-18-19 Workplace Retirement Accounts

any applicable income tax treaties between the United States and the 

foreign country (see more about these treaties below). The extent to 

which U.S. individuals are subject to U.S. income tax on the contributions 

and earnings accruing in their foreign workplace retirement account 

depends on the specific characteristics of the plan.34 For example, 

according to tax experts with whom we spoke, many foreign workplace 

retirement plans qualify as employees’ trusts, and the taxation of 

contributions and earnings from these plans are governed by section 

402(b) of the IRC.35 According to IRS, as long as the foreign retirement 

plan is determined to be an employees’ trust, the U.S. individual must 

include on their U.S. tax return contributions to the trust if the 

contributions are not subject to a substantial risk of forfeiture (vested). In 

addition, IRS officials said contributions that become vested after the year 

of contribution are taxable in the year of vesting, and earnings are taxable 

when distributed.36 Some foreign workplace retirement plans may include 

investments in a Passive Foreign Investment Company (PFIC),37 which, 

according to one tax preparer with whom we spoke, are investments in 

foreign mutual funds, hedge funds, or other kinds of pooled investments 

not incorporated in the United States. A U.S. individual who is a 

 34Contributions may include employee contributions and employer contributions. 

35According to international tax publications we reviewed, section 402(b) governs the 

taxation of funded employee benefit trusts that are not qualified plans. Whether and when 

contributions and generated income from a section 402(b) trust are taxable as income to 

the participant depends on various factors, including whether the contributions are 

“substantially vested” and whether the participant is a highly compensated employee. See 

26 U.S.C. §§ 402(b), 83(a). 

36However, according to IRS, if the foreign retirement plan is not an employees’ trust, then 

the contributions and realized earnings are required to be reported on the U.S. individual’s 

U.S. tax return.

37A Passive Foreign Investment Company (PFIC) is generally defined as a foreign 

corporation for which (a) 75 percent or more of its gross income for the taxable year is 

passive income, or (b) at least 50 percent of the average percentage of assets held by the 

corporation during the taxable year produce passive income, or are held for the production 

of, passive income. 26 U.S.C. § 1297(a). According to IRS, passive income includes items 

such as dividends, interest, rents, royalties, and other items that are not generally derived 

from the active conduct of business. 
Page 14 GAO-18-19 Workplace Retirement Accounts

shareholder of a PFIC may be subject to annual reporting requirements 

and a high income tax rate on certain distributions.38

U.S. individuals who participate in a foreign workplace retirement plan 

also may be subject to income tax on any distribution they receive from 

their plan during the current tax year. Depending on the circumstances, 

U.S. individuals also may be subject to income tax on certain distributions 

they have not actually received, such as transfers of assets between or 

within foreign workplace retirement plans, if they are in “constructive 

receipt” of (or otherwise have income inclusion with respect to) the 

funds.39 In addition, U.S. individuals who pay foreign income taxes on 

distributions from their foreign workplace retirement plans may be eligible 

to claim a foreign tax credit on their U.S. tax return.40

As of October 2017, the United States had a network of 57 

comprehensive income tax treaties covering 66 countries, according to

Treasury. U.S. individuals are subject to U.S. income tax on their 

worldwide income, and this could include contributions and earnings 

within and distributions from a foreign workplace retirement plan. 

However, tax treaty provisions may reduce foreign income taxes owed by 

U.S. individuals who receive income sourced from a treaty country; for 

example, through the use of credits, deductions, exemptions, or tax rate 

 38See generally 26 U.S.C. §§ 1291-1298. Treasury regulations generally exempt from the 

annual reporting requirements participants in a “foreign pension fund” if there is an 

applicable income tax treaty that provides that the income earned by the foreign pension 

fund may be taxed as the income of the participant only when, and to the extent the 

income is paid to, the participant. 26 C.F.R. § 1.1298-1(c)(4). 

39In general, gains, profits, and income are to be included in gross income for the taxable 

year in which they are actually or constructively received by the taxpayer. 26 C.F.R. § 

1.451-1(a). Under Treasury regulations, “income, although not actually reduced to a 

taxpayer’s possession, is constructively received by him in the taxable year during which it 

is credited to his account, set apart for him, or otherwise made available so that the he 

may draw upon it at any time, or so that he could have drawn upon it during the taxable 

year if notice of intention to withdraw had been given.” However, income is not 

constructively received if the taxpayer’s control of its receipt is subject to substantial 

limitations or restrictions. See 26 C.F.R. § 1.451-2.

40Such credits may be available under applicable tax treaties or the U.S. tax code; see, 

e.g., 26 U.S.C. §§ 901-909. 

Income Tax Treaties

U.S. Income Tax Treaties with Other 

Countries

One objective of tax treaties is to provide 

taxpayers some relief from having to pay 

taxes in both the United States and a foreign 

country on the same income—referred to as 

“double taxation”—without creating 

opportunities for tax evasion or avoidance. 

Treaty provisions generally apply to both 

countries that have signed the treaty. A U.S. 

resident who receives income from a treaty 

country may be entitled to certain treaty 

benefits—credits, deductions, exemptions, or 

reductions in the rate of tax—on the taxes 

owed to that foreign country. Similarly, 

residents of the foreign country may be 

entitled to treaty benefits on their U.S. taxes 

on income from U.S. sources. However, with 

certain exceptions, tax treaties generally do 

not reduce the U.S. tax liability of U.S. 

residents.

Source: Department of the Treasury and the Internal 

Revenue Service. | GAO-18-19
Page 15 GAO-18-19 Workplace Retirement Accounts

reductions.41 (See appendix I for more information on how IRS 

recommends taxpayers review tax treaties.)

According to IRS and Treasury, almost all U.S. tax treaties also contain 

what is known as a “saving clause,” which IRS describes as a way to 

preserve or “save” the right of each country to tax its own residents (and 

in the case of the United States, its citizens) as if no tax treaty were in 

effect.42 As a result, these treaties do not generally reduce the U.S. 

income tax for U.S. individuals, unless an exception applies. In February 

2016, Treasury issued a revised U.S. Model Income Tax Convention (i.e., 

model treaty), which is the baseline text the agency uses when it 

negotiates tax treaties.43 Depending on the outcome of the treaty 

negotiations, the final treaty with a particular foreign country may or may 

not include language from the model treaty.

According to IRS, the Foreign Account Tax Compliance Act (FATCA) and 

IRC section 6038D are important developments in U.S. efforts to combat 

tax evasion by U.S. individuals holding accounts and other financial 

assets offshore,44 which may have implications for U.S. individuals who 

 41For example, tax treaties may provide for how each country will tax pension 

contributions, earnings, and distributions. Since the treaties are bilateral, these treaties 

may also reduce the U.S. income tax imposed on residents of foreign countries on their 

income from U.S. sources. The 2016 U.S. Model Income Tax Convention (i.e., model 

treaty) developed by Treasury uses the term “resident” and includes a definition of that 

term for purposes of the model treaty. Similarly, tax treaties with other countries may 

establish their own definitions of who is covered by the treaty.

42See IRS Publication 519, U.S. Tax Guide For Aliens, For Use In Preparing 2016 

Returns, p. 47.

43For example, Article 17 of the 2016 U.S. Model Income Tax Convention (“Pensions, 

Social Security, Annuities, Alimony, and Child Support”) includes proposed language 

describing how pension distributions and earnings are to be taxed in each country and 

how transfers of funds between pensions may be exempt from taxation under certain 

circumstances. Article 18 (“Pension Funds”) includes proposed language describing the 

tax treatment in each country of pension fund contributions.

44According to IRS, FATCA is commonly used to refer to sections 501 and 511 of the 

Hiring Incentives to Restore Employment Act (codified at 26 U.S.C. §§ 1471-1474 and 26 

U.S.C. § 6038D, respectively). Section 511 establishes reporting requirements for 

individuals, while section 501 (generally referred to in this report as FATCA) establishes 

reporting requirements for foreign financial institutions and certain other foreign entities. 

However, in describing our discussions with stakeholders, we use the term “FATCA” if 

stakeholders used this term but did not specify which provisions were being referred to.

Reporting Foreign 

Accounts and Foreign 

Financial Assets
Page 16 GAO-18-19 Workplace Retirement Accounts

have foreign retirement accounts. FATCA generally requires foreign 

financial institutions to provide information to IRS regarding foreign 

financial accounts held by U.S. taxpayers.45 IRC section 6038D generally 

requires U.S. individuals to report to IRS their foreign financial assets that 

exceed a certain threshold. Beginning in July 2014, U.S. entities were 

required to withhold 30 percent on certain payments to a foreign financial 

institution unless the institution has entered into an agreement with IRS 

regarding FATCA reporting or is in a jurisdiction that is treated as having 

an Intergovernmental Agreement (IGA) in effect.46 However, FATCA 

regulations exempt foreign financial institutions from reporting on 

retirement accounts that meet certain requirements. Treasury has entered 

into IGAs with other countries to assist with implementing FATCA that 

may also provide an exemption for foreign financial institutions reporting 

of certain retirement accounts. This exemption does not exist under IRC 

section 6038D, which requires individuals, including U.S. citizens, to 

report their foreign retirement accounts on IRS Form 8938 if they meet 

certain regulatory thresholds. For example, unmarried U.S. individuals 

living abroad must file if the total value of their specified foreign financial 

assets is more than $200,000 on the last day of the tax year or more than 

$300,000 at any time during the tax year.47

 45See 26 U.S.C. §§ 1471-1474.

46However, IRS Notice 2014-33 established calendar years 2014 and 2015 as a transition 

period for purposes of IRS enforcement and administration of the FATCA withholding 

requirements, among other things. The notice stated that during this period, IRS will take 

into account the extent to which the foreign financial institution has made good faith efforts 

to comply with the requirements.

47See 26 C.F.R. § 1.6038D-2(a). An unmarried taxpayer living in the United States or 

married taxpayers filing separate income tax returns living in the United States must file if 

the total value of his or her specified foreign financial assets is more than $50,000 on the 

last day of the tax year or more than $75,000 at any time during the tax year. Married 

taxpayers filing a joint income tax return and living in the United States must file if the total

value of their specified foreign financial assets is more than $100,000 on the last day of 

the year or more than $150,000 at any time during the tax year. Unmarried taxpayers 

living abroad must file if the total value of their specified foreign financial assets is more 

than $200,000 on the last day of the tax year or more than $300,000 at any time during 

the year. Married taxpayers filing a joint income tax return living abroad must file if the 

total value of their specified foreign financial assets is more than $400,000 on the last day 

of the tax year or more than $600,000 at any time during the year. Specified foreign 

financial assets include, among other things, savings, deposit, checking, brokerage 

accounts, stocks, bonds, retirement accounts, annuities, and other investment accounts. 

Real estate and physical assets are excluded from IRC section 6038D reporting.
Page 17 GAO-18-19 Workplace Retirement Accounts

The U.S. Department of State (State) estimates that as of April 2015, 8.7 

million U.S. citizens lived abroad. (See appendix II for other estimates.) 

Income data published by IRS for 201148 suggest that a majority of U.S. 

taxpayers who earned income from foreign sources likely owed little 

federal income tax because their reported adjusted gross income49 was 

relatively low due to tax credits and exemptions available to taxpayers on 

foreign-earned income.50 IRS estimated that in 2011 over 449,000 returns 

were filed by taxpayers reporting foreign-earned income and just over 

445,000 of these returns reported using the foreign-earned income 

exclusion. We previously reported that for tax year 2011, taxpayers 

claiming the foreign-earned income exclusion had higher average income 

($163,450) than the average Form 1040 filer ($58,706), and about 45 

percent of those taxpayers had an adjusted gross income of less than 

$10,000.51 These data reflect that some taxpayers were able to exclude 

all or most of their foreign-earned income in calculating their adjusted 

gross income. We also reported that taxpayers claiming the foreign-

 48IRS compiles and reports data describing foreign income earned by U.S. individuals 

abroad for use in its publicly available Statistics of Income Bulletin. We reviewed data 

reported by IRS for tax year 2011. See Internal Revenue Service, Statistics of Income 

Bulletin, Spring 2014, Washington, D.C.

49The IRC defines adjusted gross income as gross income minus adjustments to income. 

These adjustments can include items such as moving expenses, contributions to IRAs or 

other qualified retirement plans or health savings accounts, alimony payments, and 

student loan interest payments, among others. See 26 U.S.C. § 62.

50U.S. individuals who live and work abroad may be eligible for a credit or deduction 

against U.S. tax for foreign income taxes paid to other counties (the foreign tax credit). 26 

U.S.C. § 901. Under section 911 of the tax code, U.S. individuals who live and work 

abroad may also be eligible for an exclusion of foreign-earned income (up to $101,300 in 

2016) and an exclusion or deduction of certain foreign housing costs. The income that 

U.S. citizens and resident aliens may exclude under section 911 is generally limited to 

amounts earned for services performed abroad, including salaries and wages. It does not 

include income derived from capital, such as interest, dividends, capital gains, or 

retirement distributions. 

51See GAO, Tax Policy: Economic Benefits of Income Exclusion for U.S. Citizens Working 

Abroad Are Uncertain, GAO-14-387 (Washington, D.C.: May 20, 2014).

Estimated Number and 

Financial Profile of U.S. 

Citizens Living and 

Working Abroad
Page 18 GAO-18-19 Workplace Retirement Accounts

earned income exclusion had lower average U.S. tax rates than all Form 

1040 filers.52

Participants in U.S. workplace retirement plans face challenges managing 

unclaimed accounts accumulated over the course of their careers. We 

previously reported that some 401(k) plan participants find it difficult to 

keep track of their savings, particularly when they change jobs, because 

of challenges with consolidation, communication, and information.53 First, 

we found that individuals who accrue multiple accounts over the course of 

a career may be unable to consolidate their accounts by rolling over 

 52A majority of the returns reporting use of the foreign-earned income exclusion in 2011 

(just over 84 percent) reported adjusted gross income from foreign sources as under 

$100,000 and 71 percent reported adjusted gross income under $50,000. Nearly a quarter 

of the returns reported no adjusted gross income for tax year 2011 from foreign sources 

due to allowable deductions and adjustments to income, including the foreign-earned 

income exclusion. Although these taxpayers reported no adjusted gross income for 2011, 

their average foreign earned-income was just above $49,000, according to GAO analysis 

of IRS data. 

53See GAO-15-73. We reported that when participants leave their savings in a plan after 

leaving a job, the onus is on them to update former employers with address and name 

changes, and to respond to their former plan sponsor’s communications. We also reported 

that although an employer may incur costs searching for separated participants, there are 

no standard practices for the frequency or method of conducting searches. GAO reported 

that from 2004 through 2013, over 25 million participants in workplace plans separated 

from an employer and left at least one retirement account behind.

Participants Face 

Challenges Managing 

Unclaimed 

Retirement Accounts 

and Agencies Have 

Not Provided 

Sufficient Guidance 

and Information to 

Assist Them or Plan 

Sponsors

Participants Have 

Challenges Managing 

Unclaimed Retirement 

Accounts
Page 19 GAO-18-19 Workplace Retirement Accounts

savings from one employer’s plan to the next.54 Second, maintaining 

communication with a former employer’s plan can be challenging if 

companies are restructured and plans are terminated or merged and 

renamed. Third, key information on lost accounts may be held by different 

plans, service providers, or government agencies, and participants may 

not know where to turn for assistance. As one witness testified to the 

ERISA Advisory Council in 2013, it is not uncommon for former 

employees to have difficulty locating a previous employer.

Existing reporting and disclosure requirements directed at plan sponsors 

can provide participants who separate from their employer information 

about their accounts via multiple disclosures. However, plan sponsors 

have no automatic way to keep participants’ contact information up to 

date, nor do they have ways to ensure that separated participants will 

respond to their communications. Many participants rarely read the 

notices they receive. We conducted a review of private sector pension 

plan notices in 2013, and found that participants were interested in 

information about their individual benefits, which could reasonably include 

information about a pending distribution of their unclaimed account.55 Due 

to the large number of participant notices, we found participants struggled 

with what they must or should read.

When participant notices are ineffective, accounts can become lost or 

unclaimed and eventually shrink or disappear entirely, diminishing a 

source of income in retirement. For example, accounts with a balance of 

$1,000 or less can be cashed out of a plan without participant consent; 

account balances can be reduced by tax withholding and early distribution 

taxes, or conditionally forfeited by the plan sponsor until the participant 

 54We previously reported that 401(k) plan processes for handling separating participants’

accounts create barriers for participants to roll their savings to a new plan, making IRA 

rollovers an easier and faster choice for those who want to consolidate their savings. 

However, we also reported that the plan environment generally has lower fees, better 

comparative information, and ERISA plan fiduciaries are required to select and monitor 

reasonable investment options. See GAO, 401(k) Plans: Labor and IRS Could Improve 

the Rollover Process for Participants, GAO-13-30 (Washington, D.C.: Mar. 7, 2013).

55GAO, Private Pensions: Clarity of Required Reports and Disclosures Could Be 

Improved, GAO-14-92, (Washington, D.C., Nov. 21, 2013). 
Page 20 GAO-18-19 Workplace Retirement Accounts

emerges to make a claim.56 Accounts with balances under $5,000, and 

sometimes those with larger balances, can be forcibly transferred to an 

IRA, where the account balances may decrease over time as the fees 

outpace low investment returns, as we reported in our prior work. In 13 of 

the 19 forced-transfer IRA scenarios we considered in 2014, a $1,000 

account balance was reduced to zero within 30 years.57 DOL has also 

uncovered tens of thousands of participants of retirement age with 

unclaimed accounts that remained in their plans who were not receiving 

the retirement income they were due.

Although DOL has provided guidance to plan sponsors of terminated DC 

plans about locating missing participants and unclaimed accounts, DOL 

has not provided similar guidance to ongoing plans.58 DOL officials told us 

that they are conducting investigations of steps taken by ongoing plans to 

find missing participants under their authority to oversee compliance with 

ERISA’s fiduciary requirement that plans be administered for the 

exclusive purpose of providing benefits.59 Plan sponsors are required to 

send notices to participants in a variety of circumstances, such as to 

obtain direction before making a distribution.60 However, the 

communication is not always successful, and may result in a mailing to an 

out-of-date address.

 56IRS regulations allow a qualified plan to provide that a benefit is forfeitable “on account 

of the inability to find the participant or beneficiary to whom payment is due, provided that 

the plan provides for reinstatement of the benefit if a claim is made by the participant or 

beneficiary for the forfeited benefit.” 26 C.F.R. § 1.411(a)-4(b)(6). IRS officials told us the 

language “inability to find the participant or beneficiary” implies a requirement to make 

reasonable efforts to find the participant or beneficiary. Executives at one record keeper 

told us that when DC accounts are conditionally forfeited, there should still be a record of 

that asset amount, but that great diligence is required to maintain the record through 

mergers and acquisitions.

57See GAO-15-73.

58See Field Assistance Bulletin No. 2014-01.

59Among other requirements, a plan fiduciary is required to discharge his duties with 

respect to a plan solely in the interest of the participants and beneficiaries, for the 

exclusive purpose of providing benefits to participants and beneficiaries and defraying 

reasonable expenses of administering the plan, and with the care, skill, prudence and 

diligence under the circumstances then prevailing that a prudent man acting in like 

capacity and familiar with such matters in the conduct of an enterprise of a like character 

and with like aims. 29 U.S.C. § 1104(a)(1). 

60See, e.g., 26 C.F.R. § 1.411(a)-11(c).

DOL Has Not Provided 

Guidance to Ongoing Plan 

Sponsors for Locating 

Missing Participants
Page 21 GAO-18-19 Workplace Retirement Accounts

With the absence of guidance, it is not clear to sponsors of ongoing DC 

plans how they should satisfy requirements to notify participants when 

participant addresses are out of date. Undeliverable mail is the main 

indicator for identifying a participant as missing, according to third-party 

administrators (TPA), who help manage missing participant issues for 

plan sponsors. However, DOL officials told us a recent pilot investigation 

found that some ongoing plans send notices that were returned 

undeliverable but then fail to follow-up with any search process.61 In 

contrast, if participants in a terminated plan do not respond to a notice, 

plan sponsors need to take certain steps, at a minimum, to locate the 

participant or a beneficiary. According to our analysis of stakeholder 

interviews, in some circumstances plan sponsors may be considering a 

participant to have been “notified,” even when the mail used to notify 

them was returned undeliverable. Executives at one firm that conducts 

missing participant searches told us that for an average client, 7 to 10 

percent of mail will be returned undeliverable, which means 

communication was unsuccessful, potentially leaving participants without 

notification of changes to the plan or potential distributions or transfers.

It also is not clear how ongoing plan sponsors should arrange for paying 

to obtain updated addresses of participants with unclaimed accounts. 

Because search costs are not all paid from plan assets, finding missing 

participants can be an additional business expense for plan sponsors. 

Once an account is force-transferred out of the plan to an IRA, the 

account may be charged a $65 annual search fee by the IRA provider, as 

we reported one provider did in 2014.62 Plan sponsors are permitted to 

pay only reasonable plan administration expenses, although they may 

charge expenses associated with a specific participant to that 

participant’s account.63 To reduce costs for its plan sponsor clients, 

representatives at one TPA told us that it will generally try to cash out 

accounts in ongoing plans under $1,000 immediately, before an address 

becomes obsolete.64

 61Two third-party administrators and one record keeper told us they would not send 

personal financial information to an address known to be incorrect.

62See GAO-15-73. 

63See FAB 2003-03.

64Representatives of the third-party administrator noted they send notice of the impending 

cash-out 30 days ahead of time. 
Page 22 GAO-18-19 Workplace Retirement Accounts

DOL audit findings also show that ongoing plans have challenges staying 

in touch with missing participants and paying them their benefits when 

due. DOL officials told us that in a recent DOL pilot investigation of 50 

large DB plans, they found tens of thousands of separated participants 

who were entitled to benefits but were not receiving them. They told us 

that between 1 and 7 percent of all participants could be missing and not 

receiving letters from the plan, depending on the industry. They said their 

investigations found databases with missing names, addresses, and 

Social Security Numbers, and data they suspected were unreliable, such 

as participants named “Jane Doe” or with birth dates listed as “1/1/1900.”

DOL enforces the fiduciary standards of ERISA, which require plan 

fiduciaries to act solely in the interest of plan participants and their 

beneficiaries, for the exclusive purpose of providing benefits to them, 

among other things. After plan termination, plan fiduciaries must distribute 

all plan assets as soon as administratively feasible, which could create an 

urgent need for plan sponsors to find participants. DOL officials said that 

part of their enforcement role is examining how plans are maintaining 

good records and what plans are doing to find and communicate with 

participants—officials are aware that additional guidance indicating what 

is expected of plan fiduciaries would be helpful.

PBGC has recently published a final rule which expands its Missing 

Participants Program to cover most terminated DC plans, and DOL 

intends to revisit its guidance within that context.65 At that time, DOL will 

have an opportunity to also provide guidance to ongoing DC plan 

sponsors on their obligations under ERISA to prevent, search for, and pay 

costs associated with missing participants. By doing so, DOL can provide 

plan sponsors with better tools to manage unclaimed accounts and help 

ensure that future DOL investigations do not also uncover ongoing DC 

plans with substantial numbers of participants not receiving benefits to 

which they are entitled.

 65Under section 4050 of ERISA, PBGC operates a Missing Participants Program, which 

establishes certain requirements for terminating DB plans with respect to locating missing 

participants and dealing with their benefits. The Pension Protection Act of 2006 amended 

ERISA to require PBGC to expand its Missing Participants Program to include most DC 

plans, among others. On December 22, 2017, PBGC finalized a rule expanding the 

program. PBGC will charge a one-time fee of $35 per missing participant or beneficiary 

when their assets are transferred to PBGC by a DC plan choosing to use the program, 

and will accept amounts under $250 for free. Fees were set in consideration of guidance 

from GAO and OMB. See Missing Participants, 82 Fed. Reg. 60,800 (Dec. 22, 2017). 
Page 23 GAO-18-19 Workplace Retirement Accounts

Based in part on our discussions with IRS and our review of ERISA 

Advisory Council documentation, when a plan sponsor cashes out an 

unclaimed account and sends the money to the participant address it has 

on file, the address may be obsolete. As a result, the participant may not 

include the distribution in his or her taxable income for the year because 

the participant may not have received the payment from the plan sponsor 

or be aware of the transfer. According to an IRS publication on tax 

withholding for plan sponsors, a 20 percent income tax withholding 

generally is mandatory on amounts distributed from the plan that are not 

rolled over directly into another qualified plan or an IRA.66 However, our 

findings that some participants may not actually receive these 

distributions raise questions about whether withholding should be 

required in situations when it is reasonable to believe distributions will not 

be received by the participants.

Misconceptions exist regarding how and when IRS will credit tax 

withholding toward a taxpayer’s tax liability. For example, two TPAs told 

us they believed that IRS will credit tax withholding on cashed-out 

accounts to the tax liabilities of missing participants.67 One industry 

representative we interviewed in 2013 told us that he withheld taxes when 

he could not find a participant because he believed the withholding would 

cause IRS to make the participant aware of the account. According to 

DOL bulletins issued in 2004 and 2014, some plan sponsors were using 

100 percent withholding—in effect transferring the entire account to IRS—

under the assumption that the withheld amounts would be matched and 

 66According to IRS Publication 15-A, Employer’s Supplemental Tax Guide, account 

balances that are eligible to be rolled over tax free to an IRA or another eligible retirement 

plan are subject to a flat 20 percent withholding rate if they are distributed rather than 

rolled over directly into one of those vehicles. The publication further provides that 

distributions that are (a) required by law, (b) one of a specified series of equal payments, 

or (c) qualifying “hardship” distributions are not subject to the mandatory 20 percent 

federal income tax withholding. 

67Tax withholding occurs when accounts of $1,000 or less are cashed out, with a check 

mailed to an address on file for the participant, and for terminated plans, with accounts 

transferred to a federally-insured bank account or state unclaimed property fund. As 

previously discussed, workplace retirement accounts may be cashed out without the 

consent of a participant only if certain conditions are met.

IRS Has Not Issued 

Guidance Clarifying Tax 

Withholding Requirements 

for Cashed-Out Unclaimed 

Retirement Accounts
Page 24 GAO-18-19 Workplace Retirement Accounts

applied to a participant’s tax liabilities.68 DOL bulletins clarified it was not 

an appropriate distribution option for plan sponsors. Table 1 shows a 

variety of approaches to tax withholding. However, according to IRS, 

none of the tax withholding strategies automatically reduces the tax 

liability of the account holder. IRS officials told us that the agency does 

not routinely credit federal tax withholding to a taxpayer’s current federal 

tax liability unless the taxpayer has made a claim.69

Table 1: A Variety of Approaches to Tax Withholding for Distributions from 

Workplace Retirement Plans

No tax withholding Ensures that income withheld does not exceed the income 

received by plan participant.

20 percent withholding Amount commonly withheld from cash-outs from plans. 

100 percent tax 

withholding

Used in the past by plan sponsors in an attempt to reduce 

participants’ tax liability.

Source: GAO analysis of Department of Labor and Internal Revenue Service documentation. | GAO-18-19

Retirement accounts with small balances are most vulnerable to the tax 

consequences of tax withholding by plan sponsors. We previously 

reported that in the absence of participant instructions, accounts with a 

balance of $1,000 or less can be cashed out of the tax-deferred plan 

environment by plan fiduciaries without the separated participant’s 

consent.70 From 2004 to 2013, separated participants left more than 13 

million accounts of $1,000 or less in workplace retirement plans with an 

aggregate value of $1.2 billion, according to SSA.71

 68In DOL Field Assistance Bulletin 2004-02, DOL prohibited the practice, citing its 

discussions with IRS staff and its understanding of IRS data processing at the time. DOL 

updated that guidance in 2014 with FAB 2014-01, noting again that some plan fiduciaries 

were using 100 percent withholding, and stating that it did not believe that 100 percent 

withholding would necessarily result in a crediting of the withheld amount against the 

missing participant’s income tax liabilities (for example, the amount withheld may exceed 

a missing participant’s income tax liabilities). As a result, DOL stated, missing participants 

might not receive the full benefit to which they are entitled. In both the 2004 and 2014 

guidance documents, DOL concluded that 100 percent withholding is not in the best 

interest of participants and would violate ERISA’s fiduciary requirements.

69According to the IRS, in the United States, taxes are paid through a system based on 

self-reporting. Tax withholding generally must be claimed by the taxpayer for it to be 

credited toward the taxpayer’s tax liability. 

70See GAO-15-73.

71This analysis was conducted by SSA of data submitted to plan sponsors on Form 8955-

SSA.
Page 25 GAO-18-19 Workplace Retirement Accounts

Withholding taxes on balances of $1,000 or less at the time of distribution 

may result in participants paying taxes twice on the account. IRS told us 

that missing participants generally have up to 3 years to become aware of 

and claim the withheld amounts for them to be credited towards their tax 

liability. However, missing participants who claim their account after 3 

years may again pay federal income tax on the account balance, although 

IRS officials said they thought such a scenario would be rare. (See fig. 1).
Page 26 GAO-18-19 Workplace Retirement Accounts

Figure 1: Illustrating Possible Double Taxation of a Small Unclaimed Workplace 

Retirement Account Involuntarily Cashed Out and Later Claimed

Note: This figure depicts a situation in which the plan sponsor cashes out a workplace retirement 

account without the consent of the participant, which can happen for accounts of $1,000 or less, 

absent participant instructions. Such cash-outs can result in an uncashed check sent to an old 

address. According to IRS, tax withholding on unclaimed accounts is not automatically credited to the 

account owner’s tax liability by IRS. Instead, taxpayers generally must be aware of the withholding 

and claim it on their tax return for it to be credited. Taxpayers may not be aware of either the 

withholding or the income if the plan sponsor does not have their current address, according to IRS 

documentation and industry representatives with whom we spoke.

IRS has not issued specific guidance clarifying the withholding 

requirements that apply to distributions from unclaimed accounts in 

situations in which the participant may be unlikely to receive the 

distribution. By reviewing the issue of distributions to participants with 

unclaimed accounts, including reviewing the IRC in this context, IRS may 

be able to issue guidance on applicable tax withholding and other tax 

requirements with respect to such accounts.72 The Taxpayer Bill of Rights 

states that taxpayers are entitled to clear explanations of the tax laws in 

IRS publications and notices, and federal internal control standards 

require agencies to communicate effectively with external stakeholders to 

 72In October 2017, Treasury released its 2017-18 Priority Guidance Plan, which indicated 

Treasury intends to provide “guidance on missing participants” in the future. IRS officials 

told us in November 2017 information about its content or form was not yet available.

Taxpayer Bill of Rights (TBOR)

Internal Revenue Code section 7803(a)(3) 

requires the IRS Commissioner to ensure that 

IRS employees are familiar with and act in 

accordance with the 10 fundamental rights 

that make up the TBOR. Among others, these 

rights include:

Right to Be Informed

Taxpayers have the right to know what they 

need to do to comply with the tax laws. They 

are entitled to clear explanations of the laws 

and IRS procedures in all tax forms, 

instructions, publications, notices, and 

correspondence. They have the right to be 

informed of IRS decisions about their tax 

accounts and to receive clear explanations of 

the outcomes.

Right to Quality Service

Taxpayers have the right to receive prompt, 

courteous, and professional assistance in 

their dealings with the IRS, to be spoken to in 

a way they can easily understand, to receive 

clear and easily understandable 

communications from the IRS, and to speak to 

a supervisor about inadequate service.

Right to Pay No More than the Correct 

Amount of Tax

Taxpayers have the right to pay only the 

amount of tax legally due, including interest 

and penalties, and to have the IRS apply all 

tax payments properly.

Right to a Fair and Just Tax System

Taxpayers have the right to expect the tax 

system to consider facts and circumstances 

that might affect their underlying liabilities, 

ability to pay, or ability to provide information 

timely. Taxpayers have the right to receive 

assistance from the Taxpayer Advocate 

Service if they are experiencing financial 

difficulty or if IRS has not resolved their tax 

issues properly and timely through its normal 

channels.

Source: Internal Revenue Service. | GAO-18-19
Page 27 GAO-18-19 Workplace Retirement Accounts

help achieve agency goals.73 U.S. participants already facing the 

challenge of finding a small account transferred without their consent may 

discover, when the account is located, 20 percent of their account 

eliminated by taxes.74 Without an IRS review of this issue and subsequent 

guidance, questions may remain about withholding from distributions in 

situations where the participant may be missing.

Under IRS’ letter forwarding program, between 1994 and 2012 plan 

sponsors could ask IRS to use IRS’ most current address on file to 

forward a letter with information about an account to a missing plan 

participant. However, in 2012 IRS modified the service and no longer 

forwards letters on behalf of qualified retirement plan sponsors attempting 

to locate plan participants.75 According to the 2013 Report of the ERISA 

Advisory Council on Locating Missing and Lost Participants, the letter 

forwarding program was a popular alternative for plan sponsors when 

email and U.S. mail proved ineffective at contacting separated 

participants. Executives at one large record keeper told us the letter

forwarding program provided very important assistance for locating 

missing participants, noting that few individuals are going to ignore 

correspondence from IRS. Although the letter forwarding program never 

notified the plan sponsor as to whether or not the letter reached the 

intended recipient, executives at one TPA characterized the program as 

effective. In addition, they said the fact that it was sponsored by IRS and 

sanctioned by DOL gave plan fiduciaries confidence that they were acting 

prudently.

 73See GAO, Standards for Internal Control in the Federal Government, GAO-14-704G 

(Washington, D.C.: September 2014). IRS’ Taxpayer Bill of Rights states that taxpayers 

have the right to know what they need to do to comply with tax laws. In addition, IRS’

strategic plan states that IRS guidance should help taxpayers understand their tax 

responsibilities through targeted outreach, communications, and education. See IRS 

Strategic Plan, Fiscal Years 2014-2017, Objective 2: Develop clear and focused outreach, 

communications, and education programs to assist taxpayer understanding of tax 

responsibilities and awareness of emerging tax laws. 

74In addition to the 20 percent tax withholding, depending on the circumstances an 

unclaimed retirement account may also be subject to a 10 percent additional early 

distribution tax if the distribution is made before certain events, such as the participant 

turning age 591⁄2. 26 U.S.C. § 72(t).

75Revenue Procedure 2012-35 modified Revenue Procedure 94-22 to no longer provide 

services to locate taxpayers who may be owed assets, citing the Internet as a missing 

participant locator resource that had been unavailable in 1994. The letter forwarding 

program continues today, limited to humane purposes, such as notifying close relatives of 

an illness in the family and emergency situations.

Plan Sponsors Can No 

Longer Use IRS’ Letter 

Forwarding Program to 

Locate Missing 

Participants
Page 28 GAO-18-19 Workplace Retirement Accounts

Missing participant search services and their value vary widely today, 

based on industry representatives we interviewed. For example, 

representatives of one search firm told us they charged $1.25 for a 

search. However, an executive at a TPA firm told us another firm charged 

$35 for a Social Security Number-based search, which reliably connected 

with participants. PBGC estimates the cost of a commercial locator 

service to be $40 per search.76 Industry stakeholders told us that the 

steps currently required by existing guidance do not provide a 

straightforward way to send a letter about an unclaimed account to a 

missing plan participant.77 They described benefits that only IRS can 

provide through this service, such as the likelihood recipients will open a 

letter from IRS and the confidence fiduciaries have using an IRSsponsored program. We discussed with IRS officials the commensurate 

fees charged in the private sector for missing participant searches and we 

discussed the variety of services and associated costs currently available.

According to OMB Circular A-123, agencies and individual federal 

managers must take systematic and proactive measures to develop and 

implement appropriate, cost-effective management controls for resultsoriented management. IRS has always charged a user fee for the letter 

 76An executive at another TPA told us their contract offered unlimited searches for $25 per 

month, and said it can be helpful sometimes but not always. Searching by Social Security 

Number, while more expensive, is more effective than other methods, according to 

representatives from two TPAs with whom we spoke. One TPA told us that a Social 

Security Number-based search costs $20-$25. However, a plan sponsor may spend 

multiple times that amount and still not find a missing participant. For example, one TPA 

told us that in some cases it can cost as much as $150 to find a participant. An attorney in 

Canada told us that one of her plan sponsor clients paid $500 Canadian per person to 

search for four lost DB plan participants, and still only found three.

77Representatives of two TPAs told us they turned to commercial locator services for a 

more reliable way to find participants after the free Internet searches required under DOL 

FAB 2014-01 were unproductive. DOL guidance for terminated plans is sometimes used 

by ongoing plans to make decisions in the absence of other guidance, according to an 

industry association with whom we spoke. DOL Field Assistance Bulletin 2004-02 included 

discussion of the letter forwarding programs. IRS also issued a memorandum to its 

employee plan examiners regarding required minimum distributions and missing 

participants on October 19, 2017. The memorandum directs examiners not to challenge a 

qualified plan for failure to commence or make a distribution to a participant or beneficiary 

to whom a payment is due, if the plan has taken certain steps. These steps include 

searching plan, sponsor, and publicly-available records; using a commercial locator 

service, a credit reporting agency, or a proprietary Internet search tool; and attempting 

contact participants via United States Postal Service certified mail to their last known 

mailing address and other appropriate means.
Page 29 GAO-18-19 Workplace Retirement Accounts

forwarding program, and the fee has not changed since 1994.78 IRS 

officials told us resource constraints led them to revise the letter 

forwarding program. While IRS management controls will need to ensure 

that a program expansion is cost-effective, by reinstating the letter 

forwarding program for plan participants in a cost-effective manner, IRS 

can help support the retirement security of separated plan participants 

and plan sponsor efforts to meet their obligations under the IRC and 

ERISA.

Certain information U.S. workers receive on unclaimed workplace 

retirement accounts based on data reported to IRS by plan sponsors is 

not reliable because plan sponsors are not updating the data over time as 

required. SSA maintains data on vested, unpaid retirement benefits left 

behind in workplace retirement plans by separated participants in its 

pension benefit record database.79 The information, including the name of 

the plan, the value of the benefit, and the contact information of the plan 

administrator, is reported by plan administrators to IRS, and IRS provides 

it to SSA. When an individual retires and claims Social Security benefits, 

SSA sends the individual a Notice of Potential Private Pension Benefit 

Information.80 The notice informs the recipient that they may have an 

unclaimed retirement account from a former employer and suggests that 

they may want to make an effort to determine whether or not the benefit 

actually does exist. SSA mails about 90,000 notices to new Social 

Security claimants each month. Separated participants can often find that 

no benefit exists, according to DOL and SSA documentation and 

 78The fee is only on bulk requests of 50 or more letters. Forwarding letters to fewer than 

50 missing participants was free. Furthermore, according to one service provider, plan 

sponsors would cap the number of letters requested at 49 per year to avoid paying any 

fees, leaving IRS to cover the costs of the work.

79Administrators of workplace retirement plans covered by the vesting standards of 

section 203 of ERISA are required to report to IRS each year on Form 8955-SSA certain 

information on participants who separated from service, and are covered under the plan 

and entitled to vested deferred benefits that were not paid during the year. IRS is required 

to transmit this information to SSA. 26 U.S.C. § 6057(a), (d). Each month, SSA checks the 

name and Social Security Number of each new claimant for Social Security benefits to 

determine whether the claimant is listed in SSA’s pension benefit record database, and 

mails one or more notices to each new claimant listed. SSA also sends these notices to 

individuals upon request and to claimants of a lump-sum death payment or hospital 

insurance coverage under Title XVIII of the Social Security Act. 42 U.S.C. § 1320b-1(a); 

20 C.F.R. § 422.122.

80Participants can request this information earlier, but that fact is not publicized, and not 

many do so.

Information Provided to 

U.S. Workers on 

Unclaimed Retirement 

Accounts Is Often 

Outdated and Incorrect
Page 30 GAO-18-19 Workplace Retirement Accounts

stakeholders we interviewed. A TPA executive also told us separated 

participants are not always able to determine what happened to their 

accounts.81

IRS and SSA have a memorandum of understanding (MOU) in place 

establishing their agreements for collecting and managing these data. In 

the MOU, IRS and SSA agree to pursue improvements to the reporting 

process. The MOU states that, where appropriate and consistent with IRS 

directives, IRS will assess penalties under the IRC on plan sponsors who 

fail to file Form 8955-SSA according to instructions. The agencies have 

also agreed to contact and receive information from filers as necessary 

and appropriate to follow up regarding missing, incomplete, or incorrect 

information requested on the form.

According to the Form 8955-SSA instructions, plan sponsors are required 

to report when benefits previously reported are paid, and therefore no 

longer due, to plan participants. Such updates allow the pension benefit 

record database at SSA, used to generate the Notice of Potential Private 

Pension Benefit Information, to reflect the fact that those benefits are no 

longer due. IRS officials said the data can be inaccurate because plan 

sponsors are not consistently reporting distributions, resulting in 

erroneous records of accounts accumulating in the database (see fig. 2).

 81ERISA contains certain requirements relating to the maintenance of records for reporting 

and disclosure purposes and for determining the pension benefits to which participants 

and beneficiaries are or may become entitled. For example, section 107 requires that 

records pertaining to required reports must be maintained for at least six years, and 

section 209 requires employers to maintain records sufficient to determine benefits that 

are or may become due to each employee. In addition, under the IRC and Treasury 

regulations, any person subject to income tax is required to keep certain relevant records 

and retain them so long as they may become material in the administration of any internal 

revenue law. 26 U.S.C. § 6001, 26 C.F.R. § 1.6001-1.
Page 31 GAO-18-19 Workplace Retirement Accounts

Figure 2: One Way Erroneous Information on Unclaimed Workplace Retirement Accounts Accumulates in the Social Security 

Administration (SSA) Pension Benefit Record

Note: These reporting requirements apply only to plans covered by the vesting standards of the 

Employee Retirement Income Security Act of 1974 (ERISA), as amended. Years shown are 

hypothetical; these events could happen on a different timeline. Retirees may also experience a 

burden to research the letter received from SSA that incorrectly indicates that a retirement benefit 

may be due.

An executive at one TPA told us that plan sponsors generally remember 

to put participant names on Form 8955-SSA, but often fail to take the 

names off after benefits are paid. According to the TPA executive, if there 

are 1,000 names on the list of separated participants with vested benefits 

in the plan, 999 will have been paid by the time they receive the notice 

from SSA. Nonetheless, participants will generally inquire about a benefit 

when they receive the SSA notice because it is from the government, and 

they trust the notice and think the money is there, according to one TPA 

with whom we spoke.

IRS officials told us that enforceable penalties can be imposed on plan 

sponsors for not including all required information on the form. The IRS 

website lists four possible actions related to incorrectly filing Form 8955-

SSA that are subject to a penalty;82 however, a failure to report 

 82The four listed actions include: (1) failure to file an annual registration statement, (2) 

failure to file notification of a change in the status of the plan, (3) failure to furnish a 

statement to a plan participant or furnishing a fraudulent statement, and (4) late filing.
Page 32 GAO-18-19 Workplace Retirement Accounts

distributions is not on the list. IRS officials said if the agency were to add 

the failure to report distributions to the list the penalty would likely 

encourage some sponsors to update the data as required.83

IRS officials told us they do not currently know which plans are not 

reporting distributions. The Notice of Potential Private Pension Benefit 

Information leaves the responsibility for determining whether a benefit 

exists up to the participant and the agencies do not ask the participant for 

the results of their inquiries. SSA includes a note at the bottom of the 

notice encouraging new retirees to contact DOL with complaints, but the 

participant is not asked to follow up with IRS or SSA to identify plans 

associated with inaccurate data. Having this information would help IRS 

select plans to audit in order to update and improve the quality of data in 

SSA’s pension benefit record database. SSA could modify the notice 

participants receive to encourage them to inform IRS if they determine the 

information on the notice to be erroneous. DOL benefits advisers, who 

field calls from inquiring individuals after they receive a notice about a 

potential benefit that no longer exists, also have information on plans that 

may not be reporting distributions to separated participants on Form 

8955-SSA as required.84 DOL officials told us they would need a formal 

MOU in place to facilitate such information sharing. Figure 3 illustrates 

these possible options for identifying plans not reporting distributions as 

required.

 83IRS officials told us that Form 8955-SSA currently requires that a plan administrator 

provide updated information for participants who have previously been reported on the 

Form 8955-SSA, even though 26 C.F.R. § 301.6057-1(c) suggests that providing updated 

information is voluntary. IRS told us that this issue will be evaluated as part of its guidance 

project on IRC section 6057 reporting requirements listed on its 2017-2018 Priority 

Guidance Plan. 

84DOL already has this information in summaries of some participant phone calls in some 

cases. We previously reported that one of the reasons these data are poorly managed is 

that responsibility for the data and their reporting is spread across three agencies. In 

addition to these steps required of IRS and SSA, DOL assists those who need help with 

the notice. We previously recommended Congress consider providing DOL authority to 

centralize these data. See GAO-14-92.
Page 33 GAO-18-19 Workplace Retirement Accounts

Figure 3: Two Options that Could Identify Workplace Retirement Plan Sponsors 

with Form 8955-SSA Reporting Failures

Standards for internal control in the federal government state that 

agencies should communicate quality information externally so that 

external parties can help agencies achieve their objectives.85 Although 

IRS and SSA have agreed in the MOU to work together to promote efforts 

to improve internal controls, they are not collaborating to improve the 

likelihood that the Notice of Potential Private Pension Benefit Information 

will correspond to an actual benefit in the future. While IRS has authority 

over implementing and enforcing the Form 8955-SSA reporting 

requirements, IRS officials do not have access to SSA’s pension benefit 

record database to update records.86 IRS officials told us at one point 

they discussed with SSA a possible project that would allow plan 

sponsors to update all the records associated with their plan at once. SSA 

officials told us they could collaborate with IRS to update the data in the 

pension benefit record database. By working together, IRS and SSA can 

increase the likelihood that the Notice of Potential Private Pension Benefit 

Information corresponds to actual workplace retirement benefits in the 

future.

 85See GAO, Standards for Internal Control in the Federal Government, GAO-14-704G 

(Washington, D.C.: September 2014). 

86IRS officials said that changes they made to the form in 2009 have likely also improved 

reporting of distributions by plan sponsors. However, we reviewed the 2008 and the 2016 

form instructions and found they both instructed plan sponsors to report a participant that 

has previously been reported under the plan but is no longer entitled to those deferred 

vested benefits.
Page 34 GAO-18-19 Workplace Retirement Accounts

U.S. individuals who participate in foreign retirement plans can face a 

number of challenges with tax reporting requirements on their retirement 

savings. According to IRS officials and tax preparers with whom we 

spoke, these challenges are greater for U.S. individuals who live and 

work abroad full time than for corporate executives on temporary 

assignment in a foreign country. Individuals sent abroad for limited times 

by their employer often remain as participants in their employer’s U.S. 

workplace retirement plan and do not need to participate in a foreign 

workplace plan. According to IRS officials and tax professionals with 

whom we spoke, many of these executives may have tax filing assistance 

made available to them by their company, further reducing their reporting 

burden. Individuals who work in a foreign country may be forced to 

participate in a mandatory foreign retirement plan, depending on the 

country and the rules governing residency, according to officials with 

whom we spoke in our case study locations. In these instances, 

according to IRS officials, the individuals have no choice but to comply 

with U.S. tax reporting rules on their foreign retirement accounts. Those 

who live abroad long-term due to family or personal ties naturally 

accumulate foreign assets and savings, such as foreign retirement 

accounts.

Tax preparers in all five case study locations we reviewed, as well as IRS 

officials, indicated that preparing a U.S. tax return for a participant in a 

foreign retirement plan is more complex than preparing a comparable 

U.S. tax return that does not include foreign assets. We were told that 

attempting to categorize a foreign retirement account for tax reporting 

under the IRC can be challenging because such accounts may be 

Complex Tax 

Requirements and a 

Lack of Guidance 

Can Hinder U.S. 

Individuals’ Ability to 

Correctly Report 

Foreign Retirement 

Accounts

Stakeholders Told GAO 

that U.S. Individuals Who 

Participate in Foreign 

Workplace Retirement 

Plans Face Multiple 

Challenges
Page 35 GAO-18-19 Workplace Retirement Accounts

reported as one of several different designations that may or may not be 

eligible for tax-deferral in the United States.87 This contrasts with U.S. 

individuals participating in U.S. retirement plans that meet the criteria for 

tax-qualified status under the IRC, who generally receive a Form W-2 

Wage and Tax Statement that automatically deducts retirement account 

contributions from gross wages.88 In addition, participating in a foreign 

retirement plan can initiate a complex set of U.S. reporting requirements 

on retirement assets, such as participants having to report contributions 

and earnings or having to file additional forms and schedules for their 

retirement account, which is typically not required of taxpayers with U.S.-

based retirement plans. IRS officials told us that the onus is on U.S. 

individuals who participate in foreign retirement plans to comply with 

these complex reporting requirements. As a result, these participants 

often need to turn to expert tax preparers to prepare their U.S. tax return 

even if they ultimately do not have to pay taxes.

Statutory changes on reporting foreign assets have further affected U.S. 

individuals who participate in foreign retirement plans. Stakeholders told 

us that reporting requirements under the Foreign Account Tax 

Compliance Act (FATCA) can increase the cost of tax preparation for U.S. 

 87The tax treatment of a foreign retirement plan depends on various factors, including the 

characteristics of the plan and the provisions of any relevant tax treaties. For example, 

according to tax experts with whom we spoke, many foreign workplace retirement plans 

qualify as an employees’ trust, and the taxation of contributions and earnings from these 

plans are governed by section 402(b) of the IRC. Whether and when contributions and 

generated income from a section 402(b) trust are taxable as income to the participant 

depends on various factors, including whether the contributions are “substantially vested”

and whether the participant is a highly compensated employee. See 26 U.S.C. §§ 402(b), 

83(a). As another example, according to one commercial tax publication for U.S. 

expatriates, a Canadian Registered Retirement Savings Plan is considered to be a simple 

grantor trust, and unless an election is made under the U.S./Canada Income Tax Treaty, 

the earnings of the plan are subject to tax. See: 

http://www.nysscpa.org/news/publications/the-tax-stringer/stringer-article-for-authors/taximplications-of-foreign-pension-plan-participation#sthash.fRJ9Ikjf.dpuf [accessed on 

4/14/17.] 

88A U.S. individual participating in a workplace retirement plan that meets the criteria for 

tax-qualified status under the IRC may generally defer paying income taxes on 

contributions until he or she receives the benefits. For example, if an employee chooses to 

contribute to a 401(k) account, those contributions, earnings within the account, and any 

employer contributions on the individual’s behalf are not included in the calculation of 

wages, tips, and other compensation on the Form W-2 Wage and Tax Statement provided 

by the employer to their employee. For example, an individual filing a 1040-EZ simply puts 

the wage amount from the Form W-2 onto his or her tax return, thus automatically 

receiving tax-deferral on retirement contributions.
Page 36 GAO-18-19 Workplace Retirement Accounts

individuals who participate in foreign retirement plans.89 For example, 

according to IRS guidance, these participants in foreign retirement plans 

must gather and examine monthly retirement account statements, convert 

the account balance to U.S. dollars, and determine if the total value of the 

account at the end of the year or anytime during the year caused the 

individual’s total asset value to exceed the reporting threshold. If the total 

assets meet the reporting threshold, the participant must report the value 

of their retirement account even if they are no longer contributing to the 

account. In contrast, participants in U.S. plans generally are not required 

to report the value of their U.S. workplace retirement accounts under 

FATCA or IRC section 6038D, according to IRS. We were also told of 

other consequences of FATCA for U.S. individuals abroad, such as a 

reduction in available financial services, as some banks refuse to do 

business with U.S. individuals because of FATCA’s reporting 

requirements.

Lastly, once an individual decides to change jobs in a foreign country, 

transferring foreign retirement savings can be difficult. For example, in 

several of the case study locations we reviewed foreign officials and tax 

preparers told us that plans automatically transfer a retirement account to 

a different account within the plan or to a location outside the plan when 

an employee separates from their employer, which can have U.S. tax 

implications. Stakeholders said that existing U.S. tax law does not provide 

these participants with tax-deferral if they transfer their foreign retirement 

savings from one foreign workplace retirement plan to another—a benefit 

granted to U.S. participants in qualified U.S. retirement plans who make 

such transfers.90 This condition may act as a disincentive for U.S. 

individuals abroad to consolidate foreign retirement accounts and can

 89According to IRS, FATCA is commonly used to refer to sections 501 and 511 of the

Hiring Incentives to Restore Employment Act (codified at 26 U.S.C. §§ 1471-1474 and 26 

U.S.C. § 6038D, respectively). Our discussions with stakeholders used the term “FATCA;” 

however, stakeholders did not specify which provisions were being referred to. In this 

case, these reporting requirements fall under IRC section 6038D, according to IRS 

officials. IRC section 6038D requires individual U.S. taxpayers to report foreign financial 

assets that exceed a certain threshold amount.

90IRS officials told us that transfers from one account to another may be taxable; 

specifically whether such transfers are taxable depends on whether the amounts are 

considered constructively received, which depends on the facts and circumstances on 

whether the individual had control over the amounts in the account and whether receipt of 

the amount is subject to a substantial limitation or restriction. For example, officials said 

that if a foreign jurisdiction would impose a penalty tax for withdrawing before a certain 

age, then that could be a substantial limitation or restriction preventing constructive 

receipt.
Page 37 GAO-18-19 Workplace Retirement Accounts

cause challenges when individuals change jobs or are required by their 

retirement plan or employer to transfer their account.

While IRS has issued guidance providing information regarding foreign 

assets and pensions, IRS officials told us that the guidance is not specific 

on how foreign workplace retirement plans should be treated under the 

IRC, nor does it provide guidance for specific countries.91 One source of 

guidance is Publication 54, Tax Guide for U.S. Citizens and Resident 

Aliens Abroad, which discusses special tax rules for U.S. citizens and 

resident aliens who work abroad or who have income earned in foreign 

countries. Another source of guidance in the International Tax Gap Series 

describes how foreign pensions and annuity distributions are taxed. While 

both guidance sources provide taxpayers with some information on how 

to report foreign assets, neither describes in detail how taxpayers are to 

determine if their foreign workplace retirement plan is eligible for tax 

deferred status, or how to account for contributions, earnings, or 

distributions on their annual U.S. tax return, particularly whether and 

when contributions and earnings should be taxed as income.

IRS also directs taxpayers to review tax treaties, if applicable, for 

provisions related to pensions, but IRS officials told us these treaties can 

vary from country to country and said that they can be difficult for nonexperts to understand. 

 91IRS officials told us that tax issues involving foreign retirement plans are more 

complicated than with U.S. plans. Even without treaties, according to IRS officials, the tax 

treatment of foreign retirement plans (even those within the same country) is not uniform, 

and treaty provisions are not uniform.

IRS Guidance Is Unclear 

Regarding How to Report 

Foreign Retirement 

Accounts
Page 38 GAO-18-19 Workplace Retirement Accounts

For example, Treasury officials told GAO that the tax treaties for two of 

the five92 case study locations we selected have pension clauses and 

certain provisions that apply to U.S. residents of those countries saving 

for retirement that afford some tax protection. However, Treasury officials 

said that two of our other case study locations have treaties that do not 

provide tax protections for U.S. individuals on their foreign retirement 

accounts (one of our case study locations does not have an income tax 

treaty with the United States.)93 Tax preparers and IRS officials we spoke 

with indicated that it is difficult for U.S. individuals to know how to 

correctly apply tax treaty provisions to their foreign workplace retirement 

savings. In addition, these IRS officials and other retirement experts said 

a U.S. individual abroad without expertise in the IRC and tax treaties 

would have difficulty reporting their foreign retirement account correctly. 

Existing IRS guidance does not alleviate the confusion faced by U.S. 

individuals who participate in foreign retirement plans. Confusion 

regarding how to report foreign retirement accounts to IRS on a U.S. tax 

return or elsewhere is inconsistent with U.S. taxpayers’ rights, as 

described in the Taxpayer Bill of Rights, to pay no more than the correct 

amount of tax and to know what they need to do to comply with tax laws.

Disagreement exists among the professional tax preparers with whom we 

spoke about the correct method for reporting foreign retirement accounts 

on a U.S. tax return. IRS officials told us that U.S. tax law generally does 

not recognize foreign retirement plans as tax-qualified and IRS does not 

recognize any retirement accounts outside the United States as having 

tax-qualified status. IRS officials we spoke to said that only plans meeting 

the specific requirements of 401(k) or other requirements describing 

retirement plan qualification may achieve tax-qualified status in the United 

States. As a result, according to IRS guidance, U.S. individuals 

participating in foreign workplace retirement plans generally cannot 

 92See income tax treaties between the United States and Canada, and the United States 

and the United Kingdom, respectively.

93See the 1996 Convention between the United States of America and the Swiss 

Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income 

and the 1982 Double Taxation Taxes on Income Convention between the United States 

and Australia. IRS’ Publication 54 describes the “saving clause” that is typically included in 

most tax treaties. The “saving clause” provides that the treaties do not affect how the 

United States taxes its own citizens and residents. As a result, U.S. individuals generally 

cannot use the treaty to reduce their U.S. tax liability. However, the guidance notes that 

most treaties provide exceptions to the saving clause that allow certain provisions of the 

treaty to be claimed by U.S. individuals, and that it is important that taxpayers examine the 

applicable saving clause to determine if an exception applies.

Example from the Income Tax Treaty 

between the United States and Switzerland

This is an example of the type of language that 

U.S. individuals may need to read and 

understand in order to correctly file their 

income tax return if they hold a foreign 

pension. According to Department of the 

Treasury (Treasury) officials, Article 18 of the 

U.S.-Switzerland tax treaty (excerpt below) 

does not provide U.S. individuals with tax relief 

on their pensions if they are living in 

Switzerland, despite the language stating 

pensions shall be ”taxable only in that State” in 

which the individual lives. Treasury officials 

said that since this language is not part of a 

specific exception to the “saving clause” 

(Paragraph 3, Article 1 of the treaty), the 

United States may still tax U.S. individuals on 

Swiss retirement account contributions and 

earnings, even if they have already paid tax in 

Switzerland on these savings. 

“Pensions and Annuities

1. Subject to the provisions of Article 19 

(Government Service and Social Security), 

pensions and other similar remuneration 

beneficially derived by a resident of a 

Contracting State in consideration of past 

employment shall be taxable only in that 

State.

2. Subject to the provisions of Article 19 

(Government Service and Social Security), 

annuities derived and beneficially owned 

by a resident of a Contracting State shall 

be taxable only in that State. The term 

“annuities” as used in this paragraph 

means a stated sum paid periodically at 

stated times during a specified number of 

years or for life, under an obligation to 

make the payments in return for adequate 

and full consideration (other than services 

rendered).”

Source: Treasury officials and the 1996 Convention between 

the United States of America and the Swiss Confederation for 

the Avoidance of Double Taxation with Respect to Taxes on 

Income. | GAO-18-19
Page 39 GAO-18-19 Workplace Retirement Accounts

deduct contributions to their account from their income on their U.S. tax 

return. This is true even if the retirement account is considered a taxdeferred retirement account in the country where the individual works, 

and even if the account is similar in nature to those found in a U.S.-type 

retirement plan, such as a 401(k) plan. IRS officials told us that it should 

generally be unnecessary to file a foreign retirement account as a 

Passive Foreign Investment Company (PFIC) if the foreign retirement 

plan is covered by a tax treaty with the United States, but acknowledged 

that some tax advisors in foreign countries advise their U.S. clients to 

consider their interest in such plans as an investment in a PFIC. For 

example, in one of the case study locations we reviewed, a tax preparer 

said that he advises U.S. individuals who participate in such plans to 

report their foreign retirement account as a PFIC in their U.S. tax filing, 

and that contributions and earnings are subject to be taxed at the higher 

tax rate generally applicable to PFICs.94 Other tax preparers we spoke to 

in that location said that this is a matter of some discussion among tax 

preparers and that they reported retirement plans as an employees’ trust. 

The National Taxpayer Advocate told us that receiving incorrect tax 

advice from a foreign tax preparer may not be a sufficient mitigating 

circumstance to avoid penalties for reporting a foreign retirement account 

incorrectly on a tax return. While reasonable reliance on a tax 

professional with respect to the details of a return is generally a mitigating 

circumstance for errors on a return, according to the National Taxpayer 

Advocate, tax preparers in other countries are usually not considered 

qualified preparers by IRS.95 U.S. taxpayers who file an incorrect tax 

return can lose money by accruing penalties.

IRS officials told us that individual taxpayers are responsible for 

understanding their filing requirements and for determining how to 

correctly file their tax returns, regardless of whether they live in a foreign 

 94An online guide from a tax preparation firm that serves U.S. expatriates characterizes 

PFICs as pooled investments registered outside the United States that may include 

mutual funds, hedge funds, money market funds, insurance products, and non-U.S. 

retirement plans. According to this guide, PFICs are potentially subject to the top 

individual tax rate. See https://www.taxesforexpats.com/guides/passive-foreigninvestment-company-8621.html.

95Any person with an IRS preparer tax identification number (PTIN) is authorized to 

prepare federal tax returns. However, tax preparers have differing levels of skills, 

education, and expertise. For example, Enrolled Agents take a comprehensive exam and 

are required to complete ongoing education requirements to maintain their credential. Not 

all PTIN holders have additional credentials and may not have the authority to represent 

their clients before the IRS. 
Page 40 GAO-18-19 Workplace Retirement Accounts

country or the United States. In its mission to help taxpayers meet their 

tax responsibilities, IRS could issue guidance concerning how U.S. 

individuals are to correctly report their foreign retirement assets. The 

Taxpayer Bill of Rights states that as part of the right to a fair and just tax 

system, taxpayers have a right to expect that system to consider 

circumstances that affect their ability to provide timely information. IRS 

officials told us they had been considering issuing improved guidance in 

some areas pertaining to the taxation of foreign retirement accounts. 

However, without clearer specific guidance from IRS describing how to 

correctly report foreign retirement assets on a U.S. tax return, U.S. 

individuals who participate in foreign workplace retirement plans continue 

to run the risk of filing incorrect returns due to confusion over how to 

properly classify and report their accounts. Clarifying how U.S. individuals 

who participate in foreign workplace retirement plans should report their 

retirement assets on their annual U.S. tax return will help ensure these 

taxpayers can meet their tax reporting obligations.

Federal law requires U.S. individuals to report specified foreign financial 

assets, including any applicable retirement and pension accounts they 

own, if these assets, in the aggregate, are above the regulatory 

threshold.96 Similarly, the Report of Foreign Bank and Financial Accounts 

(FBAR) requires information with respect to foreign accounts above a 

certain amount.97 As a result, U.S. individuals who participate in foreign 

 96According to IRS, FATCA is commonly used to refer to sections 501 and 511 of the 

Hiring Incentives to Restore Employment Act (codified at 26 U.S.C. §§ 1471-1474 and 26 

U.S.C. § 6038D, respectively). Section 511 establishes reporting requirements for 

individuals, while section 501 (generally referred to in this report as FATCA) establishes 

reporting requirements for foreign financial institutions and certain other foreign entities. 

However, in describing our discussions with stakeholders, we use the term “FATCA” if 

stakeholders used this term but did not specify which provisions were being referred to. 

97Pursuant to the Bank Secrecy Act and Treasury regulations, U.S. individuals who have 

financial interests in or signature authority over foreign financial accounts must file an 

FBAR if the maximum aggregate value of those accounts exceeds $10,000 at any time

during the calendar year. This would generally include any foreign workplace retirement 

accounts, but foreign financial accounts held by or on behalf of tax-qualified retirement 

plans are exempted. 31 U.S.C. § 5314, 31 C.F.R. §§ 1010.306(c), 1010.350(g)(4). The 

FBAR is not filed with an individual’s tax return, but is filed separately and directly with the 

Treasury. Failure to file an FBAR when required to do so may result in civil penalties, 

criminal penalties, or both. 31 U.S.C. §§ 5321-5322. 

Complying with Reporting 

Requirements Can Be 

Costly for U.S. Individuals 

Who Participate in Foreign 

Workplace Retirement 

Plans
Page 41 GAO-18-19 Workplace Retirement Accounts

retirement plans may need to hire tax preparers to prepare returns in 

compliance with these U.S. laws, and, according to tax preparers with 

whom we spoke, the cost for having a complete tax return professionally 

prepared for an individual holding a foreign retirement account ranges 

from $1,800 to as high as $16,000.

Determining how a foreign retirement account should be reported is time 

consuming even for experts. Tax preparers must prepare multiple items, 

including the tax return itself, and additional schedules and forms 

pertaining to the retirement account, according to the preparers with 

whom we spoke. For example, Form 3520 may be required if the account 

is being reported as a foreign trust. In addition to preparing tax forms, one 

tax preparer we spoke to said that preparers may have to spend time 

trying to obtain other documents necessary to prepare a U.S. tax return, 

for example, detailed retirement account statements.

Since the implementation of IRC section 6038D, individuals have 

increased exposure to penalties, and failure to report a foreign retirement 

account when required may bring significant financial penalties, even if no 

taxes were due on the retirement account in question.98 For example, 

according to the IRS website, failure to report foreign financial assets on 

Form 8938 as required may result in a penalty of $10,000 and an 

additional penalty of up to $50,000 for continued failure to report after IRS 

sends the individual a notification of failure to report.99 As a result of this 

reporting requirement, U.S. individuals who participate in workplace 

retirement plans abroad may incur substantial costs to correctly file their 

returns and risk diminishing their retirement security if they fail to correctly 

report their foreign retirement assets.

Even in cases where the individual owes no U.S. tax, tax preparation can 

costs thousands of dollars. Three tax preparers and representatives of 

one investment firm that provides pension advice with whom we spoke 

noted that even if a U.S. individual who participates in a foreign workplace 

 98Although discussions with stakeholders generally used the term “FATCA;” stakeholders 

did not specify which provisions they were referring to. In this case, the reporting 

requirements for U.S. individuals fall under IRC section 6038D, according to IRS.

9926 U.S.C. § 6038D. However, if the failure to report the information is shown to be due 

to reasonable cause and not due to willful neglect, no penalty will be imposed. See 26 

C.F.R. § 1.6038D-8(e). In addition, individuals may also be subject to a 40 percent penalty 

on any understatement of tax attributable to non-disclosed assets. 26 U.S.C. § 6662(j)(3). 

See https://www.irs.gov/businesses/corporations/summary-of-key-fatca-provisions.

Foreign Account Tax Compliance 

Provisions and Internal Revenue Code 

(IRC) section 6038D Reporting

Foreign account tax compliance provisions, 

including Internal Revenue Code (IRC)

section 6038D, were enacted as part of the 

Hiring Incentives to Restore Employment Act 

to reduce tax evasion by creating greater 

transparency of offshore accounts and entities 

held by U.S. individuals and by providing IRS 

with tools to further enforce tax laws, 

according to IRS. Foreign account tax 

compliance provisions under IRC sections 

1471-1474 generally require foreign financial 

institutions to report to IRS on foreign financial 

accounts held by U.S. taxpayers and IRC 

section 6038D requires individual U.S. 

taxpayers to report foreign financial assets 

that exceed a certain threshold amount. 

Taxpayers who fail to comply with reporting 

requirements under IRC section 6038D may 

be subject to penalties, including a $10,000 

failure to file penalty, an additional penalty of 

up to $50,000 for continued failure to file after 

IRS notification, and a 40 percent penalty on 

an understatement of tax attributable to nondisclosed assets.

Source: Internal Revenue Service. | GAO-18-19
Page 42 GAO-18-19 Workplace Retirement Accounts

retirement plan did not ultimately owe any taxes, they are required to 

report their foreign retirement assets under both FATCA100 and FBAR. 

Tax preparers in four of our case study locations101 as well as in the 

United States mentioned FATCA’s requirements as an added challenge 

when reporting foreign retirement accounts on U.S. tax returns.102

Additionally, one investment industry association representative we 

interviewed said that FATCA casts a wide net and that many “accidental 

Americans”103 and U.S. individuals abroad were challenged to comply 

with its requirements.104 Some of the tax preparers we spoke with said 

many individuals taking steps to come into tax compliance as a result of 

FATCA may happen to have U.S. citizenship but may never have lived or 

worked in the United States as adults.105

The National Taxpayer Advocate told us that the high cost of tax 

preparation amounted to an “advanced penalty” for U.S. individuals who 

live abroad. In a written testimony to Congress in 2015, she stated that 

 100Stakeholders generally used the term “FATCA” to describe the reporting requirements 

for U.S. individuals of their foreign financial accounts and assets. In this case, these 

requirements fall under IRC section 6038D, according to IRS officials.

101The case study locations were Australia, Canada, Hong Kong, Switzerland, and the 

United Kingdom.

102Although our discussions with stakeholders generally used the term “FATCA,” these 

reporting requirements fall under IRC section 6038D, according to IRS.

103“Accidental American” is used colloquially to describe citizens of other countries who 

acquired U.S. citizenship through their parents’ ties to the United States rather than their 

own choices, for example, through a U.S. citizen parent who emigrated abroad, or 

because they were born in the United States but left as young children. Such individuals 

may have never lived or worked in the United States as adults, and according to tax 

preparers with whom we spoke, many such individuals are surprised to learn of their U.S. 

tax obligations.

104Although our discussions with stakeholders generally used the term “FATCA,” these 

reporting requirements fall under IRC section 6038D, according to IRS.

105Although our discussions with stakeholders generally used the term “FATCA,” these 

reporting requirements fall under IRC section 6038D, according to IRS.
Page 43 GAO-18-19 Workplace Retirement Accounts

FATCA has created unique challenges for U.S. taxpayers abroad106 and 

presented evidence in Volume 1 of the Taxpayer Advocate Service Fiscal 

Year 2016 Objectives Report to Congress that there was little evidence 

that foreign filers are any more likely to be non-compliant than taxpayers 

in the general taxpayer population.107 The National Taxpayer Advocate 

specifically identified concerns with FATCA as an area of focus in the 

Fiscal Year 2016 Objectives Report to Congress, and stated that 

taxpayers’ rights to a fair and just tax system, and to pay no more than 

the correct amount of tax, are being adversely affected by FATCA.108

IRS officials we spoke with indicated they are aware of the difficulties 

some taxpayers are experiencing with these reporting requirements, but 

said the agency is required to implement the law. They also said that 

retirement accounts are usually the primary asset for individuals abroad 

and that from an individual enforcement perspective, these reporting 

requirements help to ensure a “line of sight” year over year on 

participants’ foreign pension arrangements. IRS officials expressed 

 106See the written statement of Nina E. Olson, National Taxpayer Advocate, the hearing 

on the Internal Revenue Service Fiscal Year 2016 Budget Request before the 

Subcommittee on Financial Services and General Government, Committee on 

Appropriations, United States Senate. Available at 

https://www.irs.gov/pub/tas/NTA_Testimony_030315.pdf. See also the National Taxpayer 

Advocate Fiscal Year 2016 Objectives Report To Congress, Volume 1, available for 

download at https://taxpayeradvocate.irs.gov/reports/fy-2016-objectives-report-tocongress/full-report. IRS officials noted that the National Taxpayer Advocate was likely 

referring to reporting requirements for U.S. individuals under IRC section 6038D.

107The National Taxpayer Advocate analyzed data from the IRS Compliance Data 

Warehouse, Individual Return Transaction File Entity, and Individual Master File Status 

History Tables, and found that 19 of every 1,000 Form 8938 filers did not file their return 

timely, as compared to 16 of every 1,000 in the general population. They also found that 

24 of every 1,000 Form 8938 filers did not pay taxes timely, as compared to 59 of 1,000 

general population taxpayers. See also the National Taxpayer Advocate Fiscal Year 2016 

Objectives Report to Congress, Volume 1, available for download at 

https://taxpayeradvocate.irs.gov/reports/fy-2016-objectives-report-to-congress/full-report.

108The Taxpayer Bill of Rights adopted by the IRS includes 10 fundamental rights afforded 

by the Internal Revenue Code (IRC). IRC section 7803(a)(3) requires the IRS 

Commissioner to ensure that IRS employees are familiar with and act in accordance with 

these 10 taxpayer rights. The National Taxpayer Advocate has expressed concern that, 

“without statistically valid evidence or analytical justification, the IRS has adopted a 

coercive approach to international taxpayers, reflecting an assumption that all such 

taxpayers are suspect of fraudulent activity.” See National Taxpayer Advocate, 

“Objectives Report to Congress – Fiscal Year 2017, Volume 1”

https://taxpayeradvocate.irs.gov/reports/fy-2017-objectives-report-to-congress/full-report. 

IRS officials noted that the National Taxpayer Advocate was likely referring to reporting 

requirements for U.S. individuals under IRC section 6038D.
Page 44 GAO-18-19 Workplace Retirement Accounts

concern that unless U.S. individuals are required to report foreign 

retirement accounts via Form 8938, they will seek to avoid proper 

reporting on their tax returns when distributions are made.

IRS officials told us they have had extensive conversations about 

providing a possible exemption from reporting requirements under IRC 

section 6038D for certain U.S. individuals in foreign countries.109 IRS 

decided the ability to review a taxpayer’s foreign retirement data each 

year through filing a Form 8938 would allow regulators to evaluate 

whether contributions, earnings, and distributions were being identified 

and reported accurately. IRS officials stated that the agency’s goal is to 

build a database with Form 8938 information on individual taxpayers with 

foreign assets.

IRS officials told us that, unlike individuals, foreign financial institutions in 

many countries are exempt from reporting retirement accounts under 

FATCA.110 IRS officials said this is because such foreign retirement 

accounts are typically at low risk for tax evasion and Treasury officials 

told us that the exemption for foreign financial institutions was provided to 

reduce burden on such institutions. This sentiment was echoed by foreign 

government officials and retirement experts abroad, who said a retirement 

account is generally at low-risk for tax evasion both because 

governments regulate retirement accounts and individuals attempting to 

evade taxes through a retirement account would have to wait many years 

before seeing any benefit. With respect to IRC section 6038D, according 

to IRS officials and Form 8938 instructions, if a fair market value is not 

readily available for a foreign workplace DB plan, it does not have to be 

included in the taxpayer’s calculation of the aggregate foreign assets 

used to determine whether the taxpayer meets the threshold to file Form 

 109According to IRS, FATCA is commonly used to refer to sections 501 and 511 of the 

Hiring Incentives to Restore Employment Act (codified at 26 U.S.C. §§ 1471-1474 and 26 

U.S.C. § 6038D, respectively). Section 511 establishes reporting requirements for 

individuals, while section 501 (generally referred to in this report as FATCA) establishes 

reporting requirements for foreign financial institutions and certain other foreign entities. 

However, in describing our discussions with stakeholders, we use the term “FATCA” if 

stakeholders used this term but did not specify which provisions were being referred to. 

110For example, Intergovernmental Agreements (IGAs), negotiated by Treasury, which 

have been concluded with 113 countries to date, may establish such exemptions.
Page 45 GAO-18-19 Workplace Retirement Accounts

8938.111 If other foreign financial assets, in the aggregate, exceed the 

threshold, IRS officials said an individual must list their DB plan on Form 

8938, but may list a zero balance if no distributions have been made. 

Given that IRS does not always require reporting of foreign retirement 

plans on Form 8938 if the plans cannot be readily valued, providing a 

broader exemption for other types of workplace plans or for other 

appropriate circumstances from the calculation of the foreign asset 

threshold could help ease the reporting burden on U.S. individuals. This 

would assist those individuals who hold most of their wealth in the form of 

foreign retirement savings in other types of workplace retirement plans, to 

avoid potentially high penalties that could diminish their retirement 

savings.

IRS has not systematically analyzed data from Form 8938 on foreign 

retirement accounts owned by U.S. individuals. As a result, they may not 

have evidence showing the effect of these reporting requirements on U.S. 

individuals who participate in foreign workplace retirement plans, for 

instance, how many enforcement actions related to retirement accounts 

resulted from filing Form 8938. Without IRS systematically analyzing 

Form 8938 data on foreign retirement accounts owned by U.S. 

individuals, the agency will continue to lack an understanding of how 

these accounts change over time and if they are definitively low-risk for 

tax evasion. Understanding the effects of these reporting requirements 

can provide IRS with information to consider whether IRS could offer 

individuals some form of exemption from reporting on their foreign 

retirement accounts. Currently, there is no way for IRS to clearly 

distinguish different types of accounts being reported on Form 8938. To 

do so would require the Form 8938 to be revised in order to allow 

taxpayers to clearly specify that the account being reported is a foreign 

retirement account or pension.112 In addition, U.S. individuals participating 

 111According to IRS officials, this was done because it is difficult to determine the value of 

unvested benefits in a DB plan. When determining the value of an individual’s interest in a 

foreign estate, foreign pension plan, or foreign deferred compensation plan, the IRS 

instructions for Form 8938 state that if the individual received no distributions during the 

tax year and does not know or have reason to know based on readily accessible 

information the fair market value of his or her interest, to use a value of zero. See also 26 

C.F.R. § 1.6038D-5.

112The instructions for Form 8938 currently direct taxpayers to report their interest in a 

foreign pension plan or foreign deferred compensation plan in Part VI of the form. The 

instructions further direct taxpayers to enter a description of the specified foreign financial 

asset being reported in this section for assets that are not maintained in a financial 

account. 
Page 46 GAO-18-19 Workplace Retirement Accounts

in foreign workplace retirement plans, many of whom count their 

retirement savings as their primary financial asset, according to IRS 

officials, will continue to be caught up in IRS’ enforcement efforts aimed 

at catching tax evaders. These U.S. individuals may continue to face 

potentially high tax preparation fees to complete the filing of Form 8938 

and may be liable for penalties for failure to report foreign retirement 

accounts that may pose little or no risk for tax evasion.

IRS officials told us that U.S. individuals who participate in foreign 

workplace retirement plans may not realize that a routine transfer of their 

foreign retirement assets within plans113 or from one plan to another 

should be reported as a taxable event, resulting in an incorrect filing 

and/or potential penalties. Changing jobs and transferring, or “rolling over”

retirement savings to another qualified retirement plan is generally a taxprotected transaction for participants in U.S.-based retirement plans.114

However, IRS officials told us that a U.S. individual who participates in a 

foreign retirement plan may owe U.S. taxes for similar transfers within or 

between foreign workplace retirement plans. Retirement plans in some 

countries routinely initiate administrative transfers of a participant’s 

retirement savings between accounts within the plan, to the employee’s 

new plan, or to a designated institution outside the plan when the 

 113For example, according to officials, when a participant (i.e., scheme member) 

terminates employment with their employer in Hong Kong, the balance of their retirement 

account, referred to as a “contribution account,” will be automatically transferred after 3 

months following the receipt of the notice of the employment cessation from the member’s 

former employer to a “personal account” within the same scheme (i.e., plan). Personal 

accounts preserve the benefits in respect of previous employments but do not accept 

employee or employer contributions, according to officials. Further, officials said that the 

employee can elect to transfer the accrued benefits to his personal account under another 

scheme of his own choice, or to transfer the accrued benefits to the contribution account 

of his new employment. However, they said if no action is taken by the employee the 

benefits accumulated during previous employment will be moved from a contribution 

account to a personal account under the scheme of the former employer. See appendix III 

for additional information on Hong Kong’s retirement system. In this report, we refer to this 

type of transfer as a transfer “within” the foreign workplace retirement plan. By contrast, 

transfers of investments within a plan, such as changing from one mutual fund investment 

to another, would not be taxable, according to IRS.

114In a direct rollover, a qualified workplace retirement plan makes a payment directly to 

another qualified plan or an IRA. In an indirect rollover, the plan makes a payment directly 

to the participant, who subsequently deposits it into another qualified retirement plan or 

IRA within 60 days. Indirect rollovers are subject to mandatory 20 percent withholding, so 

participants would have to use other funds in order to roll over the full amount. Rollovers 

are subject to other IRC requirements. See 26 U.S.C. § 402(c).

Absent Specific Treaty 

Provisions, Current U.S. 

Tax Law Does Not Exempt 

from Taxation Transfers in 

Foreign Workplace 

Retirement Plans
Page 47 GAO-18-19 Workplace Retirement Accounts

participant separates from their employer, according to officials in several 

of our case study locations. However, IRS officials told us the IRC does 

not recognize foreign retirement plans as tax-qualified plans,

115 and 

because these plans are not able to meet the criteria for qualification,116

tax-deferred transfers or rollovers may not be possible unless a tax treaty 

provides otherwise. IRS generally considers routine administrative 

transfers of retirement assets that occur between or within foreign 

retirement plans to be distributions to the participant and therefore taxable 

income.

According to IRS officials with whom we spoke, the transfer of retirement 

assets within or between plans implies that the participant has some 

access to and control over their retirement funds. Tax preparers and 

regulators in three of our case study locations told us that such transfers 

routinely take place (see appendix III). In these situations, IRS officials 

told us that deferring taxes on retirement contributions and earnings 

under IRC section 402(b) pertaining to foreign trusts would no longer be 

applicable because that section of the IRC does not cover transfers—only 

contributions and earnings within a given foreign trust. Instead, according 

to IRS officials, the transfer would generally constitute a “constructive 

 115In the United States, pre-retirement distributions from a qualified retirement plan can 

generally be “rolled over” by depositing the amount in another qualified retirement plan or 

IRA within 60 days. Financial institutions or plans may also directly transfer distributions to 

another plan or IRA. These rollovers are generally not taxed until money is withdrawn from 

the new plan. The rollover mechanism allows individuals to save for the future and have 

their money continue to grow tax-deferred.

116For example, among other things, for a 401(k) plan in the United States to be taxqualified, it must meet minimum distribution requirements that generally require 

distributions to begin by the time the participant is 701⁄2 years old or retires, whichever is 

later. 26 U.S.C. § 401(a)(9). Foreign workplace retirement plans may not meet these 

requirements. For example, according to officials with whom we spoke, the United 

Kingdom has no required minimum distribution age.
Page 48 GAO-18-19 Workplace Retirement Accounts

receipt of funds”117 by the participant and would be reportable and 

taxable. As a result, a U.S. individual who participates in a foreign 

retirement plan could owe U.S. tax on the entire amount of their 

retirement savings when they separate from their employer and their 

account is transferred to another account within the plan or to a different 

workplace retirement plan (see fig. 4).

 117In general, gains, profits, and income are to be included in gross income for the taxable 

year in which they are actually or constructively received by the taxpayer. 26 C.F.R. § 

1.451-1(a). Under Treasury regulations, income although not actually reduced to a 

taxpayer’s possession is constructively received by him in the taxable year during which it 

is credited to his account, set apart for him, or otherwise made available so that he may 

draw upon it at any time, or so that the taxpayer could have drawn upon it during the 

taxable year if notice of intention to withdraw had been given. However, income is not 

constructively received if the taxpayer’s control of its receipt is subject to substantial 

limitations or restrictions. See 26 C.F.R. § 1.451-2. In some circumstances, according to 

IRS officials, workplace retirement funds may become technically available to U.S. 

individuals during the transfer of foreign retirement accounts between plans when the 

individual changes jobs or separates from his or her employer even though the individual 

takes no action to access the funds. 
Page 49 GAO-18-19 Workplace Retirement Accounts

Figure 4: U.S. Taxation of Transfers between Defined Contribution Workplace 

Retirement Plans

Treasury officials said they have been aware of this issue for some years, 

having discussed it in multiple negotiations with other countries, and have 

taken steps to incorporate a solution in U.S. model income tax 

conventions dating as far back as 1996.Treasury officials told us that the 

2016 U.S. Model Income Tax Convention includes a clause that would 

generally exempt from U.S. income tax such transfers if they qualify as 

tax-deferred transfers under the laws of the other country. According to 

Treasury officials, few of the treaties currently in force address this issue 

and many countries do not have tax treaties with the United States.118

 118See Article 17, paragraph 2 of the 2016 U.S. Model Income Tax Convention.
Page 50 GAO-18-19 Workplace Retirement Accounts

IRS officials told us that if no treaty exists between the United States and 

the country where the U.S. individual is participating in a foreign 

workplace retirement plan, or the treaty does not specify how to treat 

these transfers, there is generally no form of transfer that will receive U.S. 

income tax-deferral. In these situations, IRS officials said, there is no way 

that the plan can structure the transfer to prevent the U.S. individual who 

is transferring assets within or between foreign plans from receiving a 

distribution and being subject to tax liability. Even in cases where a tax 

treaty is in place, the treaty may not provide special treatment for the 

transfer of retirement assets. This would be the case in at least two of the 

five case study locations we examined, where despite a tax treaty in 

place, we were unable to identify any provisions that address these types 

of transfers. In these cases, according to IRS, the U.S. individual must fall 

back on the IRC, which does not provide tax-deferral on such transfers.

As a result, a U.S. individual who participates in a foreign workplace plan 

would lose any tax-deferrals on the transfer.

IRS officials and tax preparers told us that the transfer issue can cause 

tax consequences for holders of foreign retirement assets, but one tax 

preparer we spoke with noted that U.S. tax laws were not written with 

foreign retirement plans in mind. As a result, tax preparers said it can be 

difficult to determine how to report foreign workplace retirement assets 

under the IRC, making routine administrative transactions119 costly for 

U.S. individuals who participate in these plans. They said this is because 

some or all of the account balance may be subject to tax and retirement 

account asset growth would be lower due to the loss of tax-deferral. Each 

time retirement assets are transferred, the transfer may be viewed as a 

distribution, and new contributions and growth could be subject to tax and 

a loss of tax-deferral. IRS officials also told us that the potential taxation 

of transfers between foreign plans may cause some individuals to avoid 

consolidating foreign retirement accounts.

Renegotiating a tax treaty can be time consuming and, according to 

Treasury officials, is unlikely to happen based on one issue, such as the 

transfer of retirement savings abroad. Treasury officials in the Office of 

Tax Policy said that the agency’s approach to address these transfers 

would be to evaluate the issue on a treaty-by-treaty basis. However, this 

approach may not provide relief because there is no guarantee the 

 119An example of this type of administrative transaction is described earlier in this report 

with reference to routine administrative transfers of retirement accounts that can occur in 

Hong Kong when participants separate from their employer. 

2016 U. S. Model Income Tax Convention 

Language Would Exempt Certain Transfers 

of Foreign Retirement Assets from 

Taxation 

The Department of the Treasury developed 

the U. S. Model Income Tax Convention to be 

the starting point for negotiating tax treaties 

with other countries. Language in an actual 

treaty results from that negotiation and 

therefore may not include this language. 

According to Department of the Treasury 

officials, few treaties currently contain this 

language.

“2016 United States Model Income Tax 

Convention, Article 17, Paragraph 2(b)

Where a citizen of the United States who is a 

resident of ______ is a member or beneficiary 

of, or participant in, a pension fund 

established in _____, the United States may 

not tax the income earned by the pension 

fund as income of the individual unless, and 

then only to the extent that, it is paid to, or for 

the benefit of, that individual from the pension 

fund (and not transferred to another pension 

fund established in _______ in a transfer that 

qualifies as a tax-deferred transfer under the 

laws of _______).”

Source: Department of the Treasury. | GAO-18-19
Page 51 GAO-18-19 Workplace Retirement Accounts

country negotiating a treaty with the United States will agree to include 

provisions for transferring retirement savings on a tax-deferred basis. In 

order to provide more immediate relief, these Treasury officials said 

Congress could pass legislation that would allow routine account 

transfers between two foreign workplace retirement plans in the same 

country to be free from U.S. tax if that country has a tax treaty with the 

United States. However, they cautioned that such efforts should be 

focused on foreign retirement plans that have already been examined by 

Treasury, for example, through the process of negotiating a tax treaty or 

as defined in FATCA IGAs, in order to avoid creating a tax evasion 

loophole. For example, foreign workplace retirement plans could be 

defined as those recognized by an existing tax treaty or other plans as 

deemed appropriate by Treasury’s Office of Tax Policy. According to 

Treasury officials, transfers within or between such plans in the same 

country could be protected from unnecessary taxation by, for example, 

modifying Section 402(b) or other provisions of the IRC. Officials said that 

without legislation, U.S. individuals who participate in foreign workplace 

retirement plans must follow current law, which does not provide taxdeferral for transfers within or between foreign plans, even those that may 

be eligible for tax-deferred contributions and earnings in the foreign 

jurisdiction. However, by changing the IRC, Congress can ensure that 

U.S. individuals who participate in foreign workplace retirement plans can 

consolidate their accounts in a tax-deferred manner without being taxed 

on the entire balance when their account is transferred.

Plan participants in the current workplace retirement plan environment 

can accumulate multiple retirement accounts and possibly lose track of 

them over their careers. The shift to DC plans and the mobility of the 

American workforce have led to an increase in the number of workplace 

retirement accounts, with many workers having multiple accounts over 

the course of their careers. Yet currently, with millions of small retirement 

accounts left behind by participants with previous employers, plan 

sponsors are experiencing challenges locating missing participants. DOL 

has agreed to evaluate the possibility of convening a taskforce to 

consider the establishment of a national pension registry, in part to 

address the difficulty of linking missing participants to their former 

accounts. However, until this effort brings results or another 

comprehensive solution to unclaimed accounts emerges, there are a 

variety of improvements federal agencies may make in the short term to 

help eliminate the inefficiencies in the current system that may reduce 

participants’ retirement savings. Since DOL audit findings show that 

ongoing plans have challenges staying in touch with missing participants, 

Conclusions
Page 52 GAO-18-19 Workplace Retirement Accounts

and DOL has provided guidance on missing participants for terminating 

DC plans, providing such guidance for ongoing DC plans will help ensure 

that separated participants will receive information about their benefits.

In addition, IRS guidance on tax withholding does not address 

distributions of small unclaimed accounts sent to nonresponsive 

participants that are not always received by those participants. Some 

stakeholders mistakenly believe that IRS automatically credits all taxes 

withheld from such distributions toward taxes due. Following IRS 

guidance, plans generally withhold taxes on cash-outs from such 

accounts that the participant may not receive. By reviewing the issue of 

distributions made to participants who are unlikely to receive them, IRS 

has an opportunity to issue guidance clarifying the applicable tax 

withholding requirements in those situations.

IRS also has the potential to offer a service that delivers letters that 

participants are likely to open, is trusted by plan fiduciaries, and can help 

connect missing participants with their benefits. IRS was forwarding fewer 

than 50 letters at a time for plan sponsors at no charge, but decided to 

stop forwarding letters about unclaimed accounts in 2012. IRS can 

consider again helping connect participants with unclaimed accounts 

using the letter forwarding program. Lastly, IRS and SSA can take steps 

to address situations in which sponsors fail to update data to reflect 

payment of retirement accounts, rendering the data unreliable. Under the 

existing agreement between IRS and SSA with respect to the Form 8955-

SSA data, the agencies can take steps to ensure participants have a 

more reliable source of information on their benefits in the future.

U.S. individuals who work abroad and participate in a foreign workplace 

retirement plan face challenges with reporting their accounts. Managing 

such accounts can be costly as individuals use expensive tax preparers 

for reporting their foreign retirement savings to IRS. These U.S. 

individuals are required to pay taxes on their worldwide income, but can 

become caught in a web of complex U.S. tax requirements governing how 

they report their foreign workplace retirement savings. By providing 

guidance on how to appropriately report foreign workplace retirement 

accounts, IRS can help U.S. individuals comply with these requirements 

and minimize their reporting burden.

IRS can also initiate a systematic analysis of Form 8938 data on foreign 

retirement accounts owned by U.S. individuals. Such data would help IRS 

gain a better understanding of how these accounts change over time, and 

to determine if they pose a low-risk for tax evasion. The outcome of this 
Page 53 GAO-18-19 Workplace Retirement Accounts

analysis could allow IRS to consider offering these individuals an 

exemption from reporting requirements on their foreign retirement 

accounts, further easing the burden U.S. individuals face reporting their 

foreign retirement assets. Lastly, transferring accounts between foreign 

retirement plans can have negative tax consequences that threaten the 

ability of U.S. individuals abroad to save for retirement. Congress may 

wish to consider whether it can assist U.S. individuals who participate in 

foreign workplace retirement plans by permitting these individuals to 

transfer their retirement savings to a different account within the plan or to 

another foreign workplace retirement plan on a tax-deferred basis when 

they change jobs or separate from their foreign employer. Doing so would 

permit these U.S. individuals in foreign workplace retirement plans to 

receive the tax-deferred benefits available to other U.S. plan participants 

who reside in the United States and who participate in qualified retirement 

plans.

We are making the following matter for congressional consideration.

Congress should consider legislation modifying the Internal Revenue 

Code to allow routine account transfers within the same foreign workplace 

retirement plan or between two foreign workplace retirement plans in the 

same country to be free from U.S. tax in countries covered by an existing 

income tax treaty that provides for favorable U.S. tax treatment of foreign 

workplace retirement plan contributions.

We are making a total of seven recommendations, including one to DOL, 

five to IRS, and one to SSA.

a. The Secretary of Labor should issue guidance on the obligations 

under ERISA of sponsors of ongoing plans to prevent, search for, and 

pay costs associated with locating missing participants. 

(Recommendation 1)

b. The IRS Commissioner should review taxation issues relating to 

distributions involving incorrect participant addresses and uncashed 

benefit checks and clarify for the public the Internal Revenue Code’s 

requirements in these circumstances. (Recommendation 2)

c. The IRS Commissioner should consider revising the letter forwarding 

program in a cost-effective manner to again provide information on 

behalf of plan sponsors on unclaimed retirement accounts to 

participants. (Recommendation 3)

Matter for 

Congressional 

Consideration

Recommendations
Page 54 GAO-18-19 Workplace Retirement Accounts

d. The IRS Commissioner should clarify how U.S. individuals are to 

report their foreign retirement accounts. The clarification could include 

addressing how these accounts should be designated and how the 

taxpayer should report contributions, earnings, and distributions made 

from the account. (Recommendation 4)

e. The IRS Commissioner should systematically analyze data reported 

through Form 8938 filings on foreign retirement accounts owned by 

U.S. individuals with the goal of developing an evidence-based 

understanding of how these accounts change over time and what 

level of risk these accounts pose for tax evasion. To assist with this 

analysis, IRS should consider revising Form 8938 to more clearly 

distinguish between retirement accounts and other types of accounts 

or assets being reported by taxpayers under current reporting 

requirements. (Recommendation 5)

f. The IRS Commissioner should take steps to improve the likelihood 

that the Notice of Potential Private Pension Benefit Information 

corresponds to actual retirement benefits in the future, for example, by 

working with the Social Security Administration as necessary. 

(Recommendation 6)

g. The Social Security Administration Commissioner should take steps to 

improve the likelihood that the Notice of Potential Private Pension 

Benefit Information corresponds to actual retirement benefits in the 

future, for example, by working with IRS as necessary. 

(Recommendation 7)

We provided a draft of this report to the Department of Labor, the 

Department of the Treasury, the Internal Revenue Service, the Social 

Security Administration, the Pension Benefit Guaranty Corporation, and

the U.S. Department of State. DOL, Treasury and IRS, and PBGC 

provided technical comments, which we have incorporated where 

appropriate. DOL, IRS, SSA, and PBGC also provided formal comments, 

which are reproduced in appendices IV, V, VI, and VII, respectively. State 

did not have any comments. DOL agreed with our recommendation that 

additional guidance may be helpful to aid plan sponsors and plan 

fiduciaries of ongoing plans in meeting their existing fiduciary obligations 

to search for missing participants and to pay benefits. SSA agreed with 

our recommendation to take steps to improve the likelihood that the 

Notice of Potential Private Pension Benefit Information corresponds to 

actual retirement benefits in the future, for example, by working with IRS 

as necessary.

Agency Comments 

and Our Evaluation
Page 55 GAO-18-19 Workplace Retirement Accounts

In its written comments, IRS stated that it generally agreed with the report 

and its findings. IRS specifically cited that the report identifies several 

challenges for participants to manage their retirement savings, such as 

updating former employers with address changes to continue receiving 

information about retirement plan accounts with former employers and 

responding to former employers regarding retirement plan accounts. IRS 

also stated that U.S. individuals participating in foreign retirement plans 

often do not know how to correctly report foreign retirement accounts and 

associated income due to complex federal requirements and treaty 

provisions governing the taxation of foreign retirement accounts. This 

recognition by IRS of the complex federal requirements and treaty 

provisions governing the taxation of foreign retirement accounts is in line 

with GAO’s concerns about U.S. individuals with foreign workplace 

retirement accounts having trouble with routine account transfers within 

the same foreign workplace retirement plan or between two such plans in 

the same country. We have asked Congress to consider modifying the 

Internal Revenue Code to allow routine account transfers within the same 

foreign workplace retirement plan or between two foreign workplace 

retirement plans in the same country to be free from U.S. tax in countries 

covered by an existing income tax treaty that provides for favorable U.S. 

tax treatment of foreign workplace retirement plan contributions. 

Congress’ ability to modify the Internal Revenue Code in such a way can 

help U.S. individuals participating in foreign workplace plans to better 

save for retirement by allowing them to consolidate accounts in a taxdeferred manner without being taxed on the entire balance when their 

account is transferred.

IRS agreed with two of our recommendations to improve the 

management of retirement savings. Specifically, IRS agreed to review 

taxation issues relating to distributions involving incorrect participant 

addresses and uncashed benefit checks and to clarify for the public the 

Internal Revenue Code’s requirements in these circumstances. We 

believe that IRS’ consideration of this recommendation and any 

subsequent actions the agency takes to clarify the issue will help to 

address questions about tax withholding from distributions in situations 

where the participant may be missing or where a distribution check 

remains uncashed after a period of time. IRS also agreed to work to 

improve the likelihood that the Notice of Potential Private Pension Benefit 

Information corresponds to actual retirement benefits in the future, and 

agreed to take steps to ensure that the data reported on Form 8955-SSA 

are accurate and to advise plan sponsors of any changes to reporting 

these data. We commend IRS for recognizing the importance of 

addressing this issue for taxpayers and for its willingness to take steps to 
Page 56 GAO-18-19 Workplace Retirement Accounts

ensure the accuracy of data reported by plans in the United States on 

vested benefits belonging to separated employees. 

Lastly, IRS agreed with our recommendation to clarify how U.S. 

individuals are to report their foreign retirement accounts, which could 

include how the taxpayer should report contributions, earnings, and 

distributions made from the account. We encourage IRS to take the 

necessary steps to dispel any confusion U.S. individuals may have over 

how to properly classify and report their foreign retirement accounts on a 

U.S. tax return—such clarification should help ensure that these 

taxpayers can meet their tax reporting obligations.

IRS disagreed with two of our recommendations, citing the limited number 

of IRS staff and resources needed for the agency to implement these 

recommendations. First, IRS disagreed with our recommendation to 

consider revising the letter forwarding program in a cost-effective manner 

to again provide information on behalf of U.S. plan sponsors on 

unclaimed retirement accounts to participants. IRS commented that the 

IRS address of record for a participant would likely be of no greater value 

than addresses available through alternatives such as commercial locator 

services. However, our report does not cite the accuracy of IRS 

addresses, but rather other benefits that make a program revision worth 

considering, specifically the likelihood that individuals will open IRS 

correspondence, and the trust DOL places in the service as way for plan 

fiduciaries to meet their obligations. IRS also stated that the limited 

number of IRS staff and resources impact the feasibility of reinstating this 

program for plan participants. GAO continues to believe that expanding 

the letter forwarding program would be beneficial, and we encourage IRS 

to consider cost-effective ways to do so. 

IRS also disagreed with our recommendation to analyze data provided 

through Form 8938 filings on foreign retirement accounts owned by U.S. 

individuals with the goal of developing an evidence-based understanding 

of how these accounts change over time and what level of risk these 

accounts pose for tax evasion. Our recommendation further stated that 

IRS should consider revising Form 8938 to assist with this analysis. In its 

comments, IRS did not disagree with this recommendation on its merits; 

IRS only cited a lack of resources to implement the recommendation. 

Specifically, IRS noted that although the modification to the Form 8938 

suggested in this recommendation may seem minor, systemically 

collecting and analyzing the data would require resources beyond those 

currently available to IRS. However, as we describe in the report, IRS 

indicated to us that they already collect foreign account filing data through 
Page 57 GAO-18-19 Workplace Retirement Accounts

the Form 8938 and that the current reporting requirements help the 

agency to “keep a line of sight” on U.S. individuals’ foreign pension 

arrangements. IRS told us that without such data being reported, U.S. 

individuals with foreign retirement accounts may seek to avoid proper 

reporting on their tax returns when distributions are made. However, 

without agreeing to take steps to analyze these data reported by 

taxpayers, the question remains why IRS continues to collect such

information—which we show in the report to present a substantial 

reporting burden on taxpayers—if the agency has no plan to analyze the 

data in order to make an informed decision about the risk for tax evasion 

that such accounts present. It is also unclear to us how IRS would 

maintain a line of sight on foreign retirement accounts belonging to U.S. 

individuals without analyzing the data reported by taxpayers on such 

accounts. While we recognize that resource limits can impede an agency 

from taking on additional work and projects, we continue to believe that 

when staff and resources become available, IRS should modify the form 

and conduct a systematic analysis of these data—data that current law 

requires taxpayers to report—in order to assess the risk of tax evasion 

that foreign retirement accounts pose. Without such an analysis, IRS will 

have no basis to reach an evidence-based understanding of how these 

accounts change over time and what level of risk they pose for tax 

evasion. Further, as we have shown in the report, this reporting can be 

costly for U.S. individuals and could potentially lead to a decrease in their 

retirement savings. Without such an analysis by IRS, U.S. individuals who 

own foreign retirement accounts will continue to face these substantial 

reporting burdens without the knowledge that the data they are required 

to provide will be put to good use by the federal government.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the Secretary of Labor, 

Secretary of the Treasury, Commissioner of Internal Revenue, Director of 

the Pension Benefit Guaranty Corporation, Acting Commissioner of the 

Social Security Administration, the Secretary of State, and other 

interested parties. In addition, the report will be available at no charge on 

the GAO website at http://www.gao.gov.
Page 58 GAO-18-19 Workplace Retirement Accounts

If you or your staff have any questions about this report, please contact 

me at (202) 512-7215 or jeszeckc@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix VIII.

Sincerely yours,

Charles A. Jeszeck, Director

Education, Workforce, and Income Security Issues
Appendix I: IRS Instructions on Reviewing Tax 

Treaty Provisions Related to Foreign 

Retirement Accounts

Page 59 GAO-18-19 Workplace Retirement Accounts

IRS advises U.S. taxpayers to review tax treaty provisions carefully to 

better understand how to report their foreign income, including the 

distribution of savings from foreign retirement accounts.1 IRS specifically 

advises taxpayers to read the residency article in a tax treaty to find any 

special rules pertaining to reporting and taxing foreign income, including 

distributions from foreign workplace retirement plans. When deciding 

whether a tax treaty applies to a taxpayer, the taxpayer should first 

identify their tax residency (Article 4 under most treaties). According to 

IRS, a taxpayer’s residency determines how treaty articles on pensions 

and annuities will be applied and taxpayers should use the domestic laws 

of each country to identify residency. If, after applying the domestic law of 

each country, the taxpayer determines they are a resident of both 

countries, the tiebreaker rules of the applicable treaty are applied to 

determine residency based on the country in which the taxpayer has 

closer personal and economic relations, the country of habitual abode for 

the taxpayer, or the country in which the taxpayer is a national, according 

to IRS. If none of the above tiebreaker rules apply, the treaty generally 

provides that residency will be decided by the competent authorities of 

each country upon request by the taxpayer. Taxpayers are also advised 

to read all the protocols of the treaty to see if the residency rules have 

been amended by a later protocol. As a general rule, according to IRS, 

the pension/annuity articles of most tax treaties allow the country of 

residence (as determined by the residency article) to tax the pension 

distribution or annuity under its domestic laws, unless the tax treaty 

provides an exception to that rule. According to IRS, some treaties, for 

example, provide that the country of residence may not tax amounts that 

would not have been taxable by the other country if the individual was a 

resident of that country. There also may be special rules for lump-sum 

distributions. If the taxpayer is a U.S. citizen, IRS guidance provides that 

they also may need to refer to the “saving clause” (typically found in 

Article 1) for special rules that allow the United States to tax income in 

some cases as if the treaty had not entered into force.

 1

The information in this appendix was gathered from the IRS’ International Tax Gap 

Series, The Taxation of Foreign Pension and Annuity Distributions and through discussion

with IRS officials.

Appendix I: IRS Instructions on Reviewing 

Tax Treaty Provisions Related to Foreign 

Retirement Accounts
Appendix II: Estimated Number of U.S. Citizens 

Living Abroad

Page 60 GAO-18-19 Workplace Retirement Accounts

Researchers and federal officials have identified a range of estimates for 

U.S. citizens living outside the United States.1 (See fig. 5).

Figure 5: Estimates of U.S. Citizens Living Abroad

The U.S. Department of State (State) estimates that as of April 2015, 8.7 

million U.S. citizens live abroad. Table 2 shows estimates of the number 

of U.S. citizens living abroad by geographic area that State’s Bureau of 

Consular Affairs recently released to the Federal Voting Assistance 

Program.2

Table 2: U.S. Citizens Abroad by Geographic Region as of April 21, 2015

Region Africa

East Asia and 

the Pacific

Europe and 

Eurasia

The Near 

East

South and 

Central Asia

Western 

Hemisphere Total

Total Private and 

Official U.S. Citizen 

residents

231,854 1,135,114 2,027,914 1,019,457 618,772 3,706,577 8,739,688

Source: U.S. Department of State. | GAO-18-19

 1

See Migration Policy Institute, Counting the Uncountable: Overseas Americans. Joe 

Costanzo, Amanda Klekowski von Koppenfels; May 17, 2013.

2

The Federal Voting Assistance Program is tasked with assisting U.S. citizens abroad with 

voting.

Appendix II: Estimated Number of U.S. 

Citizens Living Abroad
Appendix III: Efforts to Link Participants to 

Dormant or Unclaimed Retirement Accounts in 

Case Study Locations

Page 61 GAO-18-19 Workplace Retirement Accounts

We gathered the information in this appendix for each case study location 

by reviewing relevant documentation, publicly available research and 

reports, and interviewing relevant stakeholders, including government 

officials, plan sponsors, and service providers. We did not conduct an 

independent legal analysis to verify the information provided about the 

laws or regulations in the locations we selected for this study. Instead, we 

relied on appropriate secondary sources and interviews with relevant 

officials to support our work. We provided this information to appropriate 

officials in each case study location for their confirmation.

In the five case study locations we reviewed, participants, including U.S. 

individuals working in those locations, stay connected to their foreign 

workplace retirement savings through centralized institutions, direct 

contact with plans or government agencies, or through public pension 

registries. The low prevalence of unclaimed retirement accounts that we 

found in these locations is likely due, in part, to participants using these 

mechanisms to stay connected to their retirement savings.

In two of the five locations we reviewed, Australia and Switzerland, plans 

transfer dormant accounts belonging to separated employees to a 

centralized institution that is actively monitored by regulators. These 

accounts generally remain within these institutions until claims for benefits 

are made by the participant. For example, Swiss officials told us that in 

the event of a change of employment, the pension scheme (i.e., plan) of 

an insured person (i.e., participant) transfers the accumulated assets on 

behalf of that person to the pension scheme of the new employer. Vested 

benefits institutions are used to hold the assets when a person ceases to 

be subject to occupational benefits (workplace retirement) plans owing to 

termination of employment, e.g. in connection with a career break or 

being laid off.1 In these cases, the pension scheme mandatorily transfers 

the assets to a vested benefits institution. This procedure ensures that the 

accumulated assets remain blocked in the pension cycle until the insured 

person joins a new pension scheme or an insured event occurs (old age, 

disability, or death). Once the person recommences employment and 

thus becomes subject to mandatory occupational benefits plans again, 

the termination benefits must be transferred by the vested benefits 

institution to the new pension scheme. If the pension scheme member or 

insured person does not become re-employed, the vested benefits 

 1

Vested benefits institutions are subject to government regulation and are supervised by 

regional organized public authorities and registered in a directory. All regional authorities 

are under the supervision of a federal Occupational Pension Supervisory Commission.

Appendix III: Efforts to Link Participants to 

Dormant or Unclaimed Retirement Accounts 

in Case Study Locations

Unclaimed Retirement 

Accounts Are Maintained 

Within Centralized Institutions 

or a Participant’s Former 

Employer’s Plan
Appendix III: Efforts to Link Participants to 

Dormant or Unclaimed Retirement Accounts in 

Case Study Locations

Page 62 GAO-18-19 Workplace Retirement Accounts

institution keeps the assets until an insured event occurs (retirement, 

disability, or death). Further, if a separated employee fails to inform their 

former plan that they have a new employer, the participant’s former plan 

automatically transfers the account after 6 months and within 2 years to 

the Substitute Occupational Benefit Institution.2 This institution is a nonprofit entity that the Swiss federal government commissioned in 1985; it 

works closely with the Swiss federal government to maintain Swiss 

retirement assets for participants and is charged with certain 

governmental responsibilities.3 For retirement assets transferred to the 

Substitute Occupational Benefit Institution, account balances are not 

merely preserved until claimed or transferred, but grow according to 

returns on Switzerland’s central fund investments. Figure 6 describes how 

accounts of separated employees in Switzerland are transferred to 

designated locations when they become dormant or unclaimed.

 2

Plans also can receive instructions from separated employees to transfer their benefits to 

a “vested benefits institution”—typically a bank or an insurance company. These 

transferred benefits will reside within a vested benefits account at a bank or a vested 

benefits policy at an insurance company until claimed by the participant or transferred with 

instructions from the participant to their new account set up with their new employer. 

Swiss officials said that after a period of ten years from the normal retirement age, any 

balances on accounts or on vested benefits policies shall be transferred to the Guarantee 

Fund. Claims for benefits that have not been made shall become statute-barred (i.e., no 

longer subject to benefits claims) when the member (participant) turns or would have 

turned 100. The assets shall be used for financing the 2nd Pillar Central Office, which 

oversees occupational benefits plans in Switzerland.

3

The Substitute Occupational Benefit Institution is an occupational benefits organization 

supported by major employee and employer organizations. In January 1995, the Swiss 

government commissioned these organizations to take responsibility for organizing and 

managing vested benefit retirement accounts for participants. The Substitute Occupational 

Benefit Institution reports to the Swiss Supervision Commission for Occupational 

Pensions. The Commission is a supervisory authority responsible for ensuring uniform 

supervisory practices across the Swiss occupational pension system. The Commission 

oversees the supervisory authority of the nine regional supervisory authorities and is the 

licensing authority for occupational pension experts and asset managers in occupational 

pension plans.
Appendix III: Efforts to Link Participants to 

Dormant or Unclaimed Retirement Accounts in 

Case Study Locations

Page 63 GAO-18-19 Workplace Retirement Accounts

Figure 6: Transfer Process for Dormant Workplace Retirement Accounts Belonging to Separated Employees in Switzerland

Note: We did not conduct an independent legal analysis to verify the information provided about the 

laws or regulations in the locations we selected for this study. Instead, we relied on appropriate 

secondary sources and interviews with relevant officials to support our work.

a

The 2nd Pillar Central Office is a government entity that oversees occupational benefits plans in 

Switzerland.

Swiss plans also transfer accounts belonging to separated employees to 

the employee’s new plan once they receive instruction from the 

employee. This transfer along with account transfers to the Substitute 

Occupational Benefit Institution or a vested benefits institution, such as a 

bank or insurance company, contributes to the low prevalence of lost 

retirement accounts in Switzerland4 because participants do not 

accumulate multiple retirement accounts with different plans when 

changing jobs throughout their career. 

 4

As of January 2016, the Substitute Occupational Benefit Institution had reported that 

more than 2.97 billion francs (approximately $3.1 billion USD) in unclaimed retirement 

benefits were held in approximately 632,000 dormant accounts. These funds represent 

less than 1 percent of total assets held in Swiss pensions. Following a survey of the Swiss 

pension system, Aon Hewitt reported that for 2013/14, the Swiss pension system held 

$642 billion USD in pension assets. Willis Towers Watson has reported that the Swiss 

pension system held $817 billion USD in 2016.
Appendix III: Efforts to Link Participants to 

Dormant or Unclaimed Retirement Accounts in 

Case Study Locations

Page 64 GAO-18-19 Workplace Retirement Accounts

In Australia, plans (also referred to as schemes or super funds) transfer 

unclaimed super accounts belonging to lost members (e.g., separated 

employees) to a centralized government institution, the Australian 

Taxation Office (ATO). These accounts generally remain within the ATO 

until claims for benefits are made by the member. While their money is 

being held by the ATO it earns interest at the consumer price index rate.

In three of the five locations GAO reviewed—Canada,5 Hong Kong, and 

the UK—the participant’s former employer’s plan maintains dormant 

accounts until claimed or transferred to a new plan. For example, in Hong 

Kong, according to its retirement schemes (plan) regulator, the Mandatory 

Provident Fund Schemes Authority (MPFA),6 whenever employees, 

including U.S. individuals working in Hong Kong, change to a new 

employer, they need to open a new Mandatory Provident Fund (MPF) 

“contribution account” under the MPF scheme in which the new employer 

participates to accumulate MPF contributions in respect of the new 

employment. If an employee who has ceased employment with an 

employer does not take action to transfer the benefits accrued from the 

previous employment to the new “contribution account” with their new 

employer’s scheme (i.e., plan) or a “personal account” in an MPF scheme 

of the employee’s choice, their former employer’s scheme will 

automatically transfer their accumulated MPF benefits from the 

contribution account to a personal account7 within the original scheme for 

 5

An exception to this is found in several of Canada’s provinces. Specifically, Alberta, 

British Columbia, and Quebec have unclaimed property legislation and regimes that 

provide for the transfer of unclaimed property, including retirement accounts, to an 

unclaimed property fund. For example, in Alberta, accounts within a registered retirement 

savings plan, registered education savings plan, or other tax-deferral plan will be 

considered unclaimed and prone to transfer 3 years after an attempted or required 

distribution is made to the participant.

6

The MPFA is a statutory body established in 1998 to regulate and supervise the 

operations of Hong Kong’s Mandatory Provident Fund retirement plans and occupational 

retirement plans. The MPFA’s mission is to regulate and supervise privately managed 

provident fund retirement plans; to educate the working population about saving for 

retirement and the role of the MPF system as one of the pillars supporting retirement 

living; and to lead improvements to provident fund retirement plans to make them more 

efficient and user-friendly, and better meet the needs of the working population. The 

Mandatory Provident Fund system is a mandatory retirement program for Hong Kong 

residents; it has been in place in Hong Kong since 2000. The objective of this mandatory 

retirement system is to provide secured retirement benefits for the workforce of Hong 

Kong.

7

The primary difference between these accounts is that personal accounts do not accept 

any contributions from employees or employers.
Appendix III: Efforts to Link Participants to 

Dormant or Unclaimed Retirement Accounts in 

Case Study Locations

Page 65 GAO-18-19 Workplace Retirement Accounts

continuous investment. Government officials told us that MPF schemes 

keep the benefits of the scheme members (i.e., plan participants) within 

the scheme until the scheme member returns to make a claim or to issue 

instructions to transfer benefits in the account to another MPF scheme. 

The MPFA advises scheme members that failing to consolidate the MPF 

benefits accumulated from previous employments can result in 

accumulating multiple MPF accounts that can be difficult to manage—this 

can result in accounts becoming lost over time. To address this 

challenge, the MPFA conducts regular publicity programs and publishes 

pamphlets reminding scheme members that when they change 

employers they should consolidate the benefits under the previous 

employment to any existing personal accounts or to the new contribution 

account under the MPF scheme of their new employer.

In two of the five locations we reviewed—Australia and Switzerland—

plans are required to regularly report to regulators on unclaimed 

accounts, missing participants, and account transfers made for separated 

employees, including those made on behalf of U.S. individuals. For 

example, in Australia, plans are required to communicate information on 

unclaimed accounts to the ATO.8 Specifically, every 6 months plans are 

required to identify and report members who meet the definition of “lost”9

and unclaimed accounts considered “uncontactable or inactive” to the 

ATO. Further, plans are also required to transfer unclaimed accounts to 

 8

In Australia, a lost member’s plan will transfer unclaimed retirement accounts to a 

centralized government institution (the ATO) after the member is uncontactable or inactive 

and these accounts meet the definition of ‘unclaimed super money’. For example, this can 

occur if the missing participant turns 65, or if the balance of the dormant account is under 

the small lost member account dollar threshold (currently $6,000 AUD). As a result, 

participants, including U.S. citizens with an Australian retirement account, know where to 

search for their lost accounts or unclaimed benefits, and participants can claim this money 

at any time.

9

Australian officials told us that a participant becomes “lost” when the superannuation 

provider has lost contact with the participant or has not received a contribution or rollover 

from that participant within the last 5 years. However, a participant would not be 

considered lost if the superannuation provider has no reason to believe any address held 

is incorrect or if the participant indicated or notified the superannuation provider of their 

existence.
Appendix III: Efforts to Link Participants to 

Dormant or Unclaimed Retirement Accounts in 

Case Study Locations

Page 66 GAO-18-19 Workplace Retirement Accounts

the ATO when certain unclaimed super money criteria are met.10 In 

Switzerland, before the end of January each year, occupational benefits 

institutions and institutions that manage vested benefits accounts or 

policies are required to report to the 2nd Pillar Central Office all persons 

for whom assets were held in December of the previous year.

Plans in two of the locations we reviewed provide separated participants 

information on account transfers that can help them stay connected to 

their retirement savings. For example, in Hong Kong, MPF schemes 

(plans) provide a transfer statement to members once the transfer of 

benefits to another MPF scheme is completed.11 The MPF scheme that 

receives the transfer must, as soon as practicable after receiving the 

transferred benefits, provide the member written notice confirming the 

transfer and stating the monetary value of those benefits. In Switzerland 

plans must regularly contact their participants and if unable to do so, must 

inform the 2nd Pillar Central Office, who will try to reestablish contact 

between the plan and their participants.12

Participants in three of the five locations we reviewed can access 

information on their retirement accounts by contacting a government 

agency. According to government and retirement plan officials in 

Australia, participants can access their retirement account details by 

logging onto the myGov platform, which is a secure way to access 

government online services. Participants, including U.S. individuals, who 

have registered online via myGov and have their personal accounts 

linked to ATO online services can view their retirement accounts online 

 10Plans are required to transfer ‘unclaimed super money’ to the ATO for (a) members 

aged 65 or older; non-member spouses; or deceased members, (b) small lost member 

accounts and insoluble lost member accounts (when participant has lost touch with the 

plan or the account has not been used for 5 years), and (c) if unclaimed super money 

belonging to former temporary residents who are eligible to claim the “Departing Australia

Superannuation Payment” have not done so, and a minimum of at least 6 months has 

elapsed since they departed Australia and their visa ceased to be effect—in this case, the 

holding super fund is required to transfer the unclaimed super money to the ATO.

11The transfer statement should include, among other things, the following details: name 

of transferring trustee; name of scheme and account number of the account from which 

the transfer was made; name and address of the scheme member; amount of accrued 

benefits transferred; name of scheme to which the benefits have been transferred; and 

date on which the transfer was made.

12The 2nd Pillar Central Office also handles inquiries from participants or their heirs, 

compares personal data with notifications received from occupational benefits institutions, 

and communicates the results to those making the inquiry, who can then claim their 

benefits from the institution in question. 

Unclaimed Retirement 

Accounts Are Accessed 

Through Contact with 

Government Agencies or 

Through Public Pension 

Registries
Appendix III: Efforts to Link Participants to 

Dormant or Unclaimed Retirement Accounts in 

Case Study Locations

Page 67 GAO-18-19 Workplace Retirement Accounts

and can claim their money at any time. For those that choose not to 

register for myGov, they can use the Departing Australia Superannuation

Payment online service to claim their super funds once they have 

departed Australia and their visa has ceased to be in effect. In Hong 

Kong, MPFA officials told us that scheme members seeking information 

on their personal accounts or on unclaimed retirement benefits with any 

MPF scheme (plan) can approach MPFA to request a search of the 

Personal Accounts Register13 or Unclaimed Benefits Register,14

respectively. The MPFA’s website includes instructions for initiating these 

inquiries. In Switzerland, government officials told us that participants, 

including U.S. individuals, can directly contact the 2nd Pillar Central 

Office, which can locate all the institutions holding vested benefits on the 

participant’s behalf.

In two of the five case study locations, Australia and the UK, participants 

can access information on their retirement accounts by using pension 

registries or other government supported services.15 For example, in the 

UK, the government provides all participants, including U.S. individuals 

with a UK retirement account, access to the Pension Tracing Service to 

 13The MPFA maintains a Personal Account Register for scheme members to check for 

free. Information available includes whether a member has any personal accounts and, if 

so, the name and contact number of the scheme maintaining the personal account(s). 

MPF scheme members, including U.S. individuals, who would like information to help 

them identify and locate their personal accounts, contact the MPFA for assistance.

14The MPFA maintains an Unclaimed Benefits Register for members of the public to 

check for free. Information available includes whether a participant has any unclaimed 

benefits and, if so, the name and contact number of the plan where the benefits reside. 

Participants must directly communicate with MPFA and make an inquiry about their 

benefits. Participants can make an inquiry into their unclaimed benefits by sending 

relevant forms to MPFA via fax or mail or by visiting MPFA in person. In pension clauses 

and certain provisions, under the following special circumstances, a participant’s accrued 

benefits may be classified as “unclaimed benefits” if: (1) the participant reaches the age of

65 but has not withdrawn his/her accrued benefits from the plan and remains unreachable 

despite attempts by the plan to search and locate the participant; or (2) a participant 

requests a distribution from their plan for accrued benefits; the plan issues a check but the 

check remains uncashed after 6 months from the issue date and the participant remains 

unreachable despite search attempts by the plan sponsor to locate the participant.

15For information on how participants use a pension registry in Australia to access 

information on unclaimed retirement accounts, see GAO, 401(k) Plans: Greater 

Protections Needed for Forced Transfers and Inactive Accounts, GAO-15-73 

(Washington, D.C.: Nov. 21, 2014).
Appendix III: Efforts to Link Participants to 

Dormant or Unclaimed Retirement Accounts in 

Case Study Locations

Page 68 GAO-18-19 Workplace Retirement Accounts

help them locate their lost retirement accounts.16 The UK government has 

also established other organizations and services to help participants 

locate their lost retirement accounts. The Pensions Advisory Service is an 

independent organization that is funded by the UK government.17 Officials 

told us that the service was implemented because retirement accounts 

and pensions in the UK had become excessively complicated. The 

service sometimes receives questions from participants living abroad, 

such as in the United States, or from U.S. individuals living in the UK. 

Service officials told us that it is particularly challenging for these foreign 

participants to know how to repatriate their retirement benefits and to 

locate missing retirement accounts. Government officials told us that the 

UK government is committed to ensuring that members of the public can 

access good-quality, free-to-client, impartial financial guidance and debt 

advice which is currently provided by three different organizations. These 

officials said that a bill was introduced in June 2017 that would set up a 

new single financial guidance body to provide guidance and information 

on all matters relating to occupational and personal pensions. Officials 

said they expect that this single financial guidance body to go live no 

earlier than October 2018. 

The UK government is also currently developing a new pension online 

tool, the Pensions Dashboard. The dashboard is being developed as a 

joint project between the UK government and the country’s retirement 

industry; 17 of the UK’s largest pension firms developed a prototype 

 16To do so, participants provide the service with personal and employment information 

and the service will trace and identify contact details of the retirement plan in question—

this is similar to services provided to participants in the United States by DOL’s benefits

advisors. The service can only put an individual in contact with a lost retirement plan and 

does not have access to private retirement account details—the participant must contact 

their former plan directly once it has been traced in order to find out what their retirement 

account is worth.

17The Pension Advisory Services receives grants from the UK’s Department for Work and 

Pensions. The service provides people with free professional, independent and impartial 

assistance with their retirement accounts. The service offers information and guidance to 

participants through a variety of channels including a telephone helpline, web chat, written 

inquiries, online inquiries, and the service’s website. The service is delivered by in-house 

retirement specialists and a nationwide network of volunteer advisers who have typically 

worked in the retirement industry in roles that have required a high level of technical 

knowledge. The service answers thousands of calls a year from participants about any 

aspect of their retirement benefits. Officials said that in 2016, the service received about 

250,000 calls, and about 1 in 6 of those calls was about a lost retirement account. A fair 

proportion of those calls are due to participant migration to and from other countries. 
Appendix III: Efforts to Link Participants to 

Dormant or Unclaimed Retirement Accounts in 

Case Study Locations

Page 69 GAO-18-19 Workplace Retirement Accounts

demonstrating that the technology for the dashboard works.18 The goal of 

the dashboard is to allow participants to log into one portal to locate all of 

their pension data, including information on the value and the location of 

different retirement savings accumulated throughout their career.19

Currently, a UK ID verification system is available to UK residents to 

review their tax bills and other financial information online, and officials 

are considering permitting participants to use this system with proper 

credentials to access the dashboard.20 In time, UK government officials 

said that the dashboard may replace the UK’s Pension Tracing Service, 

but not for many years. Other officials added that they are uncertain 

whether the dashboard will include all plans. One concern is that many 

lost accounts may be with old defined benefit plans or small defined 

contribution plans that do not have online systems that can be integrated 

into the dashboard. As a result, some of the plans most likely to have lost 

participants may also be the least likely to participate in the dashboard.

 18These pension firms include Abbey Life, Aon, Aviva, Fidelity International, HSBC, L&G, 

LV=, NEST, NOW, People’s Pension, Phoenix, Prudential, Royal London, Scottish 

Widows, Standard Life, Willis Towers Watson, and Zurich.

19According to the UK government, on average, a person can have 11 employers over 

their working life, which means that they could end up with almost a dozen retirement 

accounts by the time they retire. At the moment there is no way for people to see the 

value of all of their retirement accounts in one place and research has shown that over a 

third of people approaching retirement find it difficult to keep track of their retirement 

accounts. The dashboard aims to also provide a link to “lost” retirement accounts with 

previous employers and could help release the £400 million worth of retirement savings 

that the UK’s Department for Work and Pensions estimates is currently unclaimed.

20These credentials could include use of a UK resident’s National Insurance number, their 

UK passport number, and the resident’s verified UK address. For U.S. individuals wanting 

to access the dashboard, UK officials told us that they would at least need to use their 

National Insurance number as a credential, but it is likely that additional information would 

be required of U.S. individuals and it is unknown if they could access the system from 

outside the UK.
Appendix IV: Comments from the Department 

of Labor

Page 70 GAO-18-19 Workplace Retirement Accounts

Appendix IV: Comments from the 

Department of Labor
Appendix IV: Comments from the Department 

of Labor

Page 71 GAO-18-19 Workplace Retirement Accounts
Appendix V: Comments from the Internal 

Revenue Service

Page 72 GAO-18-19 Workplace Retirement Accounts

Appendix V: Comments from the Internal 

Revenue Service
Appendix V: Comments from the Internal 

Revenue Service

Page 73 GAO-18-19 Workplace Retirement Accounts
Appendix V: Comments from the Internal 

Revenue Service

Page 74 GAO-18-19 Workplace Retirement Accounts
Appendix V: Comments from the Internal 

Revenue Service

Page 75 GAO-18-19 Workplace Retirement Accounts
Appendix VI: Comments from the Social 

Security Administration

Page 76 GAO-18-19 Workplace Retirement Accounts

Appendix VI: Comments from the Social 

Security Administration
Appendix VI: Comments from the Social 

Security Administration

Page 77 GAO-18-19 Workplace Retirement Accounts
Appendix VII: Comments from the Pension Benefit Guaranty 

Corporation

Page 78 GAO-18-19 Workplace Retirement Accounts

Appendix VII: Comments from the Pension 

Benefit Guaranty Corporation
Appendix VII: Comments from the Pension Benefit Guaranty 

Corporation

Page 79 GAO-18-19 Workplace Retirement Accounts
Appendix VIII: GAO Contact and Staff 

Acknowledgments

Page 80 GAO-18-19 Workplace Retirement Accounts

Charles Jeszeck, (202) 512-7215 or jeszeckc@gao.gov.

In addition to the contact named above, Tamara Cross (Assistant 

Director), Ted Burik (Analyst-in-Charge), Ted Leslie, and Jessica Rider 

made key contributions to this report. Also contributing to this report were 

Susan Aschoff, James Bennett, Amy Bowser, Sherwin Chapman, Sarah 

Cornetto, Brian James, Kristy Kennedy, Jonathan McMurray, Sheila 

McCoy, Jennifer Lutzy McDonald, Dan Meyer, Mimi Nguyen, Amrita Sen, 

Deborah Signer, Andrew Stephens, Walter Vance, Kathleen Van Gelder, 

Adam Wendel, and Seyda Wentworth.

Appendix VIII: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(100164)
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