Here's a New Year's resolution for the Labor Department: Fix the 5500 form.
The 5500 annual report form filed by pension funds contains a lot of information, some of it probably even useful to the Labor Department. But it is impossibly complicated and has a glaring weakness.
Because of the way the section of the report dealing with assets is structured, it is impossible to tell how much of the nation's pension assets is invested in stocks, how much in bonds, how much in real estate, etc. And, of course, it is impossible to track changes in the aggregate asset mix, and, hence, the nation's capital flows across asset classes.
It is impossible because the form treats master trusts, common/collective trusts and pooled separate accounts as asset classes in themselves. A master trust is simply an accounting and reporting tool, not an asset class. A pooled or commingled account is a vehicle for investing in an asset class, not an asset class itself.
As a result, many plan sponsors avoid reporting their plan's asset mix simply by reporting the total amount of the assets in the master trust. This simplifies the job for the plan sponsor, but complicates the job of the Labor Department, the Federal Reserve and anyone else interested in determining how assets are invested.
For example, the most recent available 5500 form for the Hughes Aircraft Non-Bargaining Retirement Plan, which has assets in excess of $4 billion, shows absolutely no details of how that $4 billion is invested. It simply reports that all of the assets are in a master trust with Bankers Trust. If the Labor Department wants more information on how the assets are invested, presumably it has to ask Hughes or Bankers Trust for more details. The Employee Benefit Research Institute, working with the Trust Universe Comparison Service (which is overseen by Wilshire Associates), makes a good effort to track asset growth and allocation, by tracking the changes reflected in the portfolios of clients of major master trust banks. The Federal Reserve Bank, for its flow-of-funds studies, attempts to build on the EBRI work.
But the EBRI-TUCS-Wilshire effort, although it is far more current than any effort based on the 5500 plan would be, has weaknesses. First, not every pension plan has a master trust. Second, some major master trust banks don't participate in TUCS. And third, it too fails to break out assets held in commingled accounts. Thus it offers a good first cut, but a less-than-complete picture.
The Jan. 24 issue of Pensions & Investments, which tracks the 1,000 largest funds, is more timely, but even more limited.
Fixing the 5500 weakness should not be difficult. The lines on the asset schedule detailing holdings in various asset classes should be mandatory and should include any assets in pooled accounts or collective trusts. For example, Question 5, which refers to corporate stocks, should include any preferred or common stocks held in pooled (commingled) accounts or collective trusts.
The total assets would then include questions 1-10, and 15-17. If the Labor Department really needs to know how much is in master trusts, this question should follow the total asset line (a difference might be something worth examining).
Fixing this page would make the 5500 much more useful.
Of course, having the forms generally available less than two years after the end of the plan year would be even better, but that's perhaps too much to ask for.