Reports News from the GAO https://www.gao.gov/rss/topic Tue, 05 Nov 2024 04:32:29 -0500 GAO https://www.gao.gov/themes/custom/gao_uswds/img/gao-logo-rss.gif https://www.gao.gov/rss/topic Feed provided by GAO. https://www.gao.gov/products/gao-24-107125 What GAO Found Fees for 401(k) plans have generally decreased since 2012, and selected stakeholder groups GAO interviewed reported that multiple factors, including 401(k) fee disclosures, may have contributed to changes in 401(k) fees and investments. Recognizing the importance of plan sponsors (employers) and participants (employees) having greater awareness of fees and investment performance, the Department of Labor (DOL) issued two 401(k) fee disclosure regulations in 2010 and 2012. Literature GAO reviewed showed the disclosures might have influenced service providers that helped operate retirement plans to charge more transparent fees and participants to invest in funds with lower fees. Stakeholder groups said fee disclosures have led to positive benefits. Specifically: Fee disclosures provided to plan sponsors. The fee disclosures provided to plan sponsors increased their awareness and ability to manage their plans, according to five stakeholder groups. In addition, five stakeholder groups indicated that the fee disclosures benefited smaller plans more than larger plans. For example, sponsors of smaller plans may not have the resources to otherwise access fee information, according to two stakeholder groups. Fee disclosures provided to participants. Fee disclosures given to participants can increase participants' knowledge of and involvement in their 401(k) plans, according to six stakeholder groups. For example, one stakeholder group shared that the disclosures might give participants more confidence to participate in 401(k) plans. While stakeholder groups did not identify any ongoing challenges with the fee disclosures for plan sponsors, six stakeholder groups raised concerns about whether participants understand the provided information. To address this issue, plan sponsors and service providers can modify their fee disclosures or provide education to increase participant financial literacy, according to these stakeholder groups. In addition, two stakeholder groups noted that even if not all participants read or understand the disclosure, the participants who do could still create positive change in the plan for all participants. DOL assists plan sponsors and service providers with following the regulations by providing a variety of resources and monitoring implementation. For example, DOL maintains a phone help line to answer questions about employment benefits, including 401(k) plan administration and compliance. In addition, DOL continues to assess implementation of fee disclosures through the preparation of two statutorily required reports on disclosures, due December 2025. Why GAO Did This Study Millions of workers save for retirement through employer-sponsored 401(k) plans. Plan sponsors hire service providers to help operate their retirement plans. Service providers charge fees for activities such as tracking participants' investment contributions and providing investment guidance. These fees are paid by the plan sponsor or by plan participants. When paid by participants, such fees can significantly impact retirement savings growth, according to DOL. One DOL regulation requires service providers to share information about the fees they receive for providing plan-related services. Service providers must furnish this information to plan fiduciaries, which include plan sponsors, so that they can make informed decisions in selecting and monitoring service providers. A second DOL regulation requires plan administrators, which could be the plan sponsor, to provide plan and investment fee information to participants and beneficiaries so that they have information about the cost of the plan's investment options. GAO was asked to review plan sponsor and service provider perspectives on these fee disclosure regulations. This report addresses: literature and selected stakeholder groups' views on how fee disclosure regulations affected 401(k) fees and investments; selected stakeholder groups' views on the benefits and challenges plan sponsors and service providers experienced as a result of the fee disclosure regulations; and how DOL assisted plan sponsors and service providers with following the disclosure regulations. GAO reviewed relevant literature and interviewed representatives from a nongeneralizable selection of 13 stakeholder groups. GAO selected groups that represent service providers or plan sponsors, research organizations, and consultants who are knowledgeable about the aspects of 401(k) investments, fees, or regulations included in GAO's review. GAO also reviewed relevant portions of DOL's website and the agency's documents related to the 401(k) fee disclosures and interviewed DOL officials. GAO also interviewed stakeholders to understand their perspectives on DOL's efforts. For more information, contact Tranchau (Kris) Nguyen at (202) 512-7215 or nguyentt@gao.gov. Mon, 28 Oct 2024 07:58:22 -0400 /products/gao-24-107125 Letter Report https://www.gao.gov/products/gao-24-106770 What GAO Found The Social Security Administration (SSA) launched the Electronic Consent Based Social Security Number Verification service in June 2020. The service seeks to reduce synthetic identity fraud, which combines fictitious and real information to fabricate an identity. The service allows authorized entities—generally financial institutions and their service providers—to verify an individual's name, Social Security number, and date of birth electronically. SSA spent about $62 million from fiscal year (FY) 2018 through FY 2023, based on SSA data. However, SSA did not follow agency guidance for planning IT investments when estimating costs for the service. Moreover, its guidance on cost estimation did not consistently incorporate GAO best practices, such as documenting the estimation process. By establishing appropriate controls to ensure that all significant IT investments follow agency guidance and updating guidance to incorporate additional best practices, SSA could improve cost estimation for future projects. SSA is required to fully recover the service's costs and collected about $25 million in user fees (40 percent of $62 million total costs) as of the end of FY 2023. SSA has not met its projections for fee collections due to lower-than-expected industry participation. SSA will need to collect about $14 million annually to meet its goal to recover all costs by the end of FY 2027, based on GAO's analysis (see figure). But it is unclear if SSA can meet its goal without increasing users or fees. Subscription data through December 2023 demonstrate that the service has not significantly increased users since enrollment opened in FY 2022, and fee collections decreased after SSA increased fees in July 2023. About $14 Million in User Fees Is Needed Annually to Meet Cost Recovery Goal for the Electronic Consent Based Social Security Number Verification Service SSA officials told GAO they did not plan to take significant steps to increase use of the service. Industry participants GAO interviewed cited several factors limiting their use, such as difficult-to-interpret verification results. SSA also had not established performance measures and goals for the service's use and benefit. SSA could better ensure the service achieves its intended purpose of reducing synthetic identity fraud by developing strategies and assessing tradeoffs for expanding its use and establishing related performance measures and goals. Why GAO Did This Study Synthetic identity fraud is a growing concern among financial institutions, which reported $182 million in related suspicious activity in 2021. The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 directed SSA to combat such fraud by developing a database to electronically verify identifying information. However, questions have been raised about the service's financial viability and use by industry participants. GAO was asked to examine, among other objectives, the extent to which SSA has (1) followed guidance and best practices for cost estimation for its Electronic Consent Based Social Security Number Verification service, (2) designed user fees to promote cost recovery for the service, and (3) taken steps to expand use and benefit of the service. GAO reviewed relevant laws, guidance, and agency documentation and data and interviewed SSA officials responsible for the service. GAO also interviewed 16 industry participants selected to reflect a mix of entities and uses of the service. Thu, 10 Oct 2024 07:57:13 -0400 /products/gao-24-106770 Letter Report https://www.gao.gov/products/gao-24-104632 What GAO Found Financial professionals providing retirement investors fiduciary investment advice must generally avoid conflicts of interest. Conflicts of interest can arise from, among other things, proprietary products, payments from third parties, and compensation arrangements, among other things. The Department of Labor (DOL) issued a final rule in 2016 that expanded the definition of fiduciary investment advice. That rule was vacated in 2018. Firm responses to DOL's rule change varied. To comply, some firms moved toward standardized compensation for financial professionals, and away from compensation that can depend on recommendations, according to several industry association representatives. After the rule was vacated, some firms reversed certain practices established under the rule, and other firms kept their new practices. Conflicts of interest disclosures are not always clear or understood. GAO found many conflicts associated with recommending one product over another in a review of over two thousand descriptions of conflicts of interest in required disclosures. Firms' disclosures of conflicts are available to investors, although—based on GAO's review of disclosures and prior GAO work—investors may not review or understand these documents. Federal agencies encourage investors to ask professionals about conflicts of interest, but GAO's undercover calls found that doing so may not always produce helpful information. Mutual funds that compensate financial professionals are associated with lower average returns. GAO's analysis of Morningstar mutual fund data from 2018 to 2021 found that funds that compensate financial professionals based on whether their clients invest in those funds (a proxy for conflicts) is associated with lower average returns before fees. This could reduce retirement savings' growth over time and could make a difference of tens of thousands of dollars for investors in actively managed domestic equity funds at retirement. IRA fiduciary oversight lacking. By law, the Internal Revenue Service (IRS) has sole enforcement authority over firms and financial professionals acting as fiduciaries under the Internal Revenue Code for Individual Retirement Accounts (IRA fiduciaries). IRS's approach to protect IRA investors from the conflicts of interest of IRA fiduciaries who engage in prohibited transactions relies on the IRA fiduciary self-reporting to IRS and paying the applicable excise tax, according to IRS officials. According to IRS, the excise tax is intended to safeguard income for retired workers by taxing transactions deemed particularly objectionable because of the potential for abuse of fiduciary responsibilities by parties having conflicts of interests. IRS officials said their practice regarding IRA fiduciaries is to enforce prohibited transactions that DOL refers to them. However, DOL does not have authority to audit IRAs for prohibited transactions and, therefore, is generally unable to refer IRA fiduciaries to IRS for excise tax enforcement. Until IRS implements an audit process for IRA fiduciaries, IRA investors may continue to be exposed to adverse impacts of prohibited transactions that can jeopardize their financial security in retirement. Why GAO Did This Study The interests of financial professionals and firms often conflict with the interests of retirement investors. This could create risks for millions of investors with over $18 trillion dollars in retirement savings in 401(k) plans and IRAs. Although federal agencies have taken steps to mitigate such conflicts, GAO was asked to assess where issues around conflicts of interest and investment advice stand today. This report examines (1) industry changes to address the 2016 rule; (2) conflicts that can affect retirement investors, how they are communicated, and their association with investment returns; and (3) federal oversight of conflicts and actions that could improve oversight. GAO interviewed financial industry associations to identify industry changes, examined disclosures from over 15,000 firms and conducted undercover calls to 75 financial professionals to identify conflicts and determine how they are communicated. GAO also performed a regression analysis to assess the association between conflicts and investment returns; and reviewed relevant federal laws and regulations and interviewed agency officials and others. Wed, 28 Aug 2024 09:55:33 -0400 /products/gao-24-104632 Letter Report https://www.gao.gov/products/gao-24-106319 What GAO Found The Federal Retirement Thrift Investment Board (FRTIB) did not fully implement key acquisition management practices to ensure the success of Thrift Savings Plan (TSP) products and services. Specifically, while the agency identified its needs and assessed alternatives to meet those needs, it did not develop policies and procedures to govern the way it acquires products and services until after the TSP services acquisition was underway; ensure that the new TSP recordkeeping system was consistent with federal requirements for loan repayment, court-ordered benefits, and accessibility; verify that the contractor had completed tests in accordance with plans; ensure that all milestones were met before progressing through the acquisition process; and confirm that personnel requirements for training, background investigations, and contract monitoring were met. By not fully implementing these practices, FRTIB significantly increased the risk of a problematic rollout of the new system. When the TSP recordkeeping system deployed in 2022, participants encountered a variety of problems (see figure). According to Accenture Federal Services (AFS), it received about 120,000 calls on the first day of operation. The average wait time went from 35 minutes on the first day to two hours by the third day. The agency and its contractor subsequently took action to address many of these issues, although in some cases, resolution took months. Examples of the Issues Encountered by Thrift Savings Plan (TSP) Participants When Using the New System To enable FRTIB's oversight of AFS, the contract includes a process with performance metrics. The agency can credit or penalize the contractor for its performance in meeting the metrics. In the first 2 years of service, it did both (see table). Credits Earned and Penalties Incurred by the Contractor for the New Thrift Savings Plan System, June 2022 through December 2023   Year 1 Year 2 Service category Credits earned Penalties deducted Credits earned Penalties deducted Participant services — $4,017,137 — $1,326,553   — — $656,424 — Administrative services $272,965 — — —   — — $407,637 —   $270,378 — — — Regulatory, accounting, & compliance — — $223,549 — Security and information technology $543,343 — $553,297 — Total $1,086,686 $4,017,137 $1,840,907 $1,326,553 Legend: — = not applicableSource: GAO (analysis), Federal Retirement Thrift Investment Board (data). | GAO-24-106319Note: Credit and penalty totals for Year 2 are for June 2023 through December 2023, not the entirety of Year 2. However, the agency was unable to adequately oversee the contractor's performance in key areas such as court order and death claim timeliness because it did not have the information needed to do so. The contract does not require AFS to provide this information. For nearly 2 years, FRTIB and its contractor have discussed contract modifications that would require such information to be provided. It is unknown when the two parties will reach agreement. In addition, the agency was limited in its ability to penalize AFS for poor performance because the contract only allows a subset of performance metrics to be eligible for penalty each year. Many of these metrics do not focus on areas that would have the most financial impact on participants. This misalignment of incentives will likely continue to persist without action by the agency to issue penalties in areas that have the most impact on participant outcomes. FRTIB, in coordination with its contractor, implemented key actions to improve the way it delivers services to the TSP participants. Specifically, the agency and its contractor integrated customer service into the agency's existing activities; used annual surveys to identify what its customers want; made services for the new TSP recordkeeping system available through multiple channels; and identified improvements and enhancements to the TSP recordkeeping system based on participant feedback and industry information sharing. As a result, participant-reported satisfaction with the modernized system has improved significantly since its deployment. Why GAO Did This Study The TSP, administered by FRTIB, is the largest retirement plan in the U.S. with about $895 billion in retirement assets and approximately 7 million participants and beneficiaries. In 2020, FRTIB contracted with AFS to predominantly own the underlying infrastructure and operate the services for the modernized TSP recordkeeping system. The contract length was a base of 3 years with options for up to 9 additional years. The total estimated cost to participants, if all options are exercised, is about $4.6 billion. Included in this cost are fees for transactions participants initiate through the system. GAO was asked to review FRTIB's efforts in modernizing TSP services. This report examines (1) the extent to which the agency implemented key acquisition management practices to monitor progress before deployment of the new TSP recordkeeping system; (2) the key problems encountered by participants after the deployment of the new system and the actions taken to address them; (3) the extent to which the agency oversaw the actions of its contractor; and (4) the extent to which the agency implemented federal customer satisfaction requirements to improve customer service. GAO evaluated FRTIB's acquisition procedures, contract solicitation and administration efforts, the TSP services contract, and contract personnel data against key acquisition management practices. GAO also summarized reported issues encountered by the TSP participants, and the actions taken to address them. Additionally, GAO analyzed the TSP contract to summarize the agency's oversight approach and evaluated contractor performance documentation against that approach. Further, GAO analyzed participant satisfaction and interaction survey results, and contractor performance data against key actions for improving customer service, among other things. Thu, 01 Aug 2024 08:44:38 -0400 /products/gao-24-106319 Letter Report https://www.gao.gov/products/gao-24-107240 What GAO Found GAO focused on a range of Social Security reform options that are based on proposals introduced in Congress, identified in literature, or suggested by Social Security experts. Social Security reform proposals may combine several individual reform options into a comprehensive package. Many of the options discussed in this report would improve Social Security's finances by reducing the costs associated with benefit payments (e.g., directly reducing benefits or slowing the growth of benefits over time) or increasing program revenues (e.g., raising the payroll tax rate or increasing the amount of earnings subject to the tax). However, reform proposals may also include options that will have uncertain effects on program finances depending on the specific details of their implementation and other factors such as economic conditions (e.g., investing trust fund assets in private-sector securities). Finally, reform proposals may also include options that pursue goals unrelated to shoring up the program's finances, such as helping vulnerable beneficiaries (e.g., long-time, low-wage workers) by increasing the minimum benefit amount that the program pays. Why GAO Did This Study Social Security, the bedrock of the U.S. retirement system, faces serious financial challenges. Social Security's Old-Age and Survivors Insurance benefit program is projected to be unable to pay full scheduled benefits starting in 2033. At that point, if no action is taken to reform the program to shore up its finances, Social Security revenue is projected to be able to pay retirees just 79 percent of their scheduled benefits. This is the last in a series of three GAO reports that outline (1) Social Security's financial challenges, (2) criteria for evaluating proposals for reforming Social Security to address its financial challenges, and (3) proposed options for reforming Social Security. For more information, contact Tranchau (Kris) T. Nguyen at 202-512-7215 or nguyentt@gao.gov. Wed, 31 Jul 2024 12:26:00 -0400 /products/gao-24-107240 Letter Report https://www.gao.gov/products/gao-24-107614 What GAO Found Previous GAO reports have consistently found three key disincentives to work faced by Social Security Administration (SSA) Disability Insurance (DI) and Supplemental Security Income (SSI) beneficiaries: (1) loss of cash and medical benefits, (2) overpayments, and (3) complexity of rules surrounding work. Loss of cash and medical benefits. When disability beneficiaries return to work and earn income, they must report these earnings to SSA so that their benefits can be adjusted. As detailed in prior GAO reports, disability beneficiaries who earn over a certain income threshold may be at risk of eventually losing their cash and medical benefits. This risk triggers fear among beneficiaries that they will lose these benefits—a key impediment to incentivizing increased work. Overpayments. Another disincentive to returning to work is the potential for benefit overpayment, which can result in beneficiaries incurring debt to SSA. Overpayments can occur when beneficiaries fail to report earnings or SSA delays processing changes in earnings, and beneficiaries continue to receive benefits. A 2019 SSA publication estimated that 70 to 80 percent of DI beneficiaries with earnings sufficient to affect their benefits received overpayments. These overpayments can amount to thousands of dollars—a hardship for many. Complexity of rules surrounding work. GAO reported in 2021 that an expert panel convened by SSA found that the complexity of work rules constituted a barrier to returning to work for beneficiaries and an administrative challenge. SSA has been attempting to address work disincentives, but these efforts have yielded limited results. For example, SSA has undertaken numerous research efforts—known as demonstrations—to test changes to its disability programs that could encourage disabled beneficiaries to work. However, academic research determined that 11 of these demonstrations resulted in little savings and almost no beneficiaries exiting the DI program. SSA is taking steps to prevent overpayments. In its most recent annual performance report, SSA outlines its plans to automatically collect wage information from payroll data providers and to modernize its debt management system. GAO has also made several recommendations to address overpayments. Three of these are not yet implemented, including a 2015 priority recommendation to strengthen internal controls to prevent DI overpayments due to concurrent receipt of Federal Employees' Compensation Act (FECA) benefits. GAO has previously reported that SSA has struggled to address challenges and modernize its disability programs. Accordingly, SSA's disability programs have been on the GAO High Risk List since 2003. Among the additional challenges are improving disability claims processing, retaining experienced staff, and updating occupational data to evaluate the capacity for work. Why GAO Did This Study In 2022, over 11 million working-age adults received approximately $170 billion in disability benefits from SSA's DI and SSI programs—two of the largest federal disability programs. DI provides benefits to individuals with disabilities who have a qualifying work history whereas SSI gives benefits to those with disabilities who have low income and limited resources. SSA has undertaken several efforts to encourage employment for individuals who receive disability benefits and want to work. This testimony describes: (1) the incentive structure SSA beneficiaries face in returning to work, and (2) SSA's challenges in overcoming work disincentives and modernizing its disability programs. This statement is based on reports GAO issued from 2008 to 2024, relevant SSA and Inspector General reports, and academic research. GAO also conducted follow-up work on implementation of its prior recommendations. Tue, 18 Jun 2024 10:09:06 -0400 /products/gao-24-107614 Letter Report https://www.gao.gov/products/gao-24-107312 What GAO Found In March 2023, GAO identified four priority recommendations for the Social Security Administration (SSA). Since then, GAO closed one priority recommendation involving the default overpayment withholding rate for Disability Insurance beneficiaries as no longer relevant. The agency changed its policy, making the recommendation no longer applicable. SSA has not implemented the remaining three priority recommendations. In May 2024, GAO identified one additional priority recommendation for SSA, bringing the total number to four. These recommendations involve the following areas: ensuring program integrity, serving vulnerable populations; protecting sensitive information; and assessing software licenses. SSA's attention to these issues could lead to significant improvements in government operations. Why GAO Did This Study Priority open recommendations are the GAO recommendations that warrant priority attention from heads of key departments or agencies because their implementation could save large amounts of money; improve congressional and/or executive branch decision-making on major issues; eliminate mismanagement, fraud, and abuse; or ensure that programs comply with laws and funds are legally spent, among other benefits. Since 2015 GAO has sent letters to selected agencies to highlight the importance of implementing such recommendations. For more information, contact Cindy Brown Barnes (202) 512-7215 or brownbarnesc@gao.gov. Tue, 04 Jun 2024 09:27:22 -0400 /products/gao-24-107312 Letter Report https://www.gao.gov/products/gao-24-107167 What GAO Found In the United States, 401(k) participants can face challenges when making decisions about their retirement savings accounts. Federal data show that more than 92 million Americans participate in and have saved more than $7 trillion in 401(k) plans. After 401(k) participants separate from their employer and request a distribution from their plan, they are provided a 402(f) Notice, a document that communicates information about the tax consequences of their distribution options for their plan savings. In January 2024, GAO reported that based on its nationally representative survey, 401(k) participants encountered challenges understanding their distribution options as they moved from one job to another. According to GAO's survey, about 80 percent of eligible 401(k) participants were not aware of all four of their distribution options. Additionally, GAO found that 401(k) participants do not fully understand the associated tax consequences of their distribution options, even though plans are required to outline them in the 402(f) Notice before participants receive a distribution. According to GAO's survey, about 40 percent of all eligible 401(k) participants did not understand the tax consequences of their distribution options. GAO's survey also showed that not all 401(k) participants receive information from their old plan when they are making a decision about their retirement savings. Of the eligible participants who received "unsolicited written information" (used as a proxy for the 402(f) Notice) from their old plan after leaving their jobs, about one-third received it before they made a decision about their 401(k) savings, but about 15 percent received it after they made a decision. The remaining participants either received the notice at the time they made a decision or did not know when they received the notice. As a result, not all eligible participants received information from the notice in time to inform their decisions about their retirement savings, according to GAO's survey. Federal agencies can take steps to facilitate better understanding by participants of their distribution options and corresponding tax consequences, which can also assist spouses when they are informed of their spousal rights. GAO made recommendations in January 2024 to the Department of the Treasury (Treasury) and the Department of Labor (DOL) to improve the information provided to 401(k) participants, including the 402(f) Notice. GAO recommended that Treasury take action to clarify information in the notice. For example, this could include amending the 402(f) Notice requirements and the Model 402(f) Notice (a document from the Internal Revenue Service containing model language which plans can adopt for their 402(f) Notices) or providing clarifying information to the notice. Since surviving spouses of 401(k) participants and former spouses under certain circumstances also receive the 402(f) Notice, improvements made by Treasury to the content of the 402(f) Notice would likely benefit them as well. DOL can also take action to ensure plan participants receive easily-understandable information about all four distribution options and the associated tax consequences at the time they leave their job. GAO recommended in January 2024 that DOL take steps that would help plans develop clear and concise communications to inform participants. Why GAO Did This Study The SECURE 2.0 Act of 2022 includes a provision for GAO to analyze the 402(f) Notices provided by retirement plan administrators to plan participants. This report examined (1) the effectiveness of 402(f) Notices, and (2) federal actions that could facilitate better understanding by recipients of their different distribution options and corresponding tax consequences, including spousal rights. To address these objectives, GAO relied on work conducted for its January 2024 report (GAO-24-103577). For that report, GAO interviewed officials from DOL, Treasury, and the Internal Revenue Service; reviewed agency documentation, including available guidance and federal regulations, related to the rollover process. GAO also conducted a nationally representative survey of 401(k) participants who, within the last 3 years, completed a rollover of their savings to another 401(k) plan or who were eligible but did not complete a plan-to-plan rollover. For more information, contact Tranchau (Kris) Nguyen at (202) 512-7215 or nguyentt@gao.gov. Wed, 22 May 2024 09:15:19 -0400 /products/gao-24-107167 Letter Report https://www.gao.gov/products/gao-24-105364 What GAO Found Target date funds (TDFs) are widely offered and have become the most popular investment option used by 401(k) plan participants. TDFs allocate assets over time based on participants' targeted retirement dates. The Pension Protection Act of 2006 facilitated plan sponsors' automatic enrollment of employees into their plans using default investments, including TDFs. Plan sponsors GAO spoke with said they choose TDFs as their default investment because TDFs offer low fees, a well-diversified all-in-one portfolio, and a “set it and forget it” option for participants. A nationwide study showed that the share of participants offered TDFs increased from 42 percent in 2006 to 84 percent in 2020. According to other studies, auto-enrollment contributed to a majority of participants investing solely or primarily in TDFs, which represent more than a quarter of 401(k) assets. Variation in TDF design affects their performance and risk. Asset managers design TDFs' investment mixes to shift from higher risk assets (e.g., stocks) to lower risk assets (e.g., fixed income) over time, based on participants' targeted retirement dates. These mixes varied more within 10 years of the target date, according to GAO's analysis of Morningstar Direct data. In addition, as COVID-19 disrupted financial markets in March 2020, TDFs that were further from their target dates lost a larger share of their value than TDFs closer to their target dates because they were more heavily invested in higher risk assets. For instance, an average TDF with a 2060 target date lost 14 percent of its value from February to March 2020, whereas the average TDF with a 2020 target date lost 8 percent of its value. While TDFs closer to their target dates experienced smaller losses in March 2020 than those further from their target dates, their performance varied more. This was due to more variation in their investment mixes. Negative returns are significant for participants close to, or in, retirement because they have less time to recover from them than those who are further from retirement. The Department of Labor (DOL), the Office of the Comptroller of the Currency (OCC), and the Securities and Exchange Commission (SEC) oversee TDFs through disclosure requirements, enforcement, and examinations. But DOL's guidance has not been updated and lacks detail. For example, DOL developed guidance in 2010 for participants and in 2013 for plan sponsors to help them select TDFs. However, the guidance does not include recent developments such as the increase of TDFs structured as collective investment trusts. Collective investment trusts are bank-administered pooled funds established exclusively for qualified plans such as 401(k)s. The responsible bank acts as the fiduciary and holds legal title to the assets. Without updated guidance, plan sponsors and participants may experience challenges identifying and understanding disclosures for collective investment trust TDFs. Why GAO Did This Study Millions of Americans depend on TDF investment options offered by their 401(k) plans for financial security in retirement. According to Morningstar, a financial services firm, and the Investment Company Institute, an association that represents regulated investment funds, there was about $2.8 trillion in TDF assets held in defined contribution plans as of June 2023. As the stock market dropped precipitously at the start of COVID-19, retirement experts and members of Congress raised questions about variation in the performance and risk exposure in TDFs, particularly those held by participants close to retirement. GAO was asked to examine TDFs' performance and risk. This report examines the extent to which 401(k) plans and participants use TDFs; how asset allocations, risk, performance, and fees vary across TDFs; and how DOL, OCC, and SEC oversee TDFs, among other topics. GAO analyzed Morningstar Direct data, including all TDFs structured as mutual funds that were active from 2017 to 2021, the most recent available data at the time of the request. GAO also reviewed retirement industry documents; and interviewed industry representatives and officials from DOL, OCC, and SEC. Mon, 29 Apr 2024 09:00:40 -0400 /products/gao-24-105364 Letter Report https://www.gao.gov/products/gao-24-105862 What GAO Found The U.S. Virgin Islands' (USVI) Government Employees' Retirement System (GERS) remains one of the lowest funded public pension plans in the United States, according to GAO's analysis of national data. These plans offer a lifetime benefit for government workers. While most public plans in GAO's review had sufficient expected assets to cover between 60 and 111 percent of plan liabilities as of 2021, GERS had enough to cover about 10 percent. To improve plan solvency, GERS has made changes to its plan since 2005—similar to eight other selected public plans, including in the four U.S. territories. These changes applied to all new hires and included decreasing benefits, increasing the retirement age, and increasing employee contributions. The USVI government secured additional funding for the plan through an excise tax on rum in April 2022. However, GERS continues to face the risk of insolvency. According to GAO's analysis, GERS may face insolvency within the next 10 years if the excise tax rate is lower than expected or if rum sales decline, among other risks. For example, the GERS' revenue projections for the excise tax used a $13.25 per proof gallon tax rate that expired in 2021 and reverted to a lower statutorily defined rate in 2022 ($10.50). While the USVI government has paid the resulting shortfall in 2023, it is not required and may not be sustainable. This could result in a long-term funding shortfall (see figure). GERS Funding Projections Using Different Excise Tax Rates on Rum According to interviews with stakeholders and plan officials, and literature GAO reviewed, a shared commitment between the government and the plan to ensure funding is adequate, resilient, achievable, and enforceable can help ensure a plan's promised benefits. The USVI government could consider several options to better ensure such benefits. For example, some governments have dedicated additional specific revenue streams, such as a portion of sales taxes, to their plans. In the past, GERS also received government funding for administrative expenses. The Department of the Interior can provide limited technical assistance upon request, such as for examining strategies to address risks. Why GAO Did This Study GERS is a defined benefit pension plan that covers all USVI government employees and retirees. It includes nearly 19,000 participants. The plan has historically been underfunded by the USVI government. In 2021, GERS actuaries projected that the plan would be insolvent by March 2025. The USVI government has made changes to the plan over the years to maintain its solvency, including providing GERS with additional funding in 2022. However, the plan continues to face uncertainties. GAO was asked to review the financial position of GERS. This report describes (1) how GERS compares with other public defined benefit pensions regarding funding and benefits, (2) risks GERS faces in being able to pay promised pension benefits, and (3) options for the USVI government and GERS to better ensure GERS provides promised pension benefits. GAO analyzed 2021 data on the characteristics of selected public pension plans from the Center for Retirement Research at Boston College, as well as 2021 and 2022 GERS data from the USVI government. In both cases, these were the most recently available data at the time of GAO's analysis. GAO reviewed publicly available information from eight public pension plans, selected to represent a mix of plan size and funding status. GAO also reviewed information from GERS actuaries and investment consultants and from relevant literature. GAO interviewed USVI and GERS officials; stakeholder groups such as actuary, state retirement administrator and other associations; and Department of the Interior officials. For more information, contact Tranchau (Kris) T. Nguyen at (202) 512-7215 or nguyentt@gao.gov, or Frank Todisco at (202) 512-2700 or todiscof@gao.gov. Wed, 17 Apr 2024 09:14:53 -0400 /products/gao-24-105862 Letter Report https://www.gao.gov/products/gao-24-103577 What GAO Found The CARES Act temporarily expanded access to 401(k) retirement savings for plan participants who were impacted by the COVID-19 pandemic. GAO surveyed 14 selected companies that manage participant account data and transactions for 401(k) plans. GAO found that less than one-third of the plans covered by the surveyed companies offered the CARES Act options. Industry stakeholders GAO interviewed said larger plans and plans in industries subject to furloughs at the beginning of the pandemic, such as airlines and hospitality, were more likely to offer the CARES Act options to participants. The CARES Act options generally allowed participants to access their 401(k) plan savings in two ways in 2020: Participants younger than 59½ could withdraw up to $100,000 from their plan savings without facing an additional 10 percent tax for early withdrawals; they could also choose to repay the amount within 3 years. Between March 27 and September 22, participants could borrow up to $100,000 from their savings as a loan and delay some payments a year. The 401(k) plans covered by the 14 companies GAO surveyed represented about 64 percent of all active 401(k) participants. Of those represented participants, GAO found that about 80 percent of them had access to the CARES Act options through their plan. Of these participants with access, 6 percent took a Coronavirus-Related Distribution and less than 1 percent took a CARES Act loan. Based on GAO's survey, the amounts of withdrawals and loans were higher during the pandemic in 2020 as compared with 2019 (see table). Industry stakeholders pointed out that workers with the greatest need for emergency funds during the pandemic in 2020—such as lower and middle-income workers—likely did not have a 401(k) plan and, thus, could not take advantage of the CARES Act options. Comparison of Average and Median Hardship Withdrawals and Plan Loans in 2019 with CARES Act Options in 2020   2019 Hardship Withdrawals 2020 Coronavirus-Related Distributions 2019 Plan Loans 2020 CARES Act Loans Average Amount $6,913 $18,344 $9,564 $33,793 Median Amount $3,144 $9,000 $5,097 $11,998 Source: GAO survey of 14 selected 401(k) plan record keepers. | GAO-24-103577 GAO also examined how six selected countries—Australia, Belgium, Denmark, the Netherlands, Norway, and Sweden—help retirement plan participants manage their savings. GAO found that all six countries use pension dashboards and other approaches to help plan participants track, manage, and consolidate their plan savings and reduce fees. For example, all six countries established a centralized pension dashboard that allows participants to view their retirement savings securely online and at no charge. According to experts from the countries, the dashboards help participants keep track of their various workplace retirement accounts as they change jobs. Pension Dashboards Allow Participants to Track Their Plan Savings in One Place To increase the likelihood that participants' savings will be consolidated after a job change, three of the six selected countries allow automatic savings transfers, according to experts GAO interviewed. For example, Australia, Norway, and the Netherlands allow a participant's inactive retirement plan savings from older workplace plans, to be transferred to the participant's current, active plan without the participant's consent. In Australia, plan providers must transfer savings from small inactive accounts to a government agency. The agency then holds the savings until the participant claims them, the agency transfers them to an active account, or the participant is eligible to receive the savings. Australian officials said close to 4.7 million accounts valued at $7.11 billion AUD (about $4.61 billion USD) have been reunited with participants between late 2019 and the end of 2022, helping them consolidate savings into their active accounts. In the U.S., 401(k) participants face challenges tracking and consolidating their accounts. However, federal action could mitigate these challenges. Federal data show that more than 92 million Americans participate in and have saved more than $7 trillion in 401(k) plans. Yet, GAO's nationally-representative survey of 401(k) participants found that participants continue to encounter challenges in managing and tracking their accounts as they move from one job to another. According to GAO's survey, two-thirds of 401(k) participants would find a comprehensive pension dashboard, where they can see all of their current and old plan savings in one place, to be a useful resource. However, no federal agency has statutory authority to establish a pension dashboard. GAO's survey also found that 401(k) participants who recently completed a plan-to-plan rollover faced challenges understanding and complying with their plans' requirements. For example, 25 percent of participants indicated that there were too many steps to follow in the process and 22 percent said they were unclear about questions or information in the rollover form. Allowing plans to automatically roll over participants' savings to their new plan after they change jobs can be beneficial for participants—particularly those unengaged with their plan—because they can benefit from account consolidation without navigating a challenging manual process. However, no federal agency has the statutory authority to establish a system to facilitate automatic plan-to-plan rollovers. Why GAO Did This Study Investing in employer-sponsored 401(k) plans has become the most common way for American workers to save for retirement. But plan participants can face challenges when they change jobs and with tracking their accounts. 401(k) savings can sometimes be accessed in emergencies. The CARES Act created additional options for participants to temporarily access their plan savings. GAO was asked to review access to 401(k) plan savings during the pandemic in 2020 and challenges participants have rolling over their retirement savings from one plan to another, both abroad and in the U.S. This report examines: (1) access to and use of the CARES Act 401(k) plan options; (2) approaches other countries use to help workers track, manage, and consolidate their plan savings; and (3) challenges with 401(k) plan-to-plan rollovers and federal actions that can improve the process. GAO's review included a non-representative survey of 401(k) companies and interviews with stakeholders representing different roles in the retirement industry about the CARES Act access options; interviews with experts from six selected countries that have: (1) a pension dashboard, (2) portable workplace retirement savings, and (3) other approaches to help workers track and consolidate their retirement savings; and a nationally-representative survey of 401(k) participants about their recent experience with plan-to-plan rollovers. Tue, 20 Feb 2024 09:15:20 -0500 /products/gao-24-103577 Letter Report https://www.gao.gov/products/gao-24-105545 What GAO Found The Railroad Retirement Board (RRB) has taken some promising steps, in alignment with key practices, towards addressing its management challenges. However, some work remains. Risk management process. RRB has begun implementing an enterprise risk management (ERM) process, which is a decision-making tool that allows agencies to review and manage program and financial risks. It involves several essential elements and related key practices that fit together in a continuous process. RRB has mostly or partially implemented key practices for the first two essential elements and is beginning to implement key practices for the third (see figure). For example, to help address the second element, identifying risks, RRB trained staff to identify and report on program risks, such as not processing timely and accurate retirement applications. RRB also created tools for staff to use to report risks. However, RRB does not have a written plan for completing its ERM implementation. With such a plan, RRB will be better positioned to measure progress toward completing the process. In addition, a written plan could help RRB better use the risk information it collects to target and address serious program and financial risks. Essential Elements of Enterprise Risk Management (ERM) Implemented by RRBa aShading indicates the essential elements that the Railroad Retirement Board (RRB) mostly or partially implemented. Human capital and planning for post-COVID workplace needs. RRB's human capital plans and efforts to date have incorporated all key practices for effective strategic workforce planning. For example, RRB analyzed expected employee attrition and used this information to target hiring and training needs. RRB is also revising its telework policies in light of COVID and assessing its space needs to downsize its headquarters, among other things. IT modernization. RRB assessed its IT needs and laid out a broad strategy for improvements that align with its strategic goals. For example, RRB plans to develop online tools for customers to file benefit applications and update information. However, RRB's IT modernization plans do not incorporate some key information management practices. For example, the agency has not developed plans that clearly state when its IT modernization efforts will be complete or the extent to which it will update its IT systems. In addition, RRB has not developed performance metrics and goals for measuring progress of its modernization efforts. In the absence of plans with clear metrics and goals, RRB may be unable to measure the success of its efforts and adjust approaches as needed. Why GAO Did This Study RRB administers retirement, disability, Medicare, and other benefits to railroad workers and their families. GAO and RRB's Inspector General have identified challenges to RRB's ability to effectively carry out its mission. These include difficulty overseeing financial and program integrity, a looming wave of retirements, and aging IT systems. The explanatory statement accompanying the Further Consolidated Appropriations Act, 2020, includes a provision for GAO to conduct a management review of RRB. This report examines the extent to which RRB has addressed its key operational challenges by (1) implementing a process to oversee and manage program and financial risks, (2) assessing its human capital and post-COVID workplace needs, and (3) modernizing its IT infrastructure. GAO identified key practices from GAO's prior work and OMB guidance and assessed RRB's progress against these key practices. GAO reviewed relevant federal laws and regulations; RRB policies, plans and documents; OMB policies, and related GAO reports. GAO also interviewed officials from RRB. Thu, 07 Dec 2023 09:45:15 -0500 /products/gao-24-105545 Letter Report https://www.gao.gov/products/gao-24-106171 What GAO Found The Armed Forces Retirement Home (AFRH) prepares at least four financial projections yearly for varying purposes. However, GAO found that AFRH's processes for preparing these projections do not conform to actuarial standards and practices. Specifically, AFRH used inaccurate and inconsistent data, did not have sufficient supporting information for its assumptions of future events and values, and did not make trust fund projections based on reasonable assumptions of expected occupancy levels. Without policies and procedures for preparing financial projections to help ensure staff consistently apply relevant standards and consult with appropriate experts, such as actuaries, AFRH increases the risk that its projections will not be useful for decision-making. AFRH has identified several proposals to generate revenue and address potential financial shortfalls. However, challenges affect its plans to implement them, including factors outside of AFRH's control. AFRH's planned proposals include a statutory increase in military withholdings, requiring all military service members who are currently eligible for AFRH residency to contribute, and obtaining health and medical care reimbursements from programs such as TRICARE and Medicare for services it provides. However, these proposals require actions from Congress for AFRH to effectively implement them. GAO developed projections of AFRH's trust fund balance through fiscal year 2042 under two scenarios: AFRH continuing to operate as-is and AFRH operating with all quantifiable proposals implemented. GAO's analysis shows that whether AFRH continues to operate under its current scenario or implements all proposals, the trust fund will likely continue to decline without other significant efforts to bolster it (see figure). Additionally, AFRH is not projected to meet its goal for the trust fund balance. GAO Projection of Armed Forces Retirement Home's Trust Fund Balance AFRH has not achieved its goals to raise its declining occupancy or to implement its other proposals. Also, AFRH faces further financial risks from costly repairs to deteriorating facilities. AFRH has not developed plans to address these issues. Without further actions, AFRH may continue to face financial shortfalls that in the future could affect its ability to fulfill its mission. Why GAO Did This Study AFRH is an independent entity within the executive branch designed to provide housing, health care, and well-being assistance to eligible veterans. AFRH is financed through a dedicated trust fund. However, certain revenue sources for its funding have decreased or remained static over time while costs have increased. To address its financial challenges without cutting services to residents, AFRH has worked to identify new revenue sources to help rebuild its trust fund balance. House Report 117-397 includes a provision for GAO to review the financial sustainability of AFRH. GAO examined the extent to which AFRH projected estimated revenues and expenses for its trust fund through 2042, and developed plans to address any potential financing shortfalls, among other objectives. GAO reviewed relevant laws, federal guidance, audit reports, and agency guidance and policies; interviewed agency officials and actuarial experts; conducted site visits; and developed a projection to analyze AFRH's financial position. Thu, 07 Dec 2023 09:12:10 -0500 /products/gao-24-106171 Letter Report https://www.gao.gov/products/gao-24-106778 What GAO Found Proposals to reform Social Security often combine several changes to the program in a comprehensive set, and those changes can interact with or offset one another. Four criteria that may help policymakers evaluate proposals for reforming Social Security to address its financial challenges, including the interactions between changes in a proposal, are 1) financing sustainable solvency (how a proposal affects Social Security's finances as well as the national economy and federal budget), 2) considering adequacy and equity (how a proposal addresses the goals of equity and income adequacy), 3) modernizing the program to respond to societal changes (the extent to which a proposal accounts for demographic, economic, and societal changes in recent decades), and 4) implementing and administering proposed changes (how readily a proposal could be implemented, administered, and explained to the public). Why GAO Did This Study Social Security is considered the bedrock of the U.S. retirement system, and many retirees rely on Social Security benefits for the majority of their income. Nonetheless, Social Security's Old-Age and Survivors Insurance benefit program faces financial challenges and is projected to be unable to pay full scheduled benefits starting in 2033. At that point, if no action is taken, Social Security revenue is projected to be sufficient to pay retirees just 77 percent of their scheduled benefits. This is the second in a series of reports that outline (1) Social Security's financial challenges, (2) criteria for evaluating proposals for reforming Social Security to address its financial challenges, and (3) options for reforming Social Security that have been proposed. This second report focuses on criteria for evaluating proposals for reforming Social Security. For more information, contact Tranchau (Kris) T. Nguyen at (202) 512-7215 or Nguyentt@gao.gov. Thu, 30 Nov 2023 10:58:29 -0500 /products/gao-24-106778 Letter Report https://www.gao.gov/products/gao-24-105667 What GAO Found The Employee Benefits Security Administration (EBSA) resources have generally remained unchanged while oversight responsibilities have increased over the last decade. EBSA's Congressional Budget Justifications show that, over the 2013 to 2021 period, EBSA's annual appropriations have generally remained flat in nominal terms, but declined in inflation-adjusted terms. EBSA also experienced a decline in staffing levels (full-time equivalents) over the same period. Since 2020, EBSA's overall budget has increased due to supplemental appropriations. For example, EBSA's discretionary appropriation was $181 million each year from fiscal years 2015 through 2021. However, EBSA received supplemental appropriations in 2020 and later--$1 million in 2020, or $182 million total appropriations, and $19.2 million in 2021 or $200.2 million total appropriations. Officials said that because the agency's base budget has been flat while expenses, including those from rising wages, have continued to increase, the agency increasingly relies on supplemental funds. EBSA officials said that the agency has received many new responsibilities through legislation such as the Patient Protection and Affordable Care Act, the Families First Coronavirus Response Act, the Coronavirus Aid, Relief, and Economic Security Act, and the No Surprises Act of 2021. EBSA has employed strategies to manage resources, but does not have a systematic process to address reallocations. EBSA's strategic planning documents describe a number of strategies for managing resources that align with the three themes of our framework for managing declining resources. For example, agencies should consider both short- and long-term cost-cutting and cost-avoidance strategies—EBSA has prioritized activities with high monetary recoveries as a key long-term strategy to manage its resources. Additionally, agencies should use data analytics to guide decision-making—EBSA used data on case performance and recoveries to establish quantitative goals to increase its monetary recoveries in fiscal year 2022. Although EBSA officials said they use several strategies to manage declining resources, the agency does not have a clear or systematic decision-making process for doing so. Officials cited attempts to estimate resources for certain priorities, but these resource estimates were not acknowledged or included in planning documentation. Federal internal control standards state that agencies should use quality information and that significant changes to the agencies’ oversight, programs, and other resources should be communicated across the agency through established reporting lines to appropriate personnel. Without a systematic and well-documented decision-making process, EBSA officials may not have adequate information for making informed decisions about how to manage resource reallocations to meet its increased responsibilities. Why GAO Did This Study EBSA is the agency within the Department of Labor (DOL) primarily responsible for ensuring that, as of fiscal year 2022, about 747,000 employer-sponsored retirement plans and about 2.5 million group health plans comply with requirements in Title I of the Employee Retirement Income Security Act of 1974. EBSA's effective oversight of plan management is critical to protect against mismanagement and fraud and to ensure that promised benefits will be available for the nearly 152 million workers, retirees, and their families covered by these plans. We previously reported on EBSA's strategies for prioritizing investigative staff as well as its enforcement process, but the current state of EBSA's resource planning is unknown. This report examines (1) how EBSA's resources and its oversight responsibilities have changed over time; and (2) the extent to which EBSA has developed a plan to strategically manage resources. GAO examined EBSA's Congressional Budget Justifications from fiscal year 2013 through fiscal year 2024 and interviewed EBSA officials. GAO reviewed relevant EBSA documents, prior GAO reports, federal studies, and federal laws and regulations regarding any new requirements for EBSA's oversight and enforcement of retirement and healthcare plans. GAO compared selected EBSA planning documentation against GAO's framework for managing declining resources. GAO also interviewed five stakeholder groups selected to obtain a range of retirement and health perspectives. Thu, 16 Nov 2023 09:20:25 -0500 /products/gao-24-105667 Letter Report https://www.gao.gov/products/gao-23-105080 What GAO Found Church plans are retirement plans sponsored by a church or church-associated organization. Because sponsors of church plans are generally exempt from reporting requirements in the Employee Retirement Income Security Act of 1974 (ERISA), available data are limited. According to an Internal Revenue Service (IRS) analysis of 2019 tax filings, the most current data available at the time of our analysis, nearly 33,000 church employers reported plan contributions from 589,000 participants. These data do not include church-associated entities, such as hospitals or schools. GAO obtained documentation from selected church plan sponsors and administrators for 2018-2022 showing these plans held over $89 billion in assets. Employers in church-associated healthcare and education organizations also offer these plans. Officials representing four denominations said the ERISA church plan exemption provided certain flexibilities, such as using religious doctrines to help guide their investments. Federal involvement with church plans is limited; states can also provide oversight. The IRS, if asked by a sponsor, can determine if a plan qualifies as a church plan. Church plans are generally ineligible for federal insurance from the Pension Benefit Guaranty Corporation (PBGC). However, GAO identified 120 potential church plans that paid PBGC premiums in 2018. PBGC determined the eligibility of 11 of these plans, which it does generally at the plan's request (see fig.). Despite possibly not insuring these plans, PBGC does not communicate with potential church plan sponsors that they may be paying premiums in error. Until PBGC takes steps to preemptively contact potential church plans that pay premiums to the agency, these plans may continue to pay premiums erroneously and remain unaware of their potential ineligibility for PBGC insurance. For church plans that are exempted from ERISA, states can have a potential role in their oversight. GAO found that two of the states in its review reported enacting laws that apply to church plans. Pension Benefit Guaranty Corporation (PBGC) Policy Determining Defined Benefit Plan Insurance Coverage Expected outcomes for church plan participants varied among the selected bankruptcy cases and settlement agreements GAO reviewed. In the bankruptcy cases reviewed, participant benefits were expected to be protected and kept whole at pre-bankruptcy levels to the extent they were funded and vested at the time their employer filed for bankruptcy. In the settlement agreements reviewed, participants who had allegedly lost benefits pursued litigation to compel sponsors to sufficiently fund their church plans. Settlements in these cases awarded money to participants to help protect their benefits and in some cases included agreements to provide participants financial disclosures similar to those required by ERISA. Why GAO Did This Study Church plans are generally exempt from most ERISA requirements, including rules to fund plans, disclose information, and insure benefits. Media reports have described retirees losing benefits because their church plan was underfunded and uninsured. GAO was asked to review church plans. This report addresses (1) data available on church plans and plan administration, (2) federal and state roles regarding church plans, and (3) expected outcomes for participant benefits from church plan litigation. GAO analyzed aggregated tax data, federal employer data, and data provided by church plan sponsors and administrators; reviewed relevant federal laws, regulations, and agency guidance; and selected five states for review, based in part on states' oversight activity of church plans. GAO also conducted a non-generalizable review of four cases where employers provided a church plan and filed for bankruptcy between 2005 and 2021; and reviewed three settled civil lawsuits brought by church plan participants who alleged underfunding and benefit cuts by the sponsor and that had settlement agreements approved by the court. GAO interviewed officials from churches and denominations and from federal and state agencies, and industry experts. Fri, 27 Oct 2023 07:52:53 -0400 /products/gao-23-105080 Letter Report https://www.gao.gov/products/gao-23-105342 What GAO Found Disparities between low-income and high-income older workers' retirement accounts were greater in 2019 than in 2007, according to GAO's analysis of Survey of Consumer Finances (SCF) data on households 51 to 64. For example, about one in 10 low-income households had a retirement account balance in 2019 compared to about one in five in 2007, while about nine in 10 high-income households had a balance through the period. For those with a balance, the median balance was higher for high-income households over the period, while any change for the other income groups was not statistically significant. Racial disparities also persisted over the period. A higher share of White households had a balance than those of all other races. Also, White households had about double the median balance as households of all other races. Estimated Retirement Account Balances for Households Age 51-64 with a Balance, by Income Note: Brackets represent 95 percent confidence intervals. Overlapping brackets for the lowest and middle income quintiles indicate no statistically significant difference between 2007 and 2019. Income, job-related factors, and race were strongly related to disparities in older worker households' retirement account balances, according to GAO's analysis of 2018 Health and Retirement Study (HRS) data. High-income households contributed a larger percentage of their pay than low-income households (about 8 and 5 percent) and received larger employer contributions. Households with higher income, longer job tenure, and a college education tended to have larger balances. Households of all other races than White and households with children had about 28 and 20 percent smaller balances, respectively. The effects of selected strategies meant to increase workplace retirement savings vary across workers of different income groups, according to illustrative scenarios using GAO's analysis of SCF and HRS data. For example, automatic enrollment can increase participation of low-income older workers with access up to about one-third. However, only about 23 percent of low-income workers have access to a workplace retirement account. Further, they may choose not to participate, for example, if they have limited disposable income or expect Social Security to provide most of their retirement income. In contrast, increasing contribution limits for workplace retirement accounts almost entirely benefits high-income workers, as about 23 percent of high-income compared with about 3 percent of middle-income older workers contribute the individual limit. Why GAO Did This Study In 2022, the tax incentives for workers to save in tax-preferred retirement accounts cost the federal government nearly $200 billion in forgone revenue, according to the Department of the Treasury. Members of Congress and others are concerned these incentives accrue primarily to high-income workers and not low-income workers. Knowing the distribution of retirement account balances can help illuminate the retirement security of households of different incomes. GAO was asked to examine disparities in the distribution of retirement account balances. This report describes, among other issues, (1) how the distribution of retirement account balances among older households by income changed over time; (2) factors associated with the distribution of retirement account balances among older households by income; and (3) how selected strategies meant to increase retirement savings affect high-, middle-, and low-income workers. GAO examined retirement account balances for older workers' households (age 51 to 64) over time using 2007-2019 SCF data. GAO analyzed 2018 HRS data to identify factors associated with the balance distribution. Both datasets were the most recent data available at the time of GAO's review. GAO crafted illustrative scenarios to show the effects of four strategies meant to increase retirement savings using SCF, HRS, and 2018 Internal Revenue Service Statistics of Income data. GAO selected these strategies with input from agency officials, federal reports, and experts. GAO also reviewed relevant literature and interviewed retirement security experts. For more information, contact Tranchau (Kris) T. Nguyen at (202) 512-7215 or NguyenTT@gao.gov. Thu, 27 Jul 2023 08:11:34 -0400 /products/gao-23-105342 Letter Report https://www.gao.gov/products/gao-23-105620 What GAO Found Millions of teachers and employees of tax-exempt organizations invest in 403(b) retirement plans. The Department of Labor (DOL), Securities and Exchange Commission (SEC), and Internal Revenue Service (IRS) take steps to oversee some 403(b) plans or their investment options, or both. Specifically, DOL oversees 403(b) plans subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA), and uses a range of strategies to identify plans to investigate for compliance with the law. For example, DOL has investigated instances of self-dealing—when a plan fiduciary uses plan assets for the fiduciary's own interest or own account. The SEC's oversight focuses on compliance with securities laws and regulations, while the IRS's oversight focuses on compliance with the Internal Revenue Code. DOL, SEC, and IRS also conduct outreach and provide educational materials to 403(b) plan sponsors and participants. However, DOL's website does not contain targeted educational materials that could help participants understand 403(b) plan fees. Updated DOL information on 403(b) plans could help participants make more informed decisions. GAO reviewed how five selected states worked to improve outcomes—including in some cases reducing fees participants pay—in 403(b) plans that are not subject to ERISA requirements. Officials in three of the states said they had consolidated the number of service providers offering investment options, which strengthened oversight by reducing the number of service providers they had to oversee. Officials in Connecticut told GAO consolidating service providers also resulted in lower annual fees for participants (see figure). Officials in four of the selected states said they enhanced transparency by providing participants with additional information on plans' investment options and fees or by making it available elsewhere. Connecticut: Average Investment Fees Pre- and Post-2004 Consolidation Stakeholders and experts identified actions they said could improve 403(b) participant outcomes. For example, they suggested establishing fiduciary duties for non-ERISA plans in some states that are not subject to such protections can help protect participants' interests. Also, they said requiring distribution of standardized information on investment options' returns and fees for participants in non-ERISA plans would promote transparency. Multiple experts also suggested that allowing 403(b) plans to use certain other investment vehicles could reduce fees. Why GAO Did This Study Like 401(k) plans, 403(b) plans are account-based defined contribution plans sponsored by employers. Many 403(b) plans are subject to ERISA requirements and are intended to protect the interests of plan participants. However, some 403(b) plans are not covered by ERISA. GAO was asked to review (1) the extent of federal agencies' 403(b) plan oversight, (2) actions by selected states that could improve 403(b) participant outcomes, and (3) options stakeholders and experts have identified that could improve outcomes for 403(b) participants. GAO analyzed DOL, SEC, and IRS data and documentation; reviewed documentation from five selected states identified as taking actions to improve participant outcomes; interviewed federal and state agency officials and experts; and conducted and analyzed results from surveys of plan sponsors and service providers about options to improve participant outcomes. The analysis of state actions and survey results offer a range of perspectives on improving participant outcomes but are not generalizable. Mon, 24 Jul 2023 08:34:45 -0400 /products/gao-23-105620 Letter Report https://www.gao.gov/products/gao-23-106667 What GAO Found Since 2010, the fund that SSA uses to pay benefits to retirees has been paying out more money than it has been receiving in taxes. At the current rate, the fund's trustees estimate that it will exhaust its reserves in 2033 and be unable to pay full scheduled benefits. The sooner actions are taken to address these financial challenges, the more gradually changes can be phased in and workers would have more time to adjust to any changes and factor them into their retirement plans. What Is the Dilemma with Social Security Social Security provides cash benefits to over 66 million retirees, people with disabilities, and others, as of January 2023. For many retirees, these benefits make up a substantial portion of their monthly retirement income, particularly for people with relatively low career earnings. Despite its importance to the retirement income of many Americans, significant financial challenges threaten the Social Security Administration's (SSA) long-term ability to continue to pay retirees and other beneficiaries full benefits. This is the first in a series of reports that outline (1) Social Security's financial challenges, (2) criteria for evaluating options for reforming Social Security, and (3) types of proposed reforms. This first report focuses on Social Security's financial challenges. For more information, contact Tranchau (Kris) T. Nguyen at (202) 512-7215 or Nguyentt@gao.gov. Thu, 18 May 2023 10:25:09 -0400 /products/gao-23-106667 Letter Report https://www.gao.gov/products/gao-23-106466 What GAO Found In June 2022, GAO identified 6 priority recommendations for the Social Security Administration (SSA). Since then, SSA has implemented 4 of those recommendations by: (1) establishing a process to measure efforts to reduce improper payments, (2) better targeting representative payees for review to ensure they are managing beneficiary funds appropriately, and (3) updating cybersecurity requirements and assessment procedures to protect sensitive information. In May 2023, GAO identified 2 additional priority recommendations for SSA, bringing the total number to 4. These recommendations involve the following areas: ensuring program integrity, serving vulnerable populations; and protecting sensitive information. SSA's attention to these issues could lead to significant improvements in government operations. Why GAO Did This Study Priority open recommendations are the GAO recommendations that warrant priority attention from heads of key departments or agencies because their implementation could save large amounts of money; improve congressional and/or executive branch decision-making on major issues; eliminate mismanagement, fraud, and abuse; or ensure that programs comply with laws and funds are legally spent, among other benefits. Since 2015 GAO has sent letters to selected agencies to highlight the importance of implementing such recommendations. For more information, contact Cindy Brown Barnes (202) 512-7215 or brownbarnesc@gao.gov. Tue, 16 May 2023 09:39:29 -0400 /products/gao-23-106466 Letter Report https://www.gao.gov/products/gao-23-104650 What GAO Found COVID-19 prompted the Social Security Administration (SSA) to make dramatic changes in the way it delivers services and administers its programs. On March 17, 2020, SSA closed its offices to the public—providing limited in-person visits for individuals with certain critical needs—and expanded remote service delivery options. SSA increased its use of telephone, mail, video, and online services. Through 2021, SSA established policies at field offices to increase the use of inoffice appointments. SSA also worked with state agencies that process claims for disability benefits to offer video options for certain medical exams. In April 2022, the agency reopened field offices to walk-in visits from the public. The public filed fewer benefit claims with SSA during the pandemic, on average, compared to the prior 2 years, particularly for certain benefits and among certain vulnerable populations, according to GAO’s analysis of SSA data. For example, compared to the 2 years before the pandemic began, average monthly claims were lower from March 2020 through December 2021 for several SSA benefits. Specifically, they were 18 percent lower for Supplemental Security Income disability benefits, 12 percent lower for Disability Insurance, and 8 percent lower for Supplemental Security Income Old-Age, though Supplemental Security Income claims rebounded in late 2021. Some types of benefits claims declined more for certain populations, such as Spanish speakers. Changes in SSA Benefit Claims (January 2020-December 2021) SSA took steps to address a range of challenges with providing services remotely, but gaps remain in delivering services online and assessing lessons learned. SSA targeted outreach to certain vulnerable populations and expanded the use of third parties to help the underserved access benefits and services. However, not all claimants are able to apply for SSI online and applications in Spanish cannot be submitted online. As a result, SSA cannot fulfill its mission to ensure that its services are equitable and accessible, and some eligible individuals may not apply for benefits. Some SSA offices have assessed specific service delivery changes, but the agency does not have a coordinated process for assessing lessons learned from the COVID-19 pandemic and taking related corrective actions, which could leave SSA vulnerable to other crises in the future. Why GAO Did This Study In 2020, SSA provided benefits to nearly 70 million individuals. Under the CARES Act, SSA received $300 million to prevent, prepare for, and respond to COVID-19. The CARES Act includes a provision for GAO to monitor federal efforts to respond to the COVID-19 pandemic. GAO was also asked to review SSA’s response. This report examines (1) changes SSA made to its delivery of key services; (2) the effect of these changes on the public, including certain vulnerable populations; and (3) how SSA addressed challenges it faced and identified lessons learned. GAO analyzed summary and administrative SSA data from March 2018 to December 2021, and reviewed the agency’s plans, policies, and guidance documents. GAO also conducted group interviews with SSA staff at various levels and offices; and interviewed SSA officials and external stakeholders, including disability advocates and employee groups. Thu, 17 Nov 2022 07:42:37 -0500 /products/gao-23-104650 Letter Report https://www.gao.gov/products/gao-22-103950 What GAO Found Income and wealth disparities among older households were wider in the United States than in selected countries from 1998 through 2019, according to GAO's review of households headed by those 55 and older. For example, in 2007, the median, or “typical,” income of high-income older households in the United States was about 12 times greater than that of low-income households, compared to about 6 times in Germany and about 10 times in the United Kingdom (see figure). GAO's analysis also indicates that income and wealth were more concentrated at the top of high-income and high-wealth older households in the United States, compared to other households in either the United States or selected countries. Further, GAO's analysis shows that high-wealth older households in the United States and United Kingdom held a greater proportion of their wealth in financial assets, relative to middle-wealth households. Still, homes and other non-financial assets made up the majority of total wealth for all older households GAO reviewed. Median Income of Older Households in the U.S. and Selected Countries, by Quintile Note: GAO sorted households into quintiles based on income when the survey respondent, their partner or spouse, or both reported being 55 or older. For each quintile, GAO calculated median income, meaning the income of the “typical” household. GAO converted estimates to 2017 U.S. Dollar purchasing power parities, which were the most recent available at the time. Confidence intervals are reported at either the 99 or 95 percent level based on the availability of Luxembourg Wealth Study data. Although the wealth data GAO reviewed indicate wider disparities in the United States than in selected countries over the period of review, these data did not include the estimated value of retirement benefits that older households expect to receive from public and private sources. GAO and some researchers have demonstrated how incorporating the value of these expected retirement benefits shows wealth disparities that are somewhat smaller than measures that omit these benefits. GAO's analysis indicates that higher income and wealth are associated with living longer among older individuals in the United Kingdom and United States. To compare survival between the United Kingdom and United States, GAO used data from 2002 through 2012, which are the most recent years for which there are reliable mortality data for both countries. The data sets GAO used for this analysis are unique in that they are representative of older individuals in the United Kingdom and United States and follow the same individuals as they age, while tracking their mortality over time, as well as their income, wealth, and other demographic information. As a result, GAO examined survival rates over a 10-year period, as a proxy for longevity. GAO found that individuals from high-income and high-wealth households in the United States and United Kingdom were generally more likely to survive during the 10-year period compared to lower household income and wealth groups. For example, in the United States, the proportion of individuals in their seventies at the beginning of the study period who were alive at the end of the 10-year period ranged from 68 percent for those from the wealthiest households, to 44 percent for those from the least wealthy households. However, these patterns differed for the oldest individuals, who were in their eighties and nineties at the beginning of the study period. For example, survival rates for those in their nineties did not vary significantly based on wealth. Educational attainment and homeownership in selected countries and the United States are associated with higher levels of income and wealth according to GAO's examination of data, review of research, and interviews. For example, in each of the selected countries, older households that have obtained postsecondary education tend to have higher incomes during their working years and subsequently higher levels of wealth during their older years. Homeownership is similarly associated with higher levels of wealth because, in part, a house serves as an asset that can increase in value, as well as a dwelling. Other factors associated with income and wealth disparities include the cost of long-term care, which can quickly deplete the wealth of older households. However, research indicates that Germany mitigates the high costs of long-term care through nationwide long-term care insurance. Additionally, public retirement programs in selected countries and Social Security in the United States are designed in part to reduce disparities by providing a higher rate of payments to households with lower incomes. Similarly, income taxes in all three selected countries and the United States are designed in a way that can reduce income disparities, with marginal rates that increase by income. Why GAO Did This Study Some researchers and policymakers have raised questions about whether differences in income, wealth, and longevity in the United States and other countries may affect older populations' financial security in retirement. GAO was asked to compare income, wealth, and longevity trends in the United States and other countries. This report (1) compares trends in distributions of income and wealth, and disparities in survival rates for older households in the United States with those in Canada, Germany, and the United Kingdom; and (2) describes factors that contribute to any disparities in income and wealth distributions for older households in selected countries. GAO selected countries based on the availability of comparable data and size of their economies. GAO analyzed the countries' distributions of income and wealth from 1998-2019 using the Luxembourg Wealth Study Database. GAO examined associations with 10-year survival rates in the United States and United Kingdom using data that followed older households from 2002-2012 in the English Longitudinal Study of Ageing and the Health and Retirement Study in the United States. GAO reviewed relevant literature, interviewed researchers and government officials in the selected countries, and sought input from the U.S. Census Bureau, Departments of Labor and the Treasury, Internal Revenue Service, and Social Security Administration. For more information, contact Tranchau (Kris) T. Nguyen at (202) 512-7215 or NguyenTT@gao. Mon, 17 Oct 2022 11:09:35 -0400 /products/gao-22-103950 Letter Report https://www.gao.gov/products/gao-22-105102 What GAO Found According to representatives GAO interviewed about selected international retirement savings plans, most of the plans require eligible employers to automatically enroll some of their workforce, unless workers explicitly opt out (see figure). This automatic enrollment is intended to help increase plan participation. However, those not automatically enrolled, including some self-employed and part-time workers, remain difficult to cover. For example, part-time employees must work for 24 months before becoming eligible for automatic enrollment in one plan GAO reviewed. Automatic Enrollment of Eligible Employees, as Implemented in Selected Plans The selected retirement savings plans use government and employer incentives to encourage workers to join or stay in a plan, according to the representatives. The plans with automatic enrollment incentivize participation by providing some tax benefits to employees, either when contributing or when withdrawing funds at retirement. Each plan also mandates or otherwise incentivizes employer contributions, which, according to retirement representatives, can encourage employee participation and bolster retirement savings. However, lower-income workers may not realize some tax benefits, and the self-employed do not receive the incentives that come with employer contributions. Selected plans established default contribution rates and investments to facilitate employee participation and remove potential barriers to saving. Nearly all of the selected plans use default contribution rates between 3 and 5 percent of a worker's salary, according to retirement representatives, simplifying a key investment decision of how much to contribute. The plans also offer default investments that combine high- and low-risk funds to balance risk and growth, such as target date funds that adjust based on a worker's expected retirement date. According to the representatives GAO interviewed, default investments can be particularly important for workers with lower levels of financial literacy. The selected plans also offer flexibilities to participants to adjust or access savings based on life circumstances, such as financial hardship. For example, some plans allow early withdrawal of retirement funds. However, representatives noted concerns that participants who withdraw too much of their money too soon can risk running out of funds later in retirement. Why GAO Did This Study The United States faces a range of challenges regarding how to ensure retirement income security for our aging workforce. As traditional pensions have become less common, more individuals are responsible for managing their own retirement savings. In doing so, they may face challenges accessing retirement plans through an employer; accumulating sufficient retirement savings; and ensuring that their accrued savings last through retirement. Other countries have begun to address similar challenges with various reforms to their retirement systems. This report describes the views of international retirement representatives on policy options and trade-offs from account-based retirement savings reforms in other countries, intended to improve retirement security. These include (1) automatic enrollment of employees in retirement savings plans; (2) financial incentives for employees to contribute; (3) default plan options; and (4) plan flexibilities. GAO reporting on these reforms does not signify endorsement of any particular reform. GAO interviewed representatives about retirement plans in five selected countries: Canada (the federal level and the province of Quebec), Lithuania, the Netherlands, New Zealand, and the United Kingdom. GAO selected the plans based on the range of strategies used to increase retirement plan coverage, recommendations from knowledgeable stakeholders, and comparability to the United States. For more information, contact Tranchau (Kris) T. Nguyen at (202) 512-7215 or nguyentt@gao.gov. Mon, 29 Aug 2022 09:46:55 -0400 /products/gao-22-105102 Letter Report https://www.gao.gov/products/gao-22-104191 What GAO Found The Social Security Administration (SSA) flags a disability appeals case as critical after determining that the claimant's health or financial condition, such as having a terminal illness or dire financial need, meets criteria in SSA's policy manual. Cases can be flagged as critical before reaching a hearing office or during nearly any stage of the hearing process. SSA policy directs staff to expedite the case once it is flagged as critical. However, staff GAO interviewed from three of the five selected offices said that claimants must provide documentation of their dire financial need, even though SSA policy does not require it. Hearing offices consistently processed critical cases faster than non-critical cases between fiscal years 2010 and 2020, but wait times varied depending on when the case was first flagged. Cases that arrived at a hearing office with a flag took a median 201 days to reach a hearing decision; those first flagged while they were at a hearing office took a median 351 days. This difference exists because hearing offices quickly begin work on flagged cases. In contrast, non-critical cases took a median 469 days (see figure). GAO found that, across the stages of the hearings process, critical cases flagged after reaching a hearing office spent the largest portion of the wait time in the stage before being assigned to a case worker. Once flagged during this waiting period, hearing office staff assigned most cases to a case worker within a week. Median Hearing Wait Times for SSA Critical Cases by When the Flag Was Added, Fiscal Years 2010 to 2020 Note: In this figure, we refer to cases as “critical” or “non-critical” based on SSA's flagging of cases. This analysis does not examine whether individual cases varied in complexity, which may affect processing time. The figure excludes the 29 percent of hearings cases that did not follow the typical processing order. SSA can initially designate a claimant's case to indicate the claimant faces homelessness, eviction, or another critical need. At hearing offices, however, these designations do not trigger expedited processing unless the case is also flagged for one of the seven hearing office critical case categories, such as dire need. GAO found that only 28.5 percent of cases that had a homeless designation also had a critical case flag, and thus were selected for expedited processing, despite SSA officials saying that most of these cases should qualify as dire need. This discrepancy could result from the existence of similar categories that are treated differently across multiple data systems, manual error, or changing circumstances. As a result, some claimants who qualify for expedited claim processing due to severe circumstances may not receive it. Why GAO Did This Study Individuals who do not agree with an initial decision on a claim for Social Security disability benefits can appeal and eventually receive a hearing before an administrative law judge. SSA prioritizes certain disability appeals as critical for medical or financial reasons in order to resolve them more quickly. From fiscal years 2010 through 2020, SSA identified about 425,000 critical cases out of over 7 million appeals at the hearings level. GAO was asked to review challenges that disability applicants who file appeals face. GAO examined (1) how SSA identifies critical cases at the hearings level and (2) the extent to which SSA expedites these cases. GAO analyzed SSA hearing office case data from fiscal years 2008-2020, focusing on critical cases that followed the typical processing order (e.g., were not dismissed). GAO also reviewed SSA policies and procedures and interviewed agency headquarters officials, managers and staff from five of SSA's 164 hearing offices, disability advocates, and SSA employee unions. GAO selected the five hearing offices to provide variety in the percentage of critical cases, overall case volume, location, and population size. Mon, 18 Jul 2022 10:01:17 -0400 /products/gao-22-104191 Letter Report https://www.gao.gov/products/gao-22-105623 What GAO Found In June 2021, GAO identified four priority recommendations for the Social Security Administration (SSA).In June 2022, GAO identified two additional priority recommendations for SSA, bringing the total number to six. These recommendations involve the following areas: ensuring program integrity, protecting vulnerable beneficiaries, and improving cybersecurity. SSA's attention to these issues could lead to significant improvements in government operations. Why GAO Did This Study Priority open recommendations are the GAO recommendations that warrant priority attention from heads of key departments or agencies because their implementation could save large amounts of money; improve congressional and/or executive branch decision-making on major issues; eliminate mismanagement, fraud, and abuse; or ensure that programs comply with laws and funds are legally spent, among other benefits. Since 2015 GAO has sent letters to selected agencies to highlight the importance of implementing such recommendations. For more information, contact Cindy Brown Barnes (202) 512-7215 or brownbarnesc@gao.gov. Mon, 13 Jun 2022 10:51:06 -0400 /products/gao-22-105623 Letter Report https://www.gao.gov/products/gao-22-104439 What GAO Found Total assets held by 403(b) plans—retirement savings plans for certain public sector and tax-exempt sector employees—amounted to more than $1.1 trillion in 2020, according to industry data, and other characteristics varied. Industry data show that about half of these assets were held in plans covered by the Employee Retirement Income Security Act of 1974, as amended, (ERISA), which are generally required to submit an annual filing known as the Form 5500. ERISA 403(b) assets grew from 2010 to 2019, the most recent year for which 5500 data are available, while the number of plans declined, as shown in the figure. Number of 403(b) ERISA Plans and Value of Plans' Assets, by Sector, 2010-2019 According to industry experts and 5500 data, these trends likely resulted from consolidation of firms in the health care sector, which represents a large portion of plan assets. The vast majority—93 percent—of ERISA 403(b) plans were the employer's sole or primary retirement plan. While less information is available for 403(b) plans not covered by ERISA (non-ERISA plans), which do not file a Form 5500, of the 21 plan sponsor respondents to GAO's survey, most stated their plans were supplemental to another retirement savings plan offered by the employer. Available data also show that the number of investment options, which may be annuities or mutual funds, offered by 403(b) plans varied but were generally higher than the number offered by 401(k) plans in the private sector. Fees for 403(b) plans varied widely according to GAO's survey of ERISA and non-ERISA plan sponsors and service providers, as well as Form 5500 data. For example, plans that GAO surveyed reported record keeping and administrative service fees ranging from 0.0008 percent of plan assets to 2.01 percent of plan assets. In addition, fees for investment options offered by the plan ranged from 0.01 percent to 2.37 percent among plans GAO surveyed. Prior GAO work has shown that even seemingly small fees can significantly reduce participants' retirement savings over time. Available data also show that large 403(b) plans had lower administrative fees than smaller ones. In GAO's survey, university, state-sponsored, and plan sponsors with $1 billion or more in assets reported taking multiple steps to reduce fees, while other sponsors more often reported not having information that would help them monitor fees. For example, five public school district plan sponsors reported that they did not know expense ratios, which are measures of how much of a fund's assets are used for administrative and other operating expenses, for investment options offered by their plan that would also allow them to monitor fees. Why GAO Did This Study Millions of teachers and other employees of public schools, universities, and tax-exempt organizations rely on savings they accumulate in 403(b) plans to provide income security in retirement. Like 401(k) plans, 403(b) plans are account-based defined contribution plans sponsored by employers, and individuals who participate in the plans make investment decisions and bear the investment risk. Private sector employer-sponsored retirement plans are generally subject to ERISA requirements intended to protect the interests of plan participants. However, some 403(b) plans are not covered by ERISA. This report addresses (1) the number and characteristics of 403(b) plans; and (2) fees charged to 403(b) plan participants. For this report, GAO analyzed plan-level characteristics—including the number of participants, the amount of plan assets, and available information on plan investment offerings from 2010 through 2019—the most recent year for which data are available—from the Department of Labor's (DOL) Form 5500 database as well as available industry data. GAO analyzed individual-level data from the Health and Retirement Study (HRS) of respondents over age 50 who reported participating in 403(b) plans. GAO also analyzed information on plan characteristics and fees from non-generalizable surveys GAO conducted of 403(b) plan sponsors and 403(b) service providers (a total of 45 survey responses), and interviewed DOL and other U.S. agency officials, industry stakeholders, and experts identified as being knowledgeable about 403(b) plans. For more information, contact Tranchau (Kris) T. Nguyen at (202) 512-7215 or nguyentt@gao.gov. Mon, 04 Apr 2022 10:07:47 -0400 /products/gao-22-104439 Letter Report https://www.gao.gov/products/gao-21-105413 What GAO Found Treasury took some steps to improve its management of the schedule for developing the Social Security and Medicare Trustees reports but the boards of trustees did not meet the statutory deadline of April 1 for the reports due in 2020 and 2021. In 2019, GAO issued two recommendations to try to improve the timeliness of the reports. Consistent with GAO's first recommendation in 2019, Treasury developed schedules for preparing the annual reports that included the planned and actual dates for meeting intermediate goals and the statutory deadline of April 1. Other than tracking the planned and actual dates of each reporting cycle, however, Treasury has not told GAO about any other steps it took to better manage the schedule, as GAO recommended. Therefore the recommendation has not been fully implemented. GAO also recommended that Treasury inform Congress of reporting delays. Treasury reported that the working group—agency officials involved in the preparation of the reports— established a policy in December 2020 to notify Congress if the trustees anticipate issuing the reports after the April 1 statutory deadline. The policy states that the chairperson will "assess the need to notify Congress of the reports' timing." The policy does not specify how they would make that assessment, nor does it mention including the reasons for the delay. A Treasury official stated that they did not interpret our recommendation to mean that the policy itself had to address communicating the reasons for delayed reports—only that those reasons be included in the information communicated to Congress. This policy does not fully address GAO's recommendation because it implies that notifying Congress should be discretionary and does not call for any explanation of the delays and updated timeframes. The policy should serve as a prompt for subsequent working groups to provide timely updates and address all of the information we recommended communicating to Congress. There are potential actions Treasury, in consultation with the boards of trustees, could take to help address GAO's prior recommendations. For example, Treasury, in its role as chairperson of the boards, could prioritize meeting the statutory deadline, review progress in developing the reports, obtain buy-in on timeliness goals from key officials, learn from past reporting cycles, and strengthen the policy to inform Congress of delays. In addition, the boards of trustees could amend their bylaws to state explicitly the goal of meeting the April 1 statutory deadline, and require that Congress be informed of report issuance delays, the reasons for delays, and the updated issuance date estimates. Finally, if Congress does not believe sufficient progress has been made to address GAO's recommendations, it could codify GAO's 2019 recommendations to Treasury with explicit requirements for reporting and communication. In commenting on a draft of this report, Treasury emphasized the unique circumstance and challenge that the COVID-19 pandemic presented to completing the modeling underlying the Trustees reports. They explained that the working group made a deliberate decision to take additional time to prepare the reports in order to accurately incorporate the effects of the pandemic and that this was necessary in order to ensure a high-quality report. Why GAO Did This Study Boards of trustees manage the trust funds that largely provide funding for benefits paid under the Social Security and Medicare programs. The Social Security Act requires the trustees to report on the trust funds' financial status to Congress each year by April 1. In 2019, GAO reported that the trustees issued the reports after this statutory deadline in 17 of the 25 years from 1995 to 2019, and were more than 2 months late in 6 years from 2010 to 2019. GAO's report recommended two actions to the Secretary of the Treasury, in their capacity as the chairperson of the boards. The first recommendation was that Treasury work with the other trustees, in consultation with the chief actuaries of Social Security and the Center for Medicare & Medicaid Services, to improve the management of the report development schedules in order to provide the Trustees reports to Congress by the April 1 statutory deadline. The second recommended that Treasury work with other trustees to establish a policy to inform congressional committees of jurisdiction when the reports are expected to miss this deadline; we recommended that this outreach include the factors contributing to the delay and the updated expected dates. Treasury concurred with these recommendations. GAO was asked about additional actions to better ensure the timely issuance of the Trustees reports, including considering changes to the trustees' bylaws and Congressional action. This report (1) describes Treasury's progress in addressing GAO's 2019 recommendations, and (2) offers potential actions, consistent with GAO's recommendations, that could help ensure timely completion of the Trustees reports. GAO reviewed the 2019 report, relevant documentation from the reporting cycles for the 2020 and 2021 Trustees reports, and information Treasury provided about actions it has taken to implement GAO's recommendations from the 2019 report. For more information, contact Elizabeth Curda at (202) 512-7215 or curdae@gao.gov. Mon, 01 Nov 2021 09:15:01 -0400 /products/gao-21-105413 Letter Report https://www.gao.gov/products/gao-21-105419 What GAO Found The Social Security Administration (SSA) has undertaken several efforts to encourage employment for individuals with disabilities who receive Supplemental Security Income (SSI) and who would like to work, but few benefit from these supports. Work incentives and supports for transition-age youth. SSA administers work incentives and other employment supports for transition-age youth (ages 14 to 17) on SSI. These supports encourage work by allowing these youth to keep at least some of their benefits even if they have earnings. In 2017, GAO analysis of SSA data from 2012 to 2015 found that less than 1.5 percent of SSI youth benefitted from these incentives. According to SSA and other officials, this may be because SSI youth and their families are often unaware of or do not understand the incentives, and may fear that work will negatively affect their benefits or eligibility. Work incentives for working-age adults. The Ticket to Work and Self-Sufficiency Program (Ticket) is a voluntary program that was established to assist individuals with disabilities in obtaining and retaining employment, and help reduce dependency on benefits. Preliminary GAO analysis of Ticket indicates that SSI recipients participated more often than other disability beneficiaries, and benefited modestly from the program. GAO analysis of SSA data from 2002 to 2015 found, 5 years after participating in Ticket, about 4 percent of SSI participants had left the disability rolls due to earnings from work, compared with 2 percent of nonparticipants who were similar in characteristics such as age, disability type, and education. However, earnings for SSI Ticket participants remained low. GAO's analysis of data from 2002 to 2018 shows that average earnings for SSI Ticket participants, 5 years after participating, were $3,940 per year, including 57 percent who did not report any earnings at all. GAO's preliminary work also indicates that Ticket participants face a number of challenges to returning to work, including their primary disabling condition, which may not improve sufficiently to allow for fulltime employment, and disincentives to work such as the loss of cash and medical benefits. Prior and ongoing GAO work has identified issues with SSA's efforts to reduce improper payments, including overpayments, to SSI beneficiaries in general and beneficiaries who are working in particular. Overpayments can occur when beneficiaries who work do not timely report earnings to SSA or SSA delays in adjusting their benefit amounts. SSA reported that SSI's overpayment rate in fiscal year 2019 was estimated at 8.13 percent, higher than other SSA programs. Further, SSA reported it made approximately $4.6 billion in SSI overpayments in fiscal year 2019. Overpayments may have to be repaid, which may be burdensome for recipients, especially those who were not aware that they were overpaid and already spent the money. While SSA has taken steps to reduce overpayments, SSA's Office of Inspector General found that SSA had not resolved lags in updating information on beneficiaries' earnings. In addition, SSA has not implemented a 2020 GAO priority recommendation that it develop and implement a process to measure the effectiveness of its corrective actions for improper payments, including overpayments. Why GAO Did This Study SSI is a federal assistance program administered by SSA that provides cash benefits to certain individuals who are elderly, blind, or have a disability. SSI acts as a safety net for individuals who have limited resources and little or no other income. As such, SSI is a means-tested program. As of July 2021, approximately 71 percent of SSI beneficiaries were children or working-age individuals with disabilities. SSA faces longstanding challenges related to administering SSI and its other disability programs. GAO has issued multiple reports with recommendations on how SSA might address these challenges. This testimony describes SSA's challenges with (1) incentivizing employment for SSI recipients who wish to work, and (2) preventing improper payments to SSI recipients, including overpayments. This statement is based primarily on prior GAO reports issued between 2010 and 2021, as well as preliminary observations from an ongoing GAO review of the Ticket program. To conduct the work for these reports and the ongoing review, GAO used a variety of methods including analyzing data; reviewing relevant federal laws, regulations, and guidance; reviewing key agency documents, such as SSA's strategic plan and annual SSI stewardship reports; and interviewing experts and SSA officials. For more information, contact Elizabeth H. Curda at (202) 512-7215 or curdae@gao.gov. Tue, 21 Sep 2021 14:54:33 -0400 /products/gao-21-105419 Letter Report https://www.gao.gov/products/gao-21-357 What GAO Found Almost 40 percent of 401(k) plan participants do not fully understand and have difficulty using the fee information that the Department of Labor (DOL) requires plans to provide to participants in fee disclosures, according to GAO's analysis of its generalizable survey (see figure). GAO assessed participants' understanding of samples from several large plans' fee disclosures and other information about fees, and asked general knowledge questions about fees. For example, GAO found that 45 percent of participants are not able to use the information given in disclosures to determine the cost of their investment fee. Additionally, 41 percent of participants incorrectly believe that they do not pay any 401(k) plan fees. Prior GAO work has shown that even seemingly small fees can significantly reduce participants' retirement savings over time. GAO Estimates of 401(k) Plan Participants' Score Distribution on Survey's Fee-Related Assessment Questions GAO's review of selected countries and the European Union (EU) found they have implemented practices to help retirement plan participants understand and use fee information from plan disclosures. For example, stakeholders in those locations said layering data, a technique where information is presented hierarchically, can help participants understand disclosures by providing them key plan information first. Stakeholders also said other tools can help participants understand fee information. In Italy, for example, the government provides a supplemental online tool so participants can compare and calculate fees across plans and investment options, according to stakeholders. This tool also includes a fee benchmark—which is generally an average fee among comparable funds—that helps participants judge the value of an individual investment option. DOL could take additional steps to help 401(k) plan participants improve their understanding and use of fee information, based on GAO survey responses and analysis. DOL regulations require that disclosures present fee information in a format that helps participants compare investment options. However, disclosures are not required to include certain information, such as fee benchmarks and ticker information (unique identifying symbols used for many popular types of investments), that could be helpful for participants. Fee benchmarks can help participants to assess an investment option's value, not only relative to other in-plan options but to options outside the plan. Ticker information can help participants identify many plan investments online to evaluate and compare them to options outside the plan. By requiring such information in disclosures, DOL could help participants better understand and compare their 401(k) plan fees when making investment choices that affect their retirement security. Why GAO Did This Study DOL regulations require 401(k) plans to provide the more than 87 million plan participants with a comprehensive disclosure of the fees they pay. GAO was asked to examine how well participants can understand and use the fee disclosures. This report (1) assesses the extent to which 401(k) plan participants can understand and use fee information in disclosures; (2) describes disclosure practices used by selected countries to help retirement plan participants; and (3) examines any additional steps that DOL could take to advance participant understanding and use of fee information. GAO conducted a nationally representative survey of 401(k) plan participants to assess their understanding of fee disclosure samples from among 10 large plans and of other fee information. To identify and describe disclosure practices used abroad, GAO interviewed stakeholders and reviewed fee disclosure documents from Australia, Italy, New Zealand, and the European Union, chosen because of their documented practices to improve participants' understanding of fee disclosures. To identify any additional steps DOL could take, GAO also reviewed disclosures from 10 large plans, as well as relevant federal laws and regulations, and interviewed stakeholders in the U.S. Thu, 26 Aug 2021 07:43:27 -0400 /products/gao-21-357 Letter Report https://www.gao.gov/products/gao-21-327 What GAO Found Retirement plans' investments, including those of the Thrift Savings Plan (TSP) for federal employees, could be exposed to financial risks from climate change, according to GAO's literature review and interviews with stakeholders knowledgeable about climate change and financial markets. Stakeholders said climate-related events, from natural disasters to changes in government policy, are expected to impact much of the economy and thereby investment returns (see figure). Retirement plans can assess their exposure to these risks by analyzing the potential financial performance of holdings in their portfolios under projected climate change scenarios. How Climate Change Could Impact Retirement Plan Investments GAO reviewed retirement plans in the United Kingdom, Japan, and Sweden that had taken steps to incorporate climate change risks into their plan management. Officials from these plans described using engagement—such as outreach to corporate boards—to encourage companies in which they invest to address their financial risks from climate change. Officials had taken other steps as well, such as incorporating climate change as a financial risk into their policies and practices. Officials communicate information on climate-related investment risks through public disclosures and reports. The agency that oversees TSP, the Federal Retirement Thrift Investment Board (FRTIB), has not taken steps to assess the risks to TSP's investments from climate change as part of its process for evaluating investment options. Officials told us that they use a passive investment strategy and do not focus on risks to a specific industry or company. FRTIB is required by statute to invest TSP's funds passively, however, it has previously identified and addressed investment risks. For example, in the 1990s, FRTIB reviewed its investment policies and recommended adding an international equities fund and a small- and medium-capitalization stock fund, both passively managed, to incorporate classes of assets that it determined were missing from TSP's investment mix. Stakeholders in the financial sector, including an advisory panel to a federal financial regulator, have stated that it is important to consider the investment risks from climate change. Evaluating such risks is also consistent with GAO's Disaster Resilience Framework. Taking action to understand the financial risks that climate change poses to the TSP would enhance FRTIB's risk management and help it protect the retirement savings of federal workers. Why GAO Did This Study Climate change is expected to have widespread economic impacts and pose risks to investments held by retirement plans, including the federal government's TSP. As of November 2020, TSP had 6 million active and retired federal employee participants and nearly $700 billion in assets. GAO was asked to examine how the agency that oversees TSP has addressed its exposure to such risks. This report examines (1) what is known about retirement plans' exposure to climate change-related investment risks, (2) what comparable retirement plans in other countries have done to address risks from climate change and how they communicate this information to the public, and (3) what steps FRTIB has taken to address investment risks from climate change. GAO reviewed relevant literature and interviewed representatives from investment consulting firms and other stakeholders knowledgeable about climate change and its possible financial impacts. GAO reviewed documents and interviewed officials from selected retirement plans for public- and private-sector employees in the United Kingdom, Japan, and Sweden identified as examples of plans that are addressing climate risks. GAO also reviewed TSP documents, and interviewed FRTIB officials. Thu, 24 Jun 2021 09:14:01 -0400 /products/gao-21-327 Letter Report