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GAO suggests changes to the Form 5500 to promote clarity and consistency. We agree.

Greg Carpenter

December 29, 2022


I think it is safe to say few people like Form 5500.

Mandated by ERISA, the form is filed annually with the DOL. It is a hodge-podge of plan cash flows, investment performance data and fee disclosures. Both the DOL and the IRS use the data gathered to keep tabs on company-sponsored retirement plans, but the information contained in the form is inconsistent from plan-to-plan, unclear, and often focused on irrelevant information.

401k service providers dislike it because completing the form for clients is like playing a game of “Twister.” Financial data and fees must be reinterpreted according to the form’s arcane disclosure rules. Required Form 5500 fee disclosures do not align with other fee disclosure regulations, resulting in providers keeping two sets of fee records.

Most plan sponsors have no idea what it is used for. It is simply “The Form” that needs to be filed, another dubious government regulation.

Once filed, Form 5500 becomes public information, and theoretically may be used to assess and compare plan performance and fees. In reality, the Form 5500 does not produce “apples-to-apples” data, making it next to worthless as a source for comparison.

We are very much in favor of revising the form for greater clarity, consistency and ease of preparation and use.

GAO proposes three specific areas for Form 5500 changes

This week the Federal General Accountability Office (“GAO”) proposed three areas for revisions. Our analysis:

Required Form 5500 fee disclosures do not align with other fee disclosure regulations, resulting in providers keeping two sets of fee records. Distinctions in types of services provided are not clearly stated, resulting in inconsistent and incomplete data. Small business retirement plans (with fewer than 100 employees), are not required to provide critical information on plan investments and fees. Larger plans are required to file certain information, but because of the murky coding used to describe services provided, the net result is an incomplete and confusing picture of plan fees.

Our take:

Accurate fee disclosure is essential. Let’s make fee disclosures on the 5500 consistent with the plan-level fee disclosures implemented in 2012. While the system is not perfect, consolidating fee disclosures to one set of data would be a great start. And while we are at it, let’s finally define provider services – it is just not that difficult. There are recordkeepers, TPAs, custodian, trustees, financial advisors, and investment managers – define the buckets and force providers to pick the bucket. We need to get to benchmarking!

Plan asset categories are broken out differently than is industry practice. Investment structure, risk, and fees are not specifically addressed.

Our take:

The problem is that the 5500 is trying to capture data that is not relevant. Twenty years ago, the distinction between investment vehicles made a big difference – we simply didn’t have the efficient investment options we have today. What we need disclosed on plan investments are the asset values, performance and fees, and that should be the focus. Gathering these data points will provide the much needed apples-to-apples data and allow benchmarking across plans. (See a pattern?)

No structured, data-searchable format for attachments to the form. In addition, naming conventions and identification markers are inconsistent, making any potential search difficult or impossible.

Our take:

First, we have to make sure we have appropriate and consistent data. Then we need to normalize reporting requirements for all plans, regardless of size. If the data required for filing are clear and consistent, it will be cheaper to file every plan the same way – we will have done away with exception processing. Once the data are comprehensive, clear and consistent, adding the search features will be a breeze. Put a search function on now – ugh!

Cheers to the GAO. These points needed to be made. Completing these changes will make the Form 5500 relevant, and give plan sponsors a true benchmarking tool will drive industry efficiency. Clarity is the new frugal!

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