401(K) Plans: Greater Protections Needed for Forced Transfers and Inactive Accounts
Published: 2014-11-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Millions of employees change jobs each year and some leave their savings in their former employers' 401(k) plans. If their accounts are small enough and they do not instruct the plan to do otherwise, plans can transfer their savings into an IRA without their consent. GAO was asked to examine implications for 401(k) plan participants of being forced out of plans and into these IRAs.
GAO examined: (1) what happens over time to the savings of participants forced out of their plans, (2) the challenges 401(k) plan participants face keeping track of retirement savings in general, and (3) how other countries address similar challenges of inactive accounts. GAO's review included projecting forced-transfer IRA outcomes over time using current fee and return data from 10 providers, and interviews with stakeholders in the United States, Australia, Belgium, Denmark, the Netherlands, Switzerland, and the United Kingdom.
section_title: What GAO Found
paragraphs: When a participant has saved less than $5,000 in a 401(k) plan and changes jobs without indicating what should be done with the money, the plan can transfer the account savings—a forced transfer—into an individual retirement account (IRA). Savings in these IRAs are intended to be preserved by the conservative investments allowed under Department of Labor (DOL) regulations. However, GAO found that because fees outpaced returns in most of the IRAs analyzed, these account balances tended to decrease over time. Without alternatives to forced-transfer IRAs, current law permits billions in participant savings to be poorly invested for the long-term. GAO also found that a provision in law allows a plan to disregard previous rollovers when determining if a balance is small enough to force out. For example, a plan can force out a participant with a balance of $20,000 if less than $5,000 is attributable to contributions other than rollover contributions.
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. First, individuals who accrue multiple accounts over the course of a career may be unable to consolidate their accounts by rolling over savings from one employer's plan to the next. 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. Although the Social Security Administration provides individuals with information on benefits they may have from former employers' plans, the information is not provided in a consolidated or timely manner that would be useful to recipients.
The six countries GAO reviewed address challenges of inactive accounts by using forced transfers that help preserve account value and providing a variety of tracking tools referred to as pension registries. For example, officials in two countries told GAO that inactive accounts are consolidated there by law, without participant consent, in money-making investment vehicles. Officials in the United Kingdom said that it consolidates savings in a participant's new plan and in Switzerland such savings are invested together in a single fund. In Australia, small, inactive accounts are held by a federal agency that preserves their real value by regulation until they are claimed. In addition, GAO found that Australia, the Netherlands and Denmark have pension registries, not always established by law or regulation, which provide participants a single source of online information on their new and old retirement accounts. Participants in the United States, in contrast, often lack the information needed to keep track of their accounts. No single agency has responsibility for consolidating retirement account information for participants, and so far, the pension industry has not taken on the task. Without a pension registry for individuals to access current, consolidated retirement account information, the challenges participants face in tracking accounts over time can be expected to continue.
section_title: What GAO Recommends
paragraphs: GAO recommends that Congress consider (1) amending current law to permit alternative default destinations for plans to use when transferring participant accounts out of plans, and (2) repealing a provision that allows plans to disregard rollovers when identifying balances eligible for transfer to an IRA. Among other things, GAO also recommends that DOL convene a taskforce to explore the possibility of establishing a national pension registry. DOL and SSA each disagreed with one of GAO's recommendations. GAO maintains the need for all its recommendations.

section_title: Letter
paragraphs: Every year, millions of American workers change jobs and many fail to  stipulate what should be done with 401(k) plan savings they may have  accrued. If a separated participant’s 401(k) plan balance is small  enough, it can be transferred out of the plan. Specifically, the Internal  Revenue Code allows former employers to force participants with vested  balances of $5,000 or less out of their 401(k) plans and, absent  participant instruction, transfer their savings into an individual retirement  account (IRA) referred to as a forced-transfer IRA in this report. Despite  the potentially large volume of forced transfers that may occur annually,  their effects on workers’ retirement security are not well understood.  Additionally, many employees go on to participate in other companies’  401(k) plans and may accumulate multiple accounts over time. As these  employees continue to move in and out of jobs, companies go out of  business or merge with other companies, and plans are terminated or  merged as a part of corporate restructuring, it is difficult for plans and  participants to keep track of one another, according to industry  professionals and consumer groups.
Regulators have focused on helping plan participants save through 401(k)  plans, but little attention has been paid to the use of forced transfers or  managing multiple accounts. Consequently, you asked us to examine  these issues and the steps that other countries may be taking to address  similar issues. Specifically, this report examines (1) what happens to  forced-transfer IRAs over time, (2) the challenges 401(k) plan participants  face keeping track of their retirement savings, and what, if anything, is  being done to help them, and (3) how other countries address the  challenges of inactive accounts.
To understand what happens to forced-transfer IRAs over time as well as  challenges 401(k) plan participants face keeping track of multiple 401(k)  plan accounts, we reviewed relevant data from government, research,  and industry sources. Because we found no comprehensive data on the  number of IRA accounts opened as a result of forced transfers or other  data relevant to their use and management, we collected data from a  non-generalizeable group of 10 providers of forced-transfer IRAs about  their practices and outcomes, including 3 of the largest IRA providers.  There is no comprehensive list of all forced-transfer IRA providers. For  this reason, we built a list of them through interviews with industry  professionals, a review of IRA market data, and online searches. Our  objective was to create a group that would cover a large share of assets  in the forced-transfer IRA market and represent both small and large IRA  providers in terms of company size. We reached out to the largest IRA  providers by assets under management, as well as all small forced- transfer IRA providers on our list and obtained forced-transfer IRA  account data from 10 providers that represent this mix of characteristics.  We also interviewed plan sponsor groups, 401(k) plan industry groups,  research entities, consumer groups, and six federal agencies (Consumer  Financial Protection Bureau, Department of Labor, Department of the  Treasury, Pension Benefit Guaranty Corporation, Securities and  Exchange Commission, and Social Security Administration) about plans’  use of forced transfers and what challenges individuals and plans face  related to inactive accounts and multiple 401(k) plan accounts in the  United States. To assess the reliability of the data we analyzed, we  reviewed IRA market data and interviewed IRA providers familiar with  forced-transfer IRAs. We determined that these data were sufficiently  reliable for the purposes of this report.
We also reviewed research and industry literature, relevant federal laws  and regulations, Advisory Council on Employee Welfare and Pension  Benefit Plans testimony on missing participants, industry whitepapers  on a proposed default roll-in system, and submissions in response to the  2013 Pension Benefit Guaranty Corporation request for information  related to a tracking system for distributions from terminating plans.
To examine how some countries are addressing the challenges of  inactive retirement accounts, we selected six countries to study. In  making our selection we considered countries with extensive workplace  retirement systems to include populations that might face challenges  similar to those of U.S. participants, and considered the extent to which  such countries had recent or innovative approaches to address the  challenges posed by inactive retirement accounts. We determined that six  countries could potentially provide lessons for the United States. They  were Australia, Belgium, Denmark, the Netherlands, Switzerland, and the  United Kingdom. We interviewed government officials, service providers,  and other stakeholders from all the selected countries. We did not  conduct an independent legal analysis to verify the information provided  about the laws or regulations in the countries we selected for this study.  Instead, we relied on appropriate secondary sources, interviews with  relevant officials, and other sources to support our work. We submitted  key report excerpts to agency officials in each country for their review and  verification, and we incorporated their technical corrections as necessary.  Appendix I provides additional information on our scope and  methodology.
We conducted this performance audit from May 2013 to November 2014  in accordance with generally accepted government auditing standards.  Those standards require that we 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. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Forced Transfers and Forced-Transfer IRAs
paragraphs: A forced transfer occurs when a plan participant has separated from an  employer, but still has vested savings in the employer’s 401(k) plan and  the plan sponsor decides not to allow the savings to remain in the plan.  Prior to the Economic Growth and Tax Relief Reconciliation Act of 2001  (EGTRRA), plans could, in the absence of participant instructions,  distribute balances of not more than $5,000 by paying them directly to the  participant, referred to as a cash-out. EGTRRA sought to protect forced- out participants’ retirement savings by requiring that, in the absence of  participant instructions, active plans transfer balances of $1,000 or more  to forced-transfer IRAs, thus permitting the plan to distribute them while  preserving their tax-preferred status. Expanding upon the statute,  regulations later provided that in the absence of participant instructions,  plans could opt to also transfer balances of $1,000 or less into forced- transfer IRAs. Active plans may not distribute accounts with contributions  of more than $5,000 without the consent of the participant.
EGTRRA also required DOL to prescribe regulations providing safe  harbors under which the designation of a provider and the investment of  funds for a forced-transfer IRA are deemed to satisfy fiduciary duties  under ERISA. These regulations, issued in 2004, established a ‘safe  harbor’ for plan fiduciaries transferring forced-out participants’ accounts,  which includes conditions pertaining to the plan fiduciaries’ selection of  the IRA provider and the investments of the transferred funds. We  identified five main components in the regulations, which are: (1)  preservation of principal, (2) maintenance of the dollar value of the  investment, (3) using an investment product of a state or federally  regulated financial institution, (4) fees and expenses, and (5) a  participant’s right to enforce the terms of the IRA. Plan sponsors forcing  participants out of plans by transferring their accounts into forced-transfer  IRAs legally satisfy their fiduciary standard of care to participants if they  comply with DOL’s safe harbor regulations.transferred into a forced-transfer IRA it is subject to the rules generally  governing IRAs.
A forced-transfer IRA is a type of IRA that can be opened by a plan on  behalf of a participant, without the specific consent or cooperation of that  participant. In these instances, a plan signs a contract with an IRA  provider, which may or may not be the plan’s record keeper, to establish  and maintain the account. While the use of forced-transfer IRAs for  accounts under $1,000 is not required, plan sponsors may elect to use  forced-transfer IRAs rather than cash-outs when forcing out such  accounts in the absence of distribution instructions from the participant,  as shown in figure 1.
Use of forced-transfer IRAs is common among 401(k) plans. One annual  industry survey shows that about half of active 401(k) plans force out  separated participants with balances of $1,000 to $5,000.
Data provided by the Social Security Administration (SSA) highlight an  amount of retirement savings that could be eligible for forced-transfer  IRAs. 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.  A portion of those accounts constitutes billions in  retirement savings that could be transferred later to IRAs. Even if plans  do not force out participants’ accounts immediately upon separation they  may do so later in the year. For instance, they may sweep out small  accounts of separated participants once a year or amend their plans  years after participants separate and then force them out.
section_title: Regulatory Oversight of Forced Transfers
paragraphs: Multiple federal agencies have a role in overseeing forced transfers and  investments, inside and outside the Employee Retirement Income  Security Act of 1974 (ERISA) plan environment, as discussed in table 1.
SSA analysis of Form 8955-SSA data, which are collected by IRS and then transmitted  to SSA. SSA data include benefits left behind by separating participants in all defined  contribution plans, including 401(k) plans, as well as in defined benefit plans, which are  not subject to forced transfers under 26 U.S.C. § 401(a)(31)(B). GAO assessed the  reliability of the data and found that it met our standards for our purposes.
section_title: Current Law and Regulations Allow Sponsors to Force Certain Participants Out of 401(k) Plans, Which Can Result in Reduced Retirement Income
subsections: section_title: Conservative Investments Required by DOL Can Result in Decreasing Balances in Forced- Transfer IRAs
paragraphs: Some forced-transfer IRAs are not the short-term investment vehicles for  which their default investments are better suited, but providers do not  have the flexibility under current DOL safe harbor regulations to use  investment vehicles that are better suited to a longer-term investment  horizon. Rather, the safe harbor requires that the investment “seek to  maintain, over the term of the investment,” the dollar value equal to the  amount rolled over. To achieve this, DOL narrowly wrote the investment  guidance portion of the forced-transfer IRA safe harbor regulations to  effectively limit providers to holding the funds in money market funds,  certificates of deposit, or assets with similarly low investment risk typically  deemed appropriate for holding money for a short term. While such  conservative investments generally ensure that the money is liquid (that  is, available to the owner upon demand for cash-out, transfers to another  account, or reinvestment elsewhere), they can result in a low return and  potentially minimal growth over time.
Most forced-transfer IRA balances in accounts we analyzed will decrease  if not transferred out of forced-transfer IRAs and reinvested, because the  fees charged to the forced-transfer IRAs often outpace the low returns  earned by the conservative investments prescribed by DOL’s safe harbor  regulations. In recent years, the typical forced-transfer IRA investment,  such as a money market account, has earned almost no return. For  example, taxable money market funds averaged 1.45 percent for the 10  years ending July 31, 2014. We collected forced-transfer IRA account  information from 10 forced-transfer IRA providers, including information  about the fees they charged, the default investments used, and the  returns obtained (prior to these fees). Among those 10, there were 19  different combinations of fees and returns, as some providers offered  more than one combination for their forced-transfer IRA contracts. The  typical investment return for the 19 different forced-transfer IRA  combinations ranged from 0.01 percent to 2.05 percent. A low return  coupled with administrative fees, ranging from $0 to $100 or more to  open the account and $0 to $115 annually, can steadily decrease a  comparatively small stagnant balance. Using the forced-transfer IRA fee  and investment return combinations, we projected the effects on a $1,000  balance over time. While projections for different fees and returns show  balances decreasing at different rates, generally the dynamic was the  same: small accounts with low returns and annual fees decline in value,  often rapidly. In particular, we found that 13 of the 19 balances decreased   (See appendix III for all projected outcomes.) For  to $0 within 30 years.example, the fees and investment returns of one provider we interviewed  would reduce an unclaimed $1,000 balance to $0 in 9 years. Even if an  account holder claimed their forced-transfer IRA after a few years the  balance would have significantly decreased. Among the 19 combinations  we analyzed, our analysis showed an average decrease in a $1,000  account balance of about 25 percent over just 5 years. The rate of  investment return needed to ensure a forced-transfer IRA balance does  not lose real value varies depending on the rate of inflation and the fees  charged. For example, given the median fees for the 19 forced-transfer  IRAs we analyzed, the investment return on $1,000 would have to be  more than 7.3 percent to keep pace with both the rate of inflation and the  fees charged.obtained from forced-transfer IRA providers, five of which told us that their  accounts are reduced to zero or do not keep pace with inflation and fees.
Target date funds are designed to be long-term investments for individuals with  particular retirement dates in mind. For more information on target date funds, see GAO,  Defined Contribution Plans: Key Information on Target Date Funds as Default Investments  Should Be Provided to Plan Sponsors and Participants, GAO-11-118 (Washington, D.C.:  Jan. 31, 2011). digit gains. In recent years, assets in target date fund default  investments have produced a higher return than typical forced-transfer  IRA investments, which have seen minimal returns. For example, as  shown in figure 2, under reasonable return assumptions, if a forced-out  participant’s $1,000 forced-transfer IRA balance was invested in a target  date fund the balance could grow to about $2,700 over 30 years (173  percent growth), while the balance would decline to $0 if it had been  invested in a money market account. We also projected the remaining  balance assuming a 15-year average return for money market funds,  which is 1.89 percent, and found no material difference in the result.  Using that return the balance significantly decreased over time, leaving a  $67 balance after 30 years.
According to DOL officials, the agency has the flexibility under current law  to expand the safe harbor investment options for forced-transfer IRAs, but  currently its regulations do not permit those accounts to be invested in the  same funds allowed for participants automatically enrolled in 401(k)  plans. DOL’s goal of preserving principal is important and consistent  with statute, but without more aggressive investment options, forced- transfer IRA balances can continue to lose value over time, causing some  former participants to lose the savings they had accumulated in their  401(k) plans. However, allowing forced-transfer IRAs to be invested for  growth, such as through a target date fund, may be more effective in  preserving principal.
section_title: Current Law Limits Forced Transfer Options and Permits Plans to Force Out Some Participants with Balances Larger Than $5,000
subsections: section_title: DOL and IRS Are Precluded from Permitting Alternative Destinations for Forced Transfers
paragraphs: Currently the default destination for forced transfers of more than $1,000  from active plans is an IRA. EGTRRA sought to protect forced-out  participants by providing that, in the absence of any participant  instructions, active plans that choose to force out participants with  accounts of $1,000 or more must transfer the accounts to an individual  retirement plan, which is defined as an IRA or individual retirement   Directing these larger balances to IRAs in lieu of cashing them  annuity.out preserves their savings’ tax-preferred status in a retirement account.  Current law does not permit DOL and IRS to adopt alternative  destinations.
The specific investment products held in IRAs and 401(k) plans, as well as the various  financial professionals that service them, are subject to oversight from applicable  securities, banking, or insurance regulators, which can include both federal and state  regulators. provisions.to a forced-transfer IRA it is no longer under the regulatory purview of  ERISA and is essentially without DOL oversight. In addition, by  transferring forced out participants’ funds in accordance with the safe  harbor regulations, a plan satisfies its fiduciary duty of care under ERISA,  and the transfer constitutes a final break between the plan and the  transferred account. For example, the plan is not required to monitor the  forced-transfer IRA to ensure that the provider abides by the terms of the  agreement.
Thus, when an individual’s 401(k) plan account is transferred  Current law permits terminating plans to distribute forced transfers in  multiple ways, with the forced-transfer IRA being only one option, as  shown in table 2. IRA, terminating plans may also purchase an annuity with the forced- transfer balances or escheat (transfer) the balances to the state. Further,  the Pension Protection Act of 2006 (PPA) created a forthcoming  alternative for terminating 401(k) plans, which will be to transfer balances  to the Pension Benefit Guaranty Corporation (PBGC) when there are no  instructions from the participants. Moreover, we found that some  providers will not provide forced-transfer IRAs for terminating plans,  generally doing so only as an accommodation to ongoing plan clients and  because these plans do not have alternatives to the IRA. As a result, a  smaller number of participants forced out of terminating plans will end up  with savings in a forced-transfer IRA.
26 U.S.C. § 4975 and 29 U.S.C. § 1108. Terminating plans force out both current and  separated participants’ balances to dispose of all plan assets, as required to complete a  plan termination.
States generally have jurisdiction over unclaimed property, but they cannot require escheatment of  inactive accounts still in a 401(k) plan because the Employee Retirement Income Security Act of 1974  (ERISA)—the law governing employer-based retirement plans—preempts states’ claims to what  would otherwise be considered abandoned property. 29 U.S.C. §1144. Therefore, this escheatment is  the plan’s choice for the disposition of the account. U.S. Dept. of Labor, Field Assistance Bulletin  2014-01 (Aug. 14, 2014), available at http://www.dol.gov/ebsa/regs/fab2014-1.html.
We also found that forced-transfer IRAs can become long-term  investments for the many account holders who do not claim their  accounts even though the emphasis placed by the safe harbor  regulations on liquidity and minimizing risk are more often associated with  short-term investment vehicles. One of the larger providers we  interviewed said that during the first year after an account is opened  about 30 percent of account holders will do nothing with the account.
According to a forced-transfer IRA service provider, an estimated half of  the accounts they opened are for missing participants. Many unclaimed  accounts may remain so indefinitely. For example, one provider we  interviewed reported that nearly 70 percent of the accounts it has opened  within the last 5 years remain open and unclaimed. Additionally, an  individual could end up with multiple forced-transfer IRAs over time— each incurring its own administrative fees. Two providers we interviewed  explained that they do not consolidate forced-transfer IRAs opened for  the same individual, meaning that accounts even with the same provider  could incur redundant fees.
Although there may be alternatives to the forced-transfer IRA today that  were not considered in 2001 when the law was passed, without authority  to do so, DOL and IRS cannot identify or facilitate alternative destinations  for these accounts. Providing an alternative destination for forced  transfers would help to preserve participants’ accounts and increase the  possibility for growth. Absent the allowance of such an alternative, as we  have shown, former plan participants’ savings will continue to be placed  in investments unlikely to be preserved or grow over the long term.
section_title: Disregarding Rollovers Makes It Harder for Low-Wage Workers to Keep Retirement Savings in a 401(k) Plan
paragraphs: Current law allows plans that are determining if they can force out a  participant to exclude rollover amounts and any investment returns that  have been earned while in the plan.exclude a participant’s savings that were rolled into the plan when  calculating their vested balance, which determines whether the participant  may be forced out. Specifically, separated participants with 401(k)  accounts of any size can be forced from a plan if the vested balance (in  the absence of rollover amounts and its earnings) is $5,000 or less, as  demonstrated in figure 3. A rollover of more than $5,000 would not have  been subject to forced transfer if it had remained in the participant’s last  plan, but may become subject to it once transferred to the new plan.
section_title: Keeping Track of 401(k) Plan Accounts Can Be Difficult Because of Challenges with Consolidation, Communication, and Information, but SSA Is in a Position to Help
subsections: section_title: Having Multiple Accounts Makes It Difficult for Participants to Keep Track of Retirement Savings
paragraphs: 401(k) plan participants often lose track of their accounts over time. In the  United States, the responsibility is on the individual to manage their  retirement savings, including keeping track of 401(k) plan accounts. The  considerable mobility of U.S. workers increases the likelihood that many  will participate in multiple 401(k) plans. Over the last 10 years, 25 million  participants in workplace plans separated from an employer and left at   When  least one account behind and millions left two or more behind.individuals hold multiple jobs, they may participate in many 401(k) plans  or other types of employer-sponsored plans and upon changing jobs face  recurring decisions about what to do with their plan savings. Figure 6  illustrates how a participant can accumulate multiple retirement accounts  over a career.
There are many reasons participants have multiple accounts for  retirement savings. Currently, there is no standard way for participants to  consolidate their accounts within the 401(k) plan environment. For  example, employers do not always permit rollovers into their 401(k) plans.  As we previously reported, there are barriers to plan-to-plan rollovers that  DOL and IRS need to address to facilitate such rollovers when  participants may wish to choose that option. Absent plan-to-plan  rollovers, participants frequently roll over their accounts into IRAs or leave  their 401(k) savings with their former employers, both of which increase  the number of accounts for the participants if they then go on to enroll in  their new employers’ plans. Plan-to-plan rollovers help reduce the number  of lost accounts because the accounts stay with the participants. This  option is, however, irrelevant if the new employer does not offer a plan.
Industry representatives we interviewed said automatic enrollment also  contributes to participants having multiple accounts. Although automatic  enrollment facilitates retirement saving, individuals may be less apt to pay  attention to an account that they did not make the decision to enroll in.  Industry professionals told us that individuals with a collection of many  small accounts may forget about them because the small balances  provide them less incentive to pay attention to them. In addition,  automatic enrollment is likely to exacerbate the accumulation of multiple,  small accounts. As more participants are brought into the system there  could be an increase in forgotten accounts, because many of those  participants are unengaged from the start, in spite of DOL notification  requirements. However, as GAO has previously reported automatic  enrollment can significantly increase participation in 401(k) plans.
subsections: section_title: Participants Face Challenges Communicating with Former Employers’ Plans
paragraphs: 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.  Plans and record keepers have no automatic way to keep this information  up to date for participants, nor do they have ways to ensure that  separated participants will respond to their communications. For example,  one industry professional noted that if former participants’ e-mail contacts  are work e-mails, they will lose contact with their plans when they change  jobs and do not provide alternate e-mail addresses. When a plan loses  track of a participant it can create a number of challenges because the  plan has to spend time and incur the cost of searching for the participant.  In addition, there are no standard practices among plans and providers  for the frequency or method of conducting searches for missing or  nonresponsive participants.
While there is agency guidance on searching for missing participants in  terminating plans prior to forcing them out, in hearings before the ERISA  Advisory Council and in our interviews, providers and other industry  professionals reported that the guidance on searches is unclear and  insufficient. For instance, it is unclear how to satisfy disclosure  requirements when the participant’s address on file is known to be  incorrect. One provider told us plans are obligated to make a “good faith  effort” to locate participants, but they do not always know what a good  faith effort entails. This leaves plans unsure of what steps they must take  to satisfy applicable search requirements.
section_title: Participants Face Challenges Obtaining Information Useful for Keeping Track of 401(k) Plan Accounts
paragraphs: Employer actions, such as terminations, mergers, and bankruptcies can  also make it difficult for participants to keep track of their accounts.  Participants and beneficiaries can lose track of former employers’ plans  when the employers change location or name, merge with another  company, spin-off a division of the company, or go out of business. DOL  officials said that one of the most challenging problems facing participants  and their advocates is tracking down lost plans. For example, company  records for legacy plans, old plans that no longer have operating units,  may be scattered, making employee and participant data difficult to  locate, and the former plan’s administrative staff may no longer be  available to respond to questions regarding participant records.
The current regulatory environment also presents challenges to  participants. Participants separating from their employer are to receive  information about their accounts via multiple disclosures. Depending on  the actions participants take regarding their accounts upon separation,  their former employers will provide them and regulatory agencies with  relevant required disclosures and reports. (See appendix VI for a list of  selected disclosures required when participants separate from  employment or when plans undergo certain types of corporate  restructuring.) As participants change jobs over time and accumulate  multiple accounts, those who remain engaged with their accounts will  acquire a large volume of documentation. For example, the hypothetical  worker from figure 6 who had separated from three jobs would receive at  least nine different notices from the three plan sponsors. In the instances  where the worker’s 401(k) plan savings were transferred to another  account, the worker would have been provided information about the new  account. Over time, the worker would continue to receive annual—or  sometimes quarterly—statements from each account as well as various  other notices and disclosures depending on any changes in the structure  or terms of the plans or accounts. Over 10 years, if that worker had no  further job changes or changes to the existing accounts, routine account  statements alone would result in at least 40 separate documents. If even  one of the accounts issued quarterly statements, the number of  documents would increase to 70, which does not include any disclosures  the worker might receive about the underlying investments of the  accounts or information regarding changes to a plan or IRA.
Participants may also have difficulty understanding the complex notices  or account statements they receive. As we have previously reported, the  quantity of information participants receive may diminish the positive  effects such important information could have for them. Our previous  work found that participant disclosures do not always communicate  effectively, participants often find the content overwhelming and  confusing, and many participants rarely read the disclosures they  receive.
In addition, although 401(k) plans are required to report annually on plan  design, finances, and other topics to DOL, IRS, and PBGC via the Form  5500 Series  and a number of other forms required by the IRS, the  information reported may not always result in a clear record or trail of  employer or plan changes. For instance, DOL officials told us that many  small plans fail to file an updated or final Form 5500, which would include  a valuable piece of information, an employer identification number, which  can be used to track a new plan resulting from a merger. In the event of  a plan termination, the plan administrator may file Form 5310, a request  for a determination letter on a plan’s qualified status, with the IRS, but  must provide participants an “Notice to Interested Parties” notifying them  of their right to comment on the plan termination. In certain instances of a  company spinoff, only the plan that was in existence before the spinoff is  required to file a Form 5310-A, making it difficult to trace the new plan  back to the original plan. We recently reported that this notice confuses  participants and it is difficult for the average pension plan participant to  exercise their right to comment. In addition, participants may receive a  Notice of Plan Termination that includes information on their account  balance, distribution options, and information about making an election  and providing instructions to the plan.
Federal agency officials told us that inactive participants can fail to find  their accounts with former employers and do not always know where to  go to seek assistance or find information about their accounts. (See table  4 for descriptions of the role of federal agencies and other entities in  helping participants find their plan accounts). Even with the information  participants received while still active in plans or at separation, they then  have to figure out which agencies and private sector entities to contact to  find their accounts. Former employers and record keepers have  information participants may need, but participants will need to have  stayed in contact with their former employers to get that information.  Federal agencies may also have some of the information that participants  may need. However, the information that agencies provide is not  designed to help participants keep track of multiple accounts or to find  lost accounts. Consequently, participants searching for their accounts  from former employers may have incomplete information. Moreover, if  participants kept the notices and statements sent to them, the information  they need may be out of date and located in multiple documents. As a  result of such information challenges, even those who obtain assistance  from benefits advisors with government or non-profit programs may be  unable to locate all of their retirement savings.
section_title: SSA Can Help Participants Locate Accounts by Providing Information Earlier
paragraphs: The Social Security Administration (SSA) provides information that can  help participants locate retirement savings left with a former employer.  The Potential Private Retirement Benefit Information (Notice) includes  information that could be beneficial to individuals looking for missing  accounts, including: the name of the plan where a participant may have  savings, the plan administrator’s name and address, the participant’s  savings balance, and the year that the plan reported savings left behind  (see fig. 7).
SSA sends the Notice when an individual files for Social Security benefits,  which can occur as early as age 62, unless the notice is requested  earlier. Individuals appear to be generally unaware that this personal  financial information exists or that they may request it from SSA, since  few individuals request the form prior to retirement. SSA officials said that  they only received about 760 requests for the form in 2013, though  according to data provided by SSA the agency has records of potential  benefits for over 33 million people. Agency officials told us that they were  not aware of any potential advertising or effort on the agency’s website  (www.ssa.gov) for promoting the availability of the Notices or informing  people about their ability to request the notices. Officials also said that  approximately 70,000 Notices are generated for new Social Security  beneficiaries every month.
Individuals may receive multiple Notices at retirement if they have left  savings in more than one employer plan over their career. Although the  same information is reported on each form and SSA houses the data for  years, the data are not compiled for ease of use by the recipient or for  efficiency and cost-savings by the agency. Agency officials explained that  in the past people worked for one company for most of their lives and  were more likely to have had a traditional defined benefit pension plan,  and consequently the format of the Notice only allows for data from one  employer. Because the Notice is not currently formatted to display  consolidated data on potential benefits from multiple employers,  information on benefits from each employer must be sent separately to  the participant. Given that many individuals will change jobs often  throughout their working life, they can therefore expect to receive several  different Notices, adding to the number of disclosures, communications,  and notices they are expected to review, understand, and consider in  managing their retirement savings. Combining multiple Notices could  simplify the process of managing multiple forms for people with more than  one account and reduce the costs to SSA.
More widely known, SSA also sends individuals a Social Security  Statement (Statement) that estimates Social Security retirement  benefits—at different claiming ages, and displays a worker’s earnings  history. SSA suspended the mailing of paper copies of the Statement in  2011, but in 2014 resumed mailing the Statements to individuals every 5  years, starting at age 25. This information is also available online to  anyone who establishes an account. Similar to the Notice, the Statement  contains important information about an individual’s potential retirement  income. Together these documents give individuals a more complete  understanding of their income in retirement. SSA also has earnings  recorded by employer, which is available upon request, but it is not  mailed to individuals or available online. The earnings record for each  year could provide clues as to when certain periods of employment  occurred, which is key information that industry professionals suggest  individuals looking for their lost 401(k) plan accounts should have when  conducting a search.
Given the multiple Notices individuals can receive from SSA, in addition  to the Statement, finding a way to reduce duplication can help individuals  keep track of their accounts and locate missing accounts. SSA has a  process in place to review and revise the Statement and the agency  already stores all of the data published in the Notice. As suggested in  figure 8, providing the Notice at the same time as and with the Statement  is one way to give individuals a consolidated, timely resource and reduce  the volume of paperwork they need to keep track of over time.
As noted earlier, when plans lose track of participants due to outdated  mailing addresses, participants fail to receive critical plan communications  about their accounts and about any changes to the plan name or  administrator that will be vital when they want to communicate with the  plan and claim their benefits. An industry professional we interviewed  suggested that participants receive some type of reminder to notify plans  of address changes. If participants are reminded of their inactive 401(k)  plan accounts via the Notice and prompted to inform plans of updated  address information, the accounts may be less likely to become lost.  Making the information available online or mailing it every 5 years can  remind participants of the multiple accounts they have. Providing the  combined information on inactive accounts from multiple employers can  also give individuals needed information to keep track of their multiple  accounts and provide the opportunity to correct inaccurate account  information. In addition, having a reminder of the accounts they left  behind may increase the likelihood that participants pay attention to other  plan communications.
section_title: Other Countries Have Taken Actions to Protect Forced Transfers and Track Retirement Accounts
paragraphs: To manage inactive workplace retirement accounts, officials in the  countries in our study told us that the United Kingdom (U.K.), Switzerland,  and Australia use forced transfers and Australia, Denmark, Belgium and  the Netherlands use tracking tools. Like the forced-transfer IRAs of the  United States, the forced transfers we were told about in these countries  transfer account balances without participant consent. In the countries we  studied with forced transfers, those accounts follow participants changing  jobs, are efficiently managed in a single fund, or are free from fees at a  government agency. Each of these approaches helps to preserve the real  value of the account for the participant, and generally ensures workplace  plans will not be left with the expenses of administering small, inactive  retirement accounts. Although the models employed vary by country, the  three countries with tracking tools we studied allow participants online  access to consolidated information on their workplace retirement  accounts, referred to as “pension registries” in this report. Approaches  include both databases and “service bus” interfaces connecting providers  to participants in real time. Roles for government in these countries  range from holding the data and analyzing it for tax and social policy  purposes to collaborating with an industry-created pension registry,  allowing for information on national pension benefits to be provided in the  registry.
subsections: section_title: Forced Transfers in Other Countries Benefit Participants
paragraphs: According to officials we interviewed in the three countries that use forced  transfers, they have legislation that (1) consolidates transferred accounts,  either in a participant’s new plan or with other forcibly-transferred  accounts, and (2) enables these accounts to grow, either at a rate  comparable to participants’ current retirement accounts or at least in pace  with inflation (see table 5).
Switzerland—According to Swiss officials, forced transfers in Switzerland  are consolidated in a single fund, the Substitute Plan, administered by a  non-profit foundation and invested until claimed by participants (see fig.  9). The Substitute Plan serves as a back-up in those instances when  participants fail to roll their money over to their new plan, as they are  required to do by law, according to Swiss Federal Social Insurance Office  officials.
Plans report information on inactive accounts to the Guarantee Fund, the  Swiss organization insuring insolvent workplace plans. After 2 years of  inactivity, those accounts must be transferred to the Substitute Plan.  Officials said the Guarantee Fund is responsible for returning the  retirement savings of participants to them in retirement. According to  officials at the Swiss Federal Social Insurance Office, the Substitute Plan  held about $5.5 to $6.6 billion in 2014. They said its investments have  outperformed those in workplace plans in recent years, and compared to  most workplace plans, its administrative costs are low, in part because  the board manages the investments itself. According to a Substitute Plan  board member, the board receives investment guidance from financial  experts who counsel its investment committee.
The United Kingdom—Officials said that the United Kingdom “pot- follows-member” law is designed to make workplace retirement accounts  move with participants throughout their career, or at least until the  balances are large enough that they could be used to buy an annuity.  Transfers of participants’ savings from a former employer are initiated by  the new employer when it is notified, likely through information  technology, of an eligible account. Although every employer in the  United Kingdom must automatically enroll workers between age 22 and  retirement age who earn more than about $17,000 a year, U.K. officials  are still considering how they will implement the law when no new plan  exists to transfer money to. They said one benefit of putting the  responsibility on the new plan is that the trigger for the transfer does not  occur until a new plan exists. Once implemented, the pot-follows-member  law will automate the plan-to-plan rollover process for participants, keep  transferred assets under participant direction, and generally ensure plans  do not manage small, inactive accounts. Figure 10 depicts three ways  workplace retirement accounts can follow job-changing participants.
Australia—Rather than invest forcibly transferred accounts for long-term  growth, officials told us the Australian government preserves value while  taking proactive steps to reconnect participants with their accounts.  Accounts inactive for 1 year are transferred to the Australian Tax Office  (ATO), which holds them in a no-fee-environment and pays returns equal  to inflation when they are claimed.website to submit their taxes or change their address, they are provided a  link to view any account they have that is held by the ATO, and they can  consolidate it with another account online. Unlike the United Kingdom and  Switzerland, the Australian approach requires participants to take action  to invest their transferred accounts for long-term growth, although it  provides a tool to help them do so.
section_title: Other Countries Provide Pension Registries to Help Participants Track Accounts while the United States Does Not Have a Similar Approach
paragraphs: European Commission officials we talked to said that the most basic form  of centralized information on plans should help participants find providers,  allow them to view which plans serve which employers, and provide  relevant plan contact information. All of the approaches we reviewed in  the selected countries went further. The Netherlands, Australia, and  Denmark provide consolidated, online information—called pension  registries—to participants on all of their workplace retirement accounts,  and Belgium is scheduled to do the same by 2016. The pension registry  designs in the four countries we studied with such registries share some  common elements that make them useful for participants.
Active and inactive accounts: All include data on both active and  inactive accounts, including account balances and plan or insurer  contact information.
Website accessibility: All include the identity authentication necessary  to securely allow online access to individual participants.
Workplace account information: All include information on workplace  retirement accounts.
While various benefits to participants were cited as the impetus for  creating registries in each of these countries, pension registries can be  used by plans as well. A representative of one workplace plan in Belgium  said they use pension registry data to find missing participants, make  payments to the participant as planned, and eliminate liabilities for those  payments. The representative also added that when the pension  registry goes live to participants the plan may spend less time answering  questions from participants who do not have a clear understanding of  their rights to benefits. Instead, they will refer participants to the pension   Plans in Australia also use the pension registry to  registry for answers.identify inactive accounts their participants have in other plans and to talk  to participants about consolidating their accounts. Table 6 shows various  attributes of the pension registries in the countries we included in our  study. Further details on these pension registries can be found in  appendix VII.
Denmark—Denmark’s pension registry incorporates personal retirement  accounts similar to IRAs in the United States, and facilitates retirement  planning by allowing participants to see how their financial security in  retirement varies with factors like retirement age and spend-down option,  according to documentation provided by Danish officials. Although the  Danish pension registry is a private non-profit organization financed by  participating pension providers, it also works with the government to  provide data on public retirement benefits (see fig. 11).
The Netherlands—Participants have had access to the pension registry  since 2011 using a national digital ID, following the enactment of  legislation in 2006 and 2008. The Dutch Social Insurance Bank worked  for years with the largest pension plans to develop the registry, though  the pension industry in general—including insurance companies and  smaller pension funds—provided input into the registry, according to  industry representatives we interviewed. The pension industry’s web  portal collects and consolidates pension information from funds and  insurers when a participant logs in to the system. Participants can also  access national, or government, pension information. The pension  registry does not store the information in a central location because of  security concerns over participants’ private information, according to  representatives of the pension registry we interviewed. The government  plans to expand the pension registry into a pension dashboard that will  project retirement benefits under various life events and allow participants  to view their entire financial situation to facilitate retirement planning. The  aim of the expansion is to increase financial literacy but also affect  behavior.
Australia—Participants can access the pension registry, the  SuperSeeker, online using a unique electronic government ID.  Participants can also use a phone service or smart phone application to  get the information, according to the SuperSeeker website. With  SuperSeeker, participants can view all of their workplace retirement  accounts on the web, including active and inactive accounts, and any lost  accounts held by ATO. SuperSeeker can also be used to locate lost  accounts not held by ATO. The content of the registry is generated by  plans, as they are required to report the details of all lost accounts twice  each year to the ATO, in addition to active accounts.
Belgium—Officials told us individual participant access is planned for  2016 using a national digital signature. They said the law creating the  workplace pension registry was passed in 2006. Pension providers are  required by law to submit workplace pension information to the registry.  An electronic database of national pensions (similar to Social Security in  the United States) already existed for private sector workers and in 2011,  the government included public sector workers in the database to create  a unified national and workplace pension registry. Starting in 2016, all  participants will be able to securely access the integrated data on both  national and workplace retirement plans, according to Belgian  government officials.
subsections: section_title: The European Commission Is Developing a Pan-European Pension Registry
paragraphs: European Commission officials told us Denmark has the most advanced  pension registry and, as such, is a model for an international registry  accessible by participants across the European Union. With a population  of over 500 million in 28 member states, the European Union is more  similar to the United States in terms of population and geographic size  than the individual countries we included in our study, thus the challenges  the European Union faces in setting up a pension registry may be  particularly relevant for the United States. By creating a pan-European  pension registry, European Commission officials said they aim to ensure  that workers moving across borders do not lose portions of their  retirement entitlements accrued in different jobs and countries. According  to European Union data, more European workers are internationally  mobile in the labor market, with the number of economically active  European Union citizens working across borders having increased from 5  million in 2005 to 8 million in 2013. Their accumulated retirement benefits  are scattered over several countries, making it difficult for participants to  keep track of them, and for providers to locate missing participants.
Because some countries in Europe already have pension registries,  European Commission officials said a European registry may involve  linking existing registries together. To this end, the European  Commission has hired a consortium of six experienced pension providers  from the Netherlands, Denmark, and Finland to study possible  approaches and come up with a pilot project on cross-border pension  tracking. This Track and Trace Your Pension in Europe project presented  its initial findings in support of a European Tracking Service to the  European Commission. The track and trace project found no uniform  approach to pension tracking in the European Union. Although 16  countries report having a national pension tracking service, according to  track and trace project documentation, these vary substantially in terms of  functionality, coverage, service level, and complexity.
The European Commission expects to face challenges implementing a  pension registry in the European Union because tax laws and languages  vary from country to country. European Commission officials said they  face several challenges: the standardization required for all plans in all  European Union countries to interface with the same system, the data  security required for all those involved to trust the system, and questions  about how the system would be financed. For example, according to the  track and trace project’s initial findings, few countries have a standardized  format on pension communication, though most report having legal  requirements for providers to inform participants on a regular basis.  These differences across countries reflect the different levels of maturity  of the pension systems across Europe. European Commission officials  noted it is likely to take many years to standardize data. However, as  representatives of the Dutch Association of Insurers pointed out, unless  the trend of increasingly frequent job changes reverses, a pension  registry will only become more important in the future.
section_title: The United States Lacks a Pension Registry That Can Provide New Opportunities for Participants
paragraphs: Currently, there is no national pension registry in the United States. No  single agency or group of agencies have responsibility for developing a  pension registry for participants looking for their accounts, and no  coalition of financial firms in the retirement industry has acted alone in lieu  of government involvement. While projects to provide access to current,  consolidated information on workplace retirement accounts are complete  or in the final stages in other countries, the United States has not  undertaken a coordinated effort to determine how to provide the same to  Americans. The current piecemeal approach involving the Department of  Labor (DOL), the Pension Benefit Guaranty Corporation (PBGC), Health  and Human Services (HHS), and the Social Security Administration (SSA)  is largely reactive. Participants often turn to DOL, HHS, or PBGC for  assistance once their accounts are lost, and SSA generally only provides  information once participants have reached retirement age. The current  approach also requires a high level of participant engagement with  complex financial information. The current state of financial literacy in the  United States and the field of behavioral economics suggest that this kind  of participant engagement should not be expected. As discussed earlier,  the task of tracking down retirement savings is a substantial challenge for  participants who may lack information that would allow other entities to  help them find accounts. Similarly, the inactive account information SSA  provides pertains to “potential” benefits, leaving the participant to  determine whether they exist or not.
The pension registries in the countries we reviewed are relatively  proactive, and rely less on participant engagement. Their approach of  providing access to current, consolidated information on all workplace  retirement accounts may help prevent an account from being lost, and the  need for a participant to work with government to find it. That approach  also relies less on participants, as they need not keep records or update  their address with plans to ensure they can later receive their benefits.  For example, Australia was able to develop a registry that allows a  participant to consolidate their benefits online on a single website, without  engaging directly with either plan or calling a government funded  assistance program.
Congress is aware of the problem participants have tracking accounts,  and the Pension Protection Act of 2006 expanded PBGC’s Missing  Participant Program. Two industry associations have also suggested  that a central database be created that participants can check to  determine whether they have a lost account in any ongoing plan in  addition to any from terminated plans. Some of the groundwork for  consolidating various pieces of information is already in place in the  United States through large service providers that manage data on  thousands of plans and millions of account holders. For example,  information on retirement savings in many IRAs, workplace plans, and  Social Security is already accessed online. While the U.S. retirement  system is different from those in the countries with pension registries we  studied, and the appropriate scope, oversight, and financing method for a  pension registry in the United States have not been determined, the  variety of examples in place in the countries we reviewed provide ideas to  consider. Currently, DOL and other federal agencies do not have any  ongoing efforts to develop such a registry. Until there is a concerted effort  to determine the potential for a U.S. pension registry, it may be premature  to say whether U.S. workers can benefit from the same information as  participants in some other countries.
section_title: Conclusions
paragraphs: The United States has a highly mobile labor force and an economy  marked by frequent business formations and failures. The accessibility  and portability of the U.S. account-based 401(k) plan system presumably  allow participants to retain and manage their retirement assets throughout  their careers, even with multiple job changes. However, there are some  significant limitations with regard to portability and information access as  a result of the current structure and rules of the 401(k) plan system. Given  the expected continued growth of this system and the expansion of  automatic enrollment, the number of inactive participants and inactive  accounts—and the associated challenges—will almost certainly grow,  exacerbating inefficiency and eroding the retirement security of U.S.  workers.
Under current law, there is no mechanism in place that would allow plans  or regulators to develop or consider additional default destinations when  employees are forced out of 401(k) plans. Although other countries’  approaches pose implementation challenges within the United States,  there may be ways that DOL and Treasury, if given the authority to do so,  can revise the current forced-transfer model to help achieve better  financial outcomes for participants while still providing plans with  administrative relief.
Another way to protect participants’ 401(k) plan savings is by ensuring  that all accounts with balances over $5,000 may remain in the plan  environment, even when portions of those balances are from rollovers.  Current law addresses the needs of plans and participants by alleviating  the burden on plans of maintaining small, inactive accounts, while  protecting participants with large balances from forced transfer. Changing  the law so that active plans can no longer force-transfer accounts with  balances over $5,000 by disregarding rollovers can extend current  protections to all accounts of that size, while at the same time continuing  to provide plans relief from maintaining small, inactive accounts.  Regardless of the size of the balance that is transferred into a forced- transfer IRA, one way to partially mitigate the problems with these  accounts is to broaden the investment options for these accounts from  the limited conservative menu currently available. DOL can take steps to  expand the menu of investment options available under its safe harbor  regulations, to include alternatives similar to those available to  automatically enrolled 401(k) plan participants. This would enable forced- transfer IRAs to be better protected from erosion by fees and inflation and  provide better long-term outcomes for participants.
Workforce mobility and frequent changes in corporate structure can result  in forgotten accounts, missing participants, and ultimately, lost retirement  savings. Participants often have difficulty locating accounts in plans with  former employers, especially those employers that have undergone some  type of corporate restructuring. SSA holds critical information on accounts  left in former employers’ plans, but individuals rarely see that information  before retirement and may be unaware that the information exists. As  time passes, the information can become outdated and, therefore, less  useful to participants trying to locate their retirement savings. Making this  information easier to access and available sooner—such as by using the  online system for Social Security earnings and benefit statements—can  provide participants with a timelier reminder of accounts left in former  employers’ plans and provide them better opportunities for keeping track  of accounts and improving their retirement security.
The lack of a simple way for participants to access information about their  retirement accounts is a central problem of our current workplace  retirement system. We found that other countries with robust private  account-based retirement systems have been grappling with this  challenge and have determined that pension registries can provide a  meaningful long-term solution. Creating an accurate, easy to access, and  easy to use pension registry in the United States would need to take into  account important design challenges, including the scope of the data to  be included, the entity that would oversee the registry, and how it would  be financed. Designing a registry would also require serious discussions  among the key stakeholders, including industry professionals, plan  sponsor representatives, consumer representatives, and federal  government stakeholders on what such a system should look like in the  American context. However, the creation of a viable, effective registry in  the United States could provide vital information regarding retirement  security in a single location to millions of American workers.
section_title: Matters for Congressional Consideration
paragraphs: To better protect the retirement savings of individuals who change jobs,  while retaining policies that provide 401(k) plans relief from maintaining  small, inactive accounts, Congress should consider amending current law  to:  1.  Permit the Secretary of Labor and the Secretary of the Treasury to  identify and designate alternative default destinations for forced  transfers greater than $1,000, should they deem them more  advantageous for participants.  2.  Repeal the provision that allows plans to disregard amounts  attributable to rollovers when determining if a participant’s plan  balance is small enough to forcibly transfer it.
section_title: Recommendations for Executive Action
paragraphs: To ensure that 401(k) plan participants have timely and adequate  information to keep track of all their workplace retirement accounts, we  recommend that the Social Security Administration’s Acting  Commissioner make information on potential vested plan benefits more  accessible to individuals before retirement. For example, the agency  could consolidate information on potential vested benefits, currently sent  in the Potential Private Retirement Benefit Information notice, with the  information provided in the Social Security earnings and benefits  statement.
To prevent forced-transfer IRA balances from decreasing due to the low  returns of the investment options currently permitted under the  Department of Labor’s safe harbor regulation, we recommend that the  Secretary of Labor expand the investment alternatives available. For  example, the forced-transfer IRA safe harbor regulations could be revised  to include investment options currently under the qualified default  investment alternatives regulation applicable to automatic enrollment, and  permit forced-transfer IRA providers to change the investments for IRAs  already established.
To ensure that individuals have access to consolidated online information  about their multiple 401(k) plan accounts, we recommend that the  Secretary of Labor convene a taskforce to consider establishing a  national pension registry. The taskforce could include industry  professionals, plan sponsor representatives, consumer representatives,  and relevant federal government stakeholders, such as representatives  from SSA, PBGC, and IRS, who could identify areas to be addressed  through the regulatory process, as well as those that may require  legislative action.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of Labor, the Social  Security Administration, the Department of the Treasury, the Internal  Revenue Service, the Pension Benefit Guaranty Corporation, the  Securities and Exchange Commission, and the Consumer Financial  Protection Bureau. DOL, SSA, Treasury and IRS, PBGC, and SEC  provided technical comments, which we have incorporated where  appropriate. DOL and SSA also provided formal comments, which are  reproduced in appendices VIII and IX, respectively. CFPB did not have  any comments.
subsections: section_title: GAO Response to DOL Comments
paragraphs: DOL agreed to evaluate the possibility of convening a taskforce to  consider the establishment of a national pension registry. We appreciate  that DOL shares our concerns and agrees that there is need for a  comprehensive solution to problems related to missing and unresponsive  participants. DOL stated, however, that it does not have the authority to  establish or fund a registry. Specifically, DOL noted that it does not have  authority to require reporting of the information needed for a registry or to  arrange for the consolidation of retirement account information from  multiple agencies. We reached the same conclusion and for that reason  recommended a taskforce as a starting point for the development of a  national pension registry. In fact, our recommendation noted that one role  for the taskforce would be identifying areas that could be addressed  through the regulatory process and those requiring legislative action. DOL  also noted that an expansion of PBGC’s missing participant program to  include defined contribution plans could address some of these issues. It  is our view that there may be a number of policies or programs that could  address these problems and we agree that an expansion of PBGC’s  program could ultimately be part of a comprehensive solution. Should the  taskforce determine that the most appropriate option or options require  additional authority for DOL or other agencies, such options should be  given careful congressional consideration.
DOL disagreed with our recommendation to expand the investment  alternatives available under the safe harbor for plan sponsors using  forced transfers. While DOL characterized our recommendation as calling  for the safe harbor to include qualified default investment alternatives, our  recommendation is to “expand the investment options available” and we  noted that qualified default investment alternatives could be one option.  DOL stated that the limited investments under the safe harbor are  appropriate because Congress’ intent for the safe harbor was to preserve  principal transferred out of plans. Particularly, DOL noted that given the  small balances and the inability of absent participants to monitor  investments, the current conservative investment options are a more  appropriate way to preserve principal.
However, as we show in the report on pages 9-13, the current forced- transfer IRA investment options like money market funds can protect  principal from investment risk, but not from the risk that fees (no matter  how reasonable) and inflation can result in decreased account balances  due to returns on these small balance accounts not keeping pace with  fees. Consequently, as our analysis shows and as several forced-transfer  IRA providers told us, the reality has been that many forced-transfer IRAs  have experienced very large and even complete declines in principal.
Regarding our analysis, DOL stated that the performance information that  we used to illustrate the effects of low returns on forced-transfer IRAs on  pages 9-13 and 20-21 covers too short a period and does not reflect the  periodic higher returns earned by money market funds in the more distant  past. Our projection in figure 2, p.13, showing the effect of returns from  a money market investment versus a target date fund investment on a  small balance over 30 years used 10-year mean returns for these  investments. Given that the safe harbor for these accounts was issued 10  years ago in 2004, we feel a 10-year average is more appropriate and  accurately reflects the returns earned. However, using a longer time  period does not materially change our conclusions. A similar calculation  using a 15-year mean return shows that these forced-transfer IRA  accounts would still not be preserved. (See notes under fig. 2, p.13, and  fig 5, p.20-21.)
In any case, our recommendation did not aim to eliminate money market  funds from investments covered by the safe harbor but to expand the  investment alternatives available so that plans and providers that want to  operate under the safe harbor have the opportunity to choose the most  suitable investment. We stand by our recommendation and encourage  DOL to expand the safe harbor to include investment alternatives more  likely to preserve principal and even increase it over time. Qualified  default investment alternatives could be one option, although certainly not  the only one, that could be considered.
section_title: GAO Response to SSA Comments
paragraphs: SSA disagreed with our recommendation to make information on potential  private retirement benefits more accessible to individuals before  retirement. SSA was concerned that our recommendation would place the  agency in the position of having to respond to public queries about  ERISA. SSA noted that the agency has no firsthand legal or operational  knowledge of pension plans or the private pension system and should not  be in a position of responding to questions of that nature or about ERISA,  which it considered to be outside the scope of SSA’s mission. We agree  with SSA’s view about providing information or advice about private  pension plans generally. However, as SSA noted, the Notice of Potential  Private Retirement Benefit Information (referred to as the “ERISA notice”  in SSA’s letter) already directs recipients to contact DOL with any  questions. We would expect that any changes made to make information  on potential vested plan benefits more accessible to individuals before  retirement would continue to direct recipients to contact DOL with  questions about ERISA policy.
SSA stated that it will seek legal guidance to determine if it is permissible  to include a general statement encouraging potential beneficiaries to  pursue any external pension benefits in its benefit Statement. As noted in  our report on pages 30-31, individuals may be unaware of the availability  of information on potential retirement benefits, therefore we support  SSA’s initiative to include language in the Statement encouraging  potential beneficiaries to pursue external pension benefits. SSA also  stated that there is no interface between potential private retirement  information and Social Security benefits. However, as noted in our report  on page 31, SSA already stores the potential vested benefits data and  provides the information in the Statement. Consolidating the two types of  information and making it available every 5 years can provide participants  with timely and adequate information to keep track of all of their work  place retirement accounts and could possibly lead to administrative  efficiencies. Therefore, it may be appropriate for SSA to explore its  concern about its legal authority to expend appropriated funds to disclose  information that it already provides to the relevant beneficiary, on a more  frequent basis and in a more consolidated manner. We continue to  believe that this recommendation could enhance the retirement security  of millions of Americans, who would benefit from the assistance in  keeping track of their multiple accounts from multiple employers and  becoming more knowledgeable about funds they may be due in  retirement. Should SSA determine that they have authority to implement  this legislation, we would strongly urge the agency’s action. However,  should SSA decide that it does not have the authority to move ahead on  this recommendation, we would urge the agency to seek the necessary  statutory authority.
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,  Acting Commissioner of the Social Security Administration, Secretary of  the Treasury, Commissioner of Internal Revenue, Acting Director of the  Pension Benefit Guaranty Corporation, Chair of the Securities and  Exchange Commission, Director of the Consumer Financial Protection  Bureau, and other interested parties. In addition, the report will be  available at no charge on the GAO website at http://www.gao.gov.
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 X.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines (1) what happens to forced-transfer individual  retirement accounts (IRA) over time; (2) the challenges 401(k) plan  participants face keeping track of their retirement savings and what, if  anything, is being done to help them; and (3) how other countries address  the challenges of inactive accounts.
To understand what happens to forced-transfer IRAs over time, as well as  challenges 401(k) plan participants face keeping track of multiple 401(k)  plan accounts, we reviewed relevant data from government, research,  and industry sources. Because we found no comprehensive data on the  number of IRA accounts opened as a result of forced transfers or other  data relevant to their use and management, we collected data from a  non-generalizeable group of 10 providers of forced-transfer IRAs about  their practices and outcomes, including three of the largest IRA providers.  There is no comprehensive list of all forced-transfer IRA providers. For  this reason, we built a list of forced-transfer IRA providers through  interviews with industry professionals, a review of IRA market data, and  online searches. Our objective was to create a group that would cover a  large share of assets in the forced-transfer IRA market and represent  both small and large forced-transfer IRA providers in terms of company  size. We reached out to the largest IRA providers by assets under  management, as well as all small forced-transfer IRA providers on our list.  We obtained forced-transfer IRA account data from 10 forced-transfer  IRA providers that represent this mix of characteristics. We also  interviewed plan sponsor groups, 401(k) plan industry groups, research  entities, consumer groups, and six federal agencies (Consumer Financial  Protection Bureau, Department of Labor, Department of the Treasury,  Pension Benefit Guaranty Corporation, Securities and Exchange  Commission, and Social Security Administration) about plans’ use of  forced-transfer IRAs and what challenges individuals and plans face  related to inactive accounts and multiple accounts in the United States.  We also reviewed research and industry literature, relevant laws and  regulations, 2013 ERISA Advisory Council testimony on missing  participants, industry whitepapers on a proposed default roll-in system,  and submissions to the 2013 Pension Benefit Guaranty Corporation  request for information related to a tracking system for distributions from  terminating plans.
To understand what happens to forced-transfer IRA accounts over time,  we constructed projections of what would happen to an account balance  year to year, given certain assumptions. We drew those assumptions  from the actual forced-transfer IRA account terms provided by providers  we interviewed and on which we collected data. We used the account  opening fee, annual fee, search fees, and rate of investment return to  project how long it would take for a $1,000 balance to decrease to zero.  While the range of average balances transferred into forced-transfer IRAs  reported by providers we interviewed was $1,850 to $3,900, we used a  $1,000 balance for our projection to make it easier to observe the  difference in values over time shown in the projection. Appendix III  shows the projected outcome for a $1,000 balance given the fee and  return information reported by the forced-transfer IRA providers we  contacted.
To determine how forced-transfer IRAs are used, as described in  appendix II, we projected the balance of a typical low-wage worker at the  end of a typical tenure given certain assumptions about savings,  investment returns, and employer matching and vesting policies.  Specifically, we wanted to see if the projected balance would fall below  the $5,000 cap used to determine eligibility for forced transfers. The  projections assume the annual mean wage in 2013 for the service sector  occupation with the most workers, specifically “food preparation and  serving related occupations,” including an annual raise equal to the  average annual increase in wage over 15 years (1999-2013). For these  assumptions, we referred to the U.S. Bureau of Labor Statistics’ (BLS)  Occupational Employment Statistics, National Employment and Wage  Estimates. The Occupational Employment Statistics survey covers all full- time and part-time wage and salary workers in nonfarm industries. The  survey does not cover the self-employed, owners and partners in  unincorporated firms, household workers, or unpaid family workers. We  assumed the 2014 median tenure for employed workers in the food  preparation- and serving-related occupations, according to BLS data. We  also assumed that employer contributions, when there were any, were  made concurrently with employer contributions, rather than on a separate  periodic or annual basis. These projected savings also reflect a 6.3  percent investment return, which is the geometric mean of 10-year  returns for all target date funds according to our analysis of data from  Morningstar.com. Target date funds are the most common default  investment for individuals automatically enrolled into 401(k) plans,  according to the Plan Sponsor Council of America’s (55th) Annual Survey  of Profit Sharing and 401(k) Plans, which reflects the 2011 plan  experience. We used optimistic, moderate, and pessimistic assumptions  to project vested balances (see appendix IV for additional details on our  assumptions). To estimate the number and the value of accounts that  could potentially be—but were not already—transferred to forced-transfer  IRAs, we collected Social Security Administration (SSA) data from the  form 8955-SSA. Data on the form 8955-SSA include deferred vested  benefits in all defined contribution plans, including 401(k) plans, as well  as in defined benefit plans, which are not subject to forced transfers. We  assessed the reliability of the data and found that it met our standards,  given our use of the data. We previously reported that data from the form  8955-SSA on potential private sector pension benefits retirees may be  owed by former employers are not always updated or verified over time  and may not reflect later distributions from plans, such as rollovers to a  new plan or cash-outs. We also asked PLANSPONSOR.com to include  questions about plan sponsors’ use of forced transfers in its newsletter,  which is distributed to online subscribers. Respondents to the query  included 14 plan sponsors and 4 third-party administrators/record  keepers. To assess the reliability of the data we analyzed, we reviewed  IRA market data and interviewed IRA providers familiar with forced- transfer IRAs. We determined that these data were sufficiently reliable for  the purposes of this report.
To better understand forced-transfer IRAs, as well as the challenges  people face in keeping track of multiple 401(k) plan accounts, we also  interviewed plan sponsor groups, 401(k) plan industry groups, research  entities, consumer groups, and six federal agencies (Department of  Labor, Department of the Treasury, Social Security Administration,  Pension Benefit Guaranty Corporation (PBGC), Securities and Exchange  Commission, and Consumer Financial Protection Bureau) about plans’  use of forced-transfer IRAs and what challenges individuals and plans  face related to multiple accounts and inactive accounts in the United  States. We also reviewed research and industry literature, relevant laws  and regulations, 2013 Employee Retirement Income Security Act  Advisory Council testimony on missing participants, industry whitepapers  on a proposed default roll-in system, and submissions to the 2013 PBGC  request for information related to a tracking system for distributions from  terminating plans.
To examine how other countries are addressing challenges of inactive  accounts, we selected six countries to study. We considered countries  with extensive workplace retirement systems to include populations that  might face challenges similar to those of U.S. participants. To make our  selections, we reviewed publicly available research and interviewed  researchers, consumer groups, industry groups, and government  agencies. We considered the extent to which countries appeared to have  implemented innovative policies to help individuals keep track of their  retirement savings accounts over their careers, reduce the number of  forgotten or lost accounts, make such accounts easier to find, and  improve outcomes for those with lost accounts. We also considered how  recently legislated or implemented solutions were adopted given the  increasingly powerful role information technology can play in connecting  individuals with information. On the basis of this initial review, we selected  six countries—Australia, Belgium, Denmark, the Netherlands,  Switzerland, and the United Kingdom—that could potentially provide  lessons for the United States. We interviewed government officials and  industry representatives from all the selected countries. We did not  conduct independent legal analyses to verify information provided about  the laws or regulations in the countries selected for this study. Instead, we  relied on appropriate secondary sources, interviews, and other sources to  support our work. We submitted key report excerpts to agency officials in  each country for their review and verification, and we incorporated their  technical corrections as necessary.
We conducted this performance audit from May 2013 to November 2014  in accordance with generally accepted government auditing standards.  Those standards require that we 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. We believe that  the evidence obtained provides a reasonable basis for findings and  conclusions based on our audit objectives.
section_title: Appendix II: Use of Forced-Transfer IRAs
paragraphs: Active plans force out separated participants primarily to reduce plan  costs, administrative burden, and liability. In response to a poll conducted  by PLANSPONSOR.com through its newsletter, some respondents  (made up of both plans and third party administrators) indicated that plans  chose to use forced transfers for balances of $5,000 or less because they  wanted to reduce costs from having additional participants who have  small accounts. Specifically, plans pay fees based on the total number of  participants or on the average plan balance. The administrative burden on  plans is another incentive to force out participants with inactive accounts,  absent participant instruction, into forced-transfer IRAs. Other  respondents to PLANSPONSOR.com’s query reported that they used  forced transfers because they wanted to reduce the complexity and  administrative responsibilities associated with locating separated, non  cashed-out participants. Also, small plans may wish to avoid the  additional disclosure requirements and expenses associated with  separated employees. In addition, active plans may opt to force out  separated participants with eligible balances to reduce the plans’ legal  liability related to those individuals. Lastly, plans also use forced-transfer  IRAs to help reduce their ongoing responsibility with regard to uncashed  checks.
When transferring an account into a forced-transfer IRA, a plan must first  notify the participant of its intention to forcibly transfer the account and  that if the participant does not instruct otherwise, the account will be  transferred into a forced-transfer IRA. An example of such a notice is  shown in appendix V. See figure 12 for an example of how the forced- transfer IRA process works for active 401(k) plans.
Although a plan must try to locate a missing participant before seeking to  force the participant out of the plan, actually forcing such a participant out  of the plan and initiating the forced transfer to an IRA does not require  any additional last-ditch efforts to locate the participant. For example, a  plan might get back some returned plan communications mailed to a  separated participant and search unsuccessfully for an updated address.  Later, when that plan sweeps out the balances of separated participants,  the plan is not required to search again for the missing participant.  Instead, efforts to locate the missing participant are at the discretion of  the provider and generally at the expense of the individual participant’s  balance.
subsections: section_title: Active 401(k) Plans Forcibly Transfer Billions of Dollars in Separated Participants’ Savings
paragraphs: One industry survey shows that about half of active 401(k) plans force out  separated participants with balances of $1,000 to $5,000. We collected  forced-transfer IRA account data from 10 IRA providers that have,  together, opened more than 1.8 million forced-transfer IRA accounts  totaling $3.4 billion in retirement savings, as of 2013. One of the largest  forced-transfer IRA providers has projected that more than 600,000 new  forced-transfer IRAs could be created each year, given attrition rates, the  percentage of vested balances under $5,000, and the rate of non- responsiveness among separating participants faced with making a  distribution choice. Based on that estimate and assuming an average  account balance of $2,500 (half of the $5,000 cap), a total of $1.5 billion  would be transferred into these accounts each year.
Data provided by SSA are consistent with those estimates. From 2004 to  2013, separated participants left more than 16 million accounts of $5,000  or less in workplace retirement plans, with an aggregate value of $8.5  billion. Those data reflect both defined contribution and defined benefit  plans, but even if a portion of the accounts are in defined contribution  plans, it suggests that there are millions of accounts and billions in  savings that could be transferred to IRAs if those plans choose to  retroactively force transfer eligible accounts.
Although the plans reflected in SSA’s data had not yet forcibly transferred  these small accounts, the defined contribution plans may still do so. For  example, a plan may choose to sweep out eligible accounts once a year  or on some periodic basis.
Plans’ use of forced-transfer IRAs is also increasing. Some forced- transfer IRA providers have seen the number of new forced-transfer IRAs  increase each year. In addition, the largest of the specialty providers we  interviewed said that the number of new forced-transfer IRAs that they  administered increased nearly 300 percent over 5 years, from 26,011 new   They expect that upward trend to  accounts in 2008 to 103,229 in 2012.continue. Industry professionals also said that the wider use of automatic  enrollment has the potential to result in greater use of forced-transfer  IRAs, as participants who are relatively unengaged, and thus less likely to  make a choice about where to transfer their savings, are forced out by  plans when they separate.
Finally, some plans do not yet force out participants because their plan  documents do not, as required, include provisions for forcing them out  and transferring their eligible 401(k) plan accounts into forced-transfer  IRAs. The PSCA survey of 401(k) plans stated that about 40 percent of  plans do not currently force out participants with balances of $1,000 to  $5,000. If these plans begin to use forced transfers, they can force out  participants with eligible balances going forward and go back and sweep  out participants who left small accounts years ago. Thus, anyone with a  small balance left with a past employer’s 401(k) plan could find  themselves notified of the plan’s intention to force them out—no matter  how long ago their separation—and of a potential transfer to an forced- transfer IRA.
section_title: Forced-Transfer IRAs Are Used to a Lesser Extent by Terminating Plans
paragraphs: Several forced-transfer IRA providers we spoke with said that forced  transfers from terminating plans represent a small part of their forced- transfer IRA business. For example, one provider said that terminated  plan transfers constitute 9 percent of the provider’s forced-transfer IRAs.  Some providers do not offer forced-transfer IRAs to terminating plans.  One of the largest providers told us that it offers forced-transfer IRAs as  an accommodation to ongoing plan sponsor clients, but typically does not  offer them if the plan is terminating. In some cases, forced-transfer IRA providers will provide the accounts for terminating plans that cannot  secure a contract with a larger service provider.
Despite the limited use of forced-transfer IRAs by terminating plans, they  have prescriptive requirements for notifying participants prior to the  forced transfer of balances, which include using certified mail, reviewing  other employee benefit plan records for more up-to-date information, and  contacting the designated beneficiary to get more accurate contact  information. As a result, participants in terminating plans are more likely  to have an opportunity to select a distribution destination other than a  forced-transfer IRA or individual retirement annuity.
section_title: Appendix III: Projected Outcome of a $1,000 Balance Left in a Forced-Transfer IRA for 30 Years
paragraphs: Through interviews, data requests, and web research we collected  forced-transfer IRA terms for 10 forced-transfer IRA providers. Almost all  providers offer varying account terms for different forced-transfer IRAs. In  all, there were 19 different account terms from the 10 providers for which  we collected data. We collected data on account opening fees, initial  address search fees, ongoing account fees, ongoing address search  fees, and investment returns. Some forced-transfer IRA providers also  charge fees for certain transactions, including distributions and account  closings, but we did not incorporate them into our projections, which show  the effect of the account terms if the account holder takes no action and  the balance remains in the forced-transfer IRA. While not all forced- transfer IRA terms result in the balance decreasing to $0 over 30 years,  the growth of those account balances is less than would have resulted  had the funds been invested in a typical target date fund. In contrast to  the projected outcomes shown in table 7, the projected balance of $1,000  in a forced-transfer IRA with a $6.75 set-up fee, a $42 annual fee (the  median fees among the combinations we reviewed), and a 6.30 percent   would be $2,708 after 30 years or growth of  average target date return,173 percent.
section_title: Appendix IV: Projected Vested Retirement Savings of a Low-Wage 401(k) Plan Participant Given Pessimistic, Moderate, and Optimistic Assumptions (Table)
paragraphs: Appendix IV: Projected Vested Retirement  Savings of a Low-Wage 401(k) Plan Participant  Given Pessimistic, Moderate, and Optimistic  Assumptions (Table)
subsections: section_title: Vested balance after 2.2 year tenure assuming a policy of…
paragraphs: Immediate vesting   3-year cliff vesting  5-year graduated vesting  6-year graduated vesting  $3,185
Under 3-year cliff vesting, the employer’s contribution and investment returns thereon are 100  percent vested after 3 years of service.
Under graduated vesting, the employer’s contribution and investment returns thereon are  partially vested after each year of service, depending on how long the graduated vesting period  is. In our projections, we used:  for a 5-year vesting schedule: 0, 25, 50, 75, 100 percent and the ends of years 2 through 5;  and  for a 6-year gradated vesting schedule:0, 20, 40, 60, 80, and 100 percent at the end of  years 2 through 6.
section_title: Appendix V: Example Notification of Plan Forced-Transfer Policy
section_title: Appendix VI: Selected Reporting and Disclosure Requirements at Participant Separation and Certain Plan Events (Table)
paragraphs: Appendix VI: Selected Reporting and  Disclosure Requirements at Participant  Separation and Certain Plan Events(Table)
subsections: section_title: Sending entity Plan
paragraphs: Form   1099-R,  Distributions From Pensions,  Annuities, Retirement or Profit-Sharing  Plans, IRAs, Insurance Contracts, etc,  26 U.S.C. § 6047(d).  26 C.F.R. § 31.3405(c)-1.  402(f) Special Tax Notice  (or Rollover Notice),  26 U.S.C. § 402(f)(1)
Participant  *Only  required for  balances over  $5,000.
Notice of Right to Defer Distribution  (Or Participant Consent Notice),  26 C.F.R. § 1.411(a)-11(c) .   8955-SSA,  Annual Registration Statement  Identifying Separated Participants with  Deferred Vested Benefits,  26 U.S.C. § 6057(a).
Includes same information as the 8955-SSA; plan  name, name and address of plan administrator,  name of participant, nature, amount and form of  the deferred vested benefit.
1099-R,  Distributions From Pensions,  Annuities, Retirement or Profit-Sharing  Plans, IRAs, Insurance Contracts, etc,  26 U.S.C. § 6047(d).  26 C.F.R. § 31.3405(c)-1.
section_title: Sending entity Plan
paragraphs: Form   402(f) Special Tax Notice  (or Rollover Notice),  26 U.S.C. § 402(f)(1)
Summary description of form contents  Explains the tax implications of the different  distribution options, including explanation of the  rollover rules, the special tax treatment for cash- outs (also called lump-sum distributions), and the  mandatory withholding of 20 percent of  distributions (including those that result in an  indirect rollover).Notifies participant that, absent any participant  instructions, a distribution will be paid to an  individual retirement plan.
Reports contributions, rollovers, transfers, and  recharacterizations, as well as the fair market  value and whether a required minimum  distribution is required.
1099-R,  Distributions From Pensions,  Annuities, Retirement or Profit-Sharing  Plans, IRAs, Insurance Contracts, etc,  26 U.S.C. § 6047(d).  26 C.F.R. § 31.3405(c)-1.  402(f) Special Tax Notice  (or Rollover Notice),  26 U.S.C. § 402(f)(1)
Explains the tax implications of the different  distribution options, including explanation of the  rollover rules, the special tax treatment for cash- outs (also called lump-sum distributions), and the  mandatory withholding of 20 percent of  distributions (including those that result in an  indirect rollover).
Participant  *Only  required for  balances over  $5,000.
Notice of Right to Defer Distribution  (Or Participant Consent Notice),  26 C.F.R. § 1.411(a)-11(c) (2012).   1099-R,  Distributions From Pensions,  Annuities, Retirement or Profit-Sharing  Plans, IRAs, Insurance Contracts, etc,  26 U.S.C. § 6047(d).  26 C.F.R. § 31.3405(c)-1.
section_title: Sending entity Plan
paragraphs: Form   402(f) Special Tax Notice  (or Rollover Notice),  26 U.S.C. § 402(f)(1)
Participant  *Only  required for  balances over  $5,000.
Notice of Right to Defer Distribution  (Or Participant Consent Notice),  26 C.F.R. § 1.411(a)-11(c) (2012).
Summary description of form contents  Explains the tax implications of the different  distribution options, including explanation of the  rollover rules, the special tax treatment for cash- outs (also called lump-sum distributions), and the  mandatory withholding of 20 percent of  distributions (including those that result in an  indirect rollover).   Notifies participant of right to defer receipt of an  immediately distributable benefit. To obtain  participant’s consent to distribution in excess of  $5,000 prior to plan’s NRA, participant must be  given a description of the plan’s distribution  options and be informed of right to defer  distribution and the consequences of failing to  defer.    Reports contributions, rollovers, transfers, and  recharacterizations, as well as the fair market  value and whether a required minimum  distribution is required.  Optional request for a determination on the plan’s  qualification status at the time of the plan’s  termination.
Notifies employees, participants and beneficiaries  that an application for determination is being  submitted to the IRS and of their right to comment  on the plan.  Notice must be posted or sent (electronic media  permissible) before the application is submitted to  the IRS—between 10 and 24 days of the  application date.
Notifies participants and beneficiaries of the plan’s  termination and distribution options and  procedures to make an election. In addition, the  notice must provide information about the account  balance; explain, if known, what fees, if any, will  be paid from the participant or beneficiary’s  retirement plan; and provide the name, address  and telephone number of the individual retirement  plan provider, if known, and of the plan  administrator or other fiduciary from whom  information about the termination may be  obtained. See 29 C.F.R. § 2550.404a-3.  The notice will be given during the winding up  process of the plan termination. Participants and  beneficiaries have 30 days from the receipt of the  notice to elect a form of distribution.
section_title: Sending entity Plan
paragraphs: Receiving  entity  Department of  Labor (DOL),  IRS, Pension  Benefit  Guaranty  Corporation  (PBGC)
Form   Final Form 5500, Annual  Return/Report of Employee Benefit  Plan  (including any applicable schedules)  26 U.S.C. § 6058(a).  29 U.S.C. § 1024.
Summary description of form contents  Indicates when all assets under the plan have  been distributed when “final return/report” box on  the form 5500 is checked. Indicates that all assets  were distributed and current value of assets at the  date of distribution via schedule H (for plans with  100 or more participants) and schedule I (plans  with less than 100 participants).
Gives notice of certain plan mergers,  consolidations, spinoffs or transfers of assets or  liabilities from one plan to another. Each plan with  a separate EIN and plan number involved in  merger or transfer of assets or liabilities must file.  For spinoffs, only plan in existence before spinoff  must file.  Form must be filed at least 30 days prior to a  merger, consolidation, spinoff, or transfers of plan  assets or liabilities to another plan.
Final Form 5500, Annual  Return/Report of Employee Benefit  Plan  (including any applicable schedules)  26 U.S.C. § 6058(a).  29 U.S.C. § 1024.
Indicates when all assets under the plan have  been distributed when “final return/report” box on  the form 5500 is checked. Indicates that all assets  were distributed and current value of assets at the  date of distribution via schedule H (for plans with  100 or more participants) and schedule I (plans  with less than 100 participants), Schedules H and  I also provide the net value of all assets  transferred to and from the plan, including those  resulting from mergers and spinoffs.
Includes the new plan sponsor’s name and  address.
The Internal Revenue Code (IRC) requires that participants with an eligible rollover distribution have  the option to roll their distributions into an IRA or another employer’s tax-qualified plan in the form of a  direct rollover. 26 U.S.C. § 401(a)(31)(A).  “fees and expenses (including administrative or investment-related fees) outside the plan may be  different from fees and expenses that apply to the participant’s account and contact information for  obtaining information on such fees.” 73 Fed. Reg.  The Economic Growth and Tax Relief Reconciliation Act of 2001 added the notice provision and  required the plan administrator notify the distributee in writing (either separately or as part of the  § 402(f) notice). Pub. L. No. 107-16, § 657, 115 Stat.38, 135 (codified at 26 U.S.C. §§ 401(a)(31)(B)  and 402(f)(1)(A)). In addition, to meet the conditions of DOL’s safe harbor and therefore, be deemed  to have satisfied their fiduciary duties with regard to mandatory distributions, plans must provide  participants with a summary plan description, or a summary of material modifications, meeting certain  requirements. Specifically, it must describe the plan’s forced-transfer IRA provisions (including an  explanation that the forced-transfer IRA will be invested in an investment product designed to  preserve principal and provide a reasonable rate of return and liquidity), a description of how fees and  expense attendant to the individual retirement plan will be allocated (i.e., the extent to which  expenses will be borne by the account holder alone or shared with the distributing plan or plan  sponsor), and the name, address and phone number of a plan contact (to the extent not otherwise  provided). 29 C.F.R. § 2550.404a-2.
section_title: Appendix VII: Relevant Features of Pension Systems in the Six Countries Selected for This Report
paragraphs: At a glance  Since 2005, individuals in Australia  have been able to select a plan  (super) of their choosing to which  employers they have throughout  their career will contribute.  However, workers not actively  choosing a plan may accumulate  accounts in multiple plans selected  by their employers. According to  Australian Treasury officials, many  Australians lose track of their  accounts, especially when they  change jobs, names, and  addresses. Small balances may be  eaten away by fees, necessitating  forced-transfers to preserve their  value.
Pension registry  The Australian Tax Office (ATO) has established an online tool called  SuperSeeker that individuals can use to find lost retirement accounts, via  the governmental portal myGov. A smart phone application is also  available for accessing the information.
Information provided to participants can be used for retirement planning  purposes, including consolidation, in order to improve participant  retirement security. However, The SuperSeeker does not perform  analytical tasks, such as showing retirement outcomes under various  scenarios, according to government officials we interviewed. Participants  who find lost accounts upon searching for them are able to consolidate  them online in a plan of their choice generally within 3 working days.  The  SuperSeeker now allows paperless “point and click” consolidation.  According to ATO, nearly 155,000 accounts were consolidated in 2013-14  with a total value of about AUD 765 million. In addition, the number of  lost accounts went down by 30 percent between June 2013 and June 2014.
The pension registry is primarily financed through a tax on the  superannuation sector, and in some cases such as funding the letter  campaign to raise awareness, from general revenue. The tax has  fluctuated between AUD 2.4 million in 2002 and AUD 7.3 million in  2011, according to the ATO.
At a glance  Officials told us participants  changing jobs can leave their  pension account behind or roll it  over (1) to the plan of the new  employer, (2) to a “welcome- structure” for outgoing workers  often taking the form of a group  insurance, or (3) to a qualified  individual insurance contract.  Sectoral industry plans, negotiated  in collective bargaining  agreements, allow participants who  change jobs but stay in the same  industry to keep one retirement  account, according to officials. With  defined benefit plans, vested  benefits in dormant accounts are  frozen ( i.e. not subject to further  cost of living or wage increases)  officials told us, whereas with  defined contribution plans,  separated participants’ dormant  accounts receive the same return  as active accounts but the  minimum return obligation that the  plan sponsor must meet, currently  set at 3.25 percent of account   balances per year, is frozen.
Pension registry  The pension registry in Belgium has two components, according to  officials: a database of national pensions (similar to Social Security) and  one covering workplace retirement accounts, which includes both active  and inactive accounts. The pension registry does not have information on  personal retirement savings. Since the enactment of legislation in 2006,  the Belgian government has been collecting data on workplace accounts  for private sector participants and the self-employed, according to officials.  The pension registry extracts some information from existing databases  (such as the registry of individuals and employers), and data from service  providers, officials said. The registry stores some of the information in its  database.
From 2016, the new pension registry will take over the provision of  information on inactive accounts, as indicated in the law adopted in May  2014, according to Belgian officials, and workers with inactive accounts  will no longer receive statements from plan sponsors or pension  institutions but will be able to consult the registry online. Officials also told  us the registry will help the government gather up-to-date information on  retirement plans. The government finances the pension registry from  general revenue, officials said. Once fully functional, the annual cost of  running the registry will be around 3.5 million euro, according to Belgian  pension registry officials we interviewed.
At a glance  Multi-employer industry plans (one  plan covers all workers in an  industry) allow participants who  change jobs but stay in the same  industry to use just one retirement  account. When individuals change  industries, the account remains  inactive in the plan, unless the  participant takes action to roll it in  to the new industry plan, according  to Danish officials. Plans sign  agreements requiring them to  accept transfers requested by  participants.
Pension registry  The Danish Insurance Association’s pension registry called PensionsInfo  collects and consolidates retirement savings information from plans and  insurers when a participant logs-in, according to materials provided by  Danish Insurance Association representatives we interviewed. It stores  only the government-issued identification numbers of participants in each  plan.
Individuals can view contact information for each plan or insurer, which  they can use to consolidate accounts. It is voluntary for providers to allow  access to their records, but virtually all do, including government  authorities who provide information on national (Social-Security-like)  retirement benefits. PensionsInfo provides current account balances and  projected future distribution amounts for public, workplace and private  retirement benefits under various scenarios, for example, comparing lump- sum withdrawals, phased withdrawals and whole life annuities at different  retirement ages. Inactive accounts can be flagged for participants in a  pop-up window recommending consolidation, according to officials at the  Danish Insurance Association. Participants can print or save the  consolidated account information for their records, share it with a personal  financial advisor, or use it in conjunction with retirement planning software  designed to work with it. Insurers and plans voluntarily pay for the pension  registry. The fee paid by each is calculated on the basis of the number of  participants requesting to view data from them.
Recent data from the European Actuarial Consultative Group indicate that  the number of unique visitors to the registry has increased from 512,218 in  2010 to 742,426 in 2011 to reach 1,132,488 in 2012. The annual cost of  maintaining the pension registry is estimated at 1.5 million euro.
At a glance  Multi-employer industry plans, in  which a single plan generally  covers employees in one industry,  allow participants who change jobs  but stay in the same industry to  keep one pension account.  According to an Organization for  Economic Co-operation and  Development Working Paper,   about three quarters of workers  belong to industry wide multi- employer plans.
Pension registry  The Netherlands launched the online pension registry in January 2011.  The decision to establish the registry was part of the 2006 Pension Act.
Participant can see up-to-date pension information on active and also  inactive accounts associated with previous employers, including account  balances, account numbers and plan contact information. Active account  information has to be mailed to participants on an annual basis and  inactive account information every 5 years, according to Dutch officials.  Recent data from the European Actuarial Consultative Group shows that  the number of unique visitors to the registry was 1,500,000 in 2011 and  1,100,000 in 2012.
Pension providers, not the government, finance the pension registry at an  annual cost of 2.3 million euro or .49 euro per active participant. Officials  also said the cost of developing the pension registry was split between the  pension fund industry and the insurance schemes industry, based on their  share of the workplace retirement plan market. It took about 3 years and  cost about 10 million euro to develop the new pension registry, according  to Dutch government officials we interviewed.
At a glance  The Swiss system is an example  of how a retirement account can  follow a participant as they move  from job to job. Participants are  required to transfer inactive  workplace retirement accounts left  with previous employers, according  to Swiss government officials we  interviewed. There are a variety  of defined benefit and defined  contribution plan types in  Switzerland. As accounts move  from plan to plan, conversion rules  established in law govern the value  of transferred assets.
Pension registry  There is no pension registry providing consolidated current online  workplace retirement account information in Switzerland, according to  Swiss government officials. Swiss Officials said when participants need  information on a workplace retirement account started at a past employer,  they refer to information provided by the employer or plan or contact the  Guarantee Fund, which provides insolvency insurance to plans in  Switzerland. Participants can contact officials at the Guarantee Fund by  phone or e-mail to identify accounts that were forced out of their plan  because they were inactive, according to Swiss officials and the  Guarantee Fund’s 2013 annual report.
Swiss officials said participants can use information on their inactive  accounts to roll them over to the plan of their new employer. They said  participants are required by Swiss law to transfer their retirement account  when they change jobs, and because enrollment is generally mandatory,  officials said employers will often help employees roll their money from  their old plan to their new plan. Individuals without a new plan are required  to purchase a vested benefit account at a bank or insurance company.
At a glance  Parliament of the United Kingdom  adopted The Pensions Act 2014  which will transfer small inactive  workplace retirement accounts to  an individual’s active plan. Before  the legislation, plans had ultimate  discretion over whether or not to  accept a transfer, according to a  U.K. government report, and the  onus for pursuing a transfer rested  on individuals. Regulations will now  be made to automatically transfer  workplace retirement benefits,  according to a U.K. official,  preventing a plan from declining to  accept such transfers. That  process generally applies to  defined contribution plans most  U.K. participants are automatically  enrolled in. Before the Pensions  Act 2014, small, inactive retirement  accounts were being reduced by  fees and managed separately, and  in an inefficient manner.
Pension registry  There is no pension registry in the United Kingdom providing direct access  to consolidated retirement account information online, according to U.K.  government officials. Individuals get information on lost accounts through  a government service called the Pensions Tracing Service. Participants  use the service to trace lost workplace or private retirement account based  on information the participant supplies. The Pensions Tracing Service  requests information from participants on their workplace or personal  pension plan, such as names, addresses, dates of employment or  participation in the plan, job title, and industry.
Individuals use the contact information of the plan administrator to  determine their eligibility for retirement benefits, and if eligible, to claim  them, according to a U.K. government research report. If the trace is  successful, the Pensions Tracing Service provides the current name or  contact details of the plan administrator to the individual. Participants can  access the Pensions Tracing Service online, or by phone or mail.
The Pensions Tracing Service is a free service available to the general  public in the United Kingdom provided by the U.K. Department for Work  and Pensions.
section_title: Appendix VIII: Comments from the U.S. Department of Labor
section_title: Appendix IX: Comments from the Social Security Administration
section_title: Appendix X: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Tamara Cross (Assistant  Director), Mindy Bowman and Angie Jacobs (Analysts-in-Charge), Ted  Leslie, Najeema Washington, and Seyda Wentworth made key  contributions to this report. James Bennett, Jennifer Gregory, Kathy  Leslie, Frank Todisco, Walter Vance, Kathleen van Gelder, and Craig  Winslow also provided support.
Private Pensions: Clarity of Required Reports and Disclosures Could Be  Improved. GAO-14-92. Washington, D.C., November 21, 2013.  401(k) Plans: Labor and IRS Could Improve the Rollover Process for  Participants. GAO-13-30. Washington, D.C.: March 7, 2013.
Social Security Statements: Observations on SSA’s Plans for the Social  Security Statement. GAO-11-787T. Washington, D.C., July 8, 2011.
Defined Contribution Plans: Key Information on Target Date Funds as  Default Investments Should Be Provided to Plan Sponsors and  Participants. GAO-11-118. Washington, D.C.: January 31, 2011.
Individual Retirement Accounts: Government Actions Could Encourage  More Employers to Offer IRAs to Employees. GAO-08-590. Washington,  D.C.: June 4, 2008.