For example, employees are generally not taxed on  contributions made on their behalf but instead are taxed on benefits  received. To  help achieve its mission, IRS issues tax regulations and other guidance to  help taxpayers comply with the IRC. Defined Contribution Retirement Plans

When an employee separates from an employer but still has vested  savings in a qualified defined contribution retirement plan, the plan can,  under certain conditions and without the participant’s consent, transfer  accounts out of the plan—commonly referred to as a “forced transfer.”  Before the Economic Growth and Tax Relief Reconciliation Act of 2001  was enacted, ongoing DC plans could, in the absence of participant  instructions, distribute balances of $5,000 or less by paying them directly  to the participant, referred to as a “cash-out.” This law sought to protect  participants’ retirement savings by requiring ongoing plans that have a  cash-out limit that exceeds $1,000 (up to $5,000), in the absence of  participant instructions and subject to certain notice requirements, to  transfer balances that exceed $1,000 (up to $5,000) to an individual  retirement account (IRA), preserving their tax-preferred status. Participants Face Challenges Managing Unclaimed Retirement Accounts and Agencies Have Not Provided Sufficient Guidance and Information to Assist Them or Plan Sponsors Participants Have Challenges Managing Unclaimed Retirement Accounts

Participants in U.S. workplace retirement plans face challenges managing  unclaimed accounts accumulated over the course of their careers. We  previously reported that some 401(k) plan participants find it difficult to  keep track of their savings, particularly when they change jobs, because  of challenges with consolidation, communication, and information. A TPA executive also told us separated  participants are not always able to determine what happened to their  accounts. Complex Tax Requirements and a Lack of Guidance Can Hinder U.S. Individuals’ Ability to Correctly Report Foreign Retirement Accounts

		Stakeholders Told GAO that U.S. Stakeholders said that existing U.S. tax law does not provide  these participants with tax-deferral if they transfer their foreign retirement  savings from one foreign workplace retirement plan to another—a benefit  granted to U.S. participants in qualified U.S. retirement plans who make  such transfers. However, without clearer specific guidance from IRS describing how to  correctly report foreign retirement assets on a U.S. tax return, U.S.  individuals who participate in foreign workplace retirement plans continue  to run the risk of filing incorrect returns due to confusion over how to  properly classify and report their accounts. Complying with Reporting Requirements Can Be Costly for U.S. Absent Specific Treaty Provisions, Current U.S. Tax Law Does Not Exempt from Taxation Transfers in Foreign Workplace Retirement Plans

IRS officials told us that U.S. individuals who participate in foreign  workplace retirement plans may not realize that a routine transfer of their  foreign retirement assets within plans or from one plan to another  should be reported as a taxable event, resulting in an incorrect filing  and/or potential penalties. “2016 United States Model Income Tax  Convention, Article 17, Paragraph 2(b)  Where a citizen of the United States who is a  resident of ______ is a member or beneficiary  of, or participant in, a pension fund  established in _____, the United States may  not tax the income earned by the pension  fund as income of the individual unless, and  then only to the extent that, it is paid to, or for  the benefit of, that individual from the pension  fund (and not transferred to another pension  fund established in _______ in a transfer that  qualifies as a tax-deferred transfer under the  laws of _______).”
IRS officials told us that if no treaty exists between the United States and  the country where the U.S. individual is participating in a foreign  workplace retirement plan, or the treaty does not specify how to treat  these transfers, there is generally no form of transfer that will receive U.S.  income tax-deferral. Renegotiating a tax treaty can be time consuming and, according to  Treasury officials, is unlikely to happen based on one issue, such as the  transfer of retirement savings abroad. Lastly, transferring accounts between foreign  retirement plans can have negative tax consequences that threaten the  ability of U.S. individuals abroad to save for retirement. Congress may  wish to consider whether it can assist U.S. individuals who participate in  foreign workplace retirement plans by permitting these individuals to  transfer their retirement savings to a different account within the plan or to  another foreign workplace retirement plan on a tax-deferred basis when  they change jobs or separate from their foreign employer. The IRS Commissioner should review taxation issues relating to  distributions involving incorrect participant addresses and uncashed  benefit checks and clarify for the public the Internal Revenue Code’s  requirements in these circumstances. (Recommendation 7)

	Agency Comments and Our Evaluation

We provided a draft of this report to the Department of Labor, the  Department of the Treasury, the Internal Revenue Service, the Social  Security Administration, the Pension Benefit Guaranty Corporation, and  the U.S. Department of State. DOL agreed with our recommendation that  additional guidance may be helpful to aid plan sponsors and plan  fiduciaries of ongoing plans in meeting their existing fiduciary obligations  to search for missing participants and to pay benefits. IRS specifically cited that the report identifies several  challenges for participants to manage their retirement savings, such as  updating former employers with address changes to continue receiving  information about retirement plan accounts with former employers and  responding to former employers regarding retirement plan accounts. This  recognition by IRS of the complex federal requirements and treaty  provisions governing the taxation of foreign retirement accounts is in line  with GAO’s concerns about U.S. individuals with foreign workplace  retirement accounts having trouble with routine account transfers within  the same foreign workplace retirement plan or between two such plans in  the same country. IRS agreed with two of our recommendations to improve the  management of retirement savings. Lastly, IRS agreed with our recommendation to clarify how U.S.  individuals are to report their foreign retirement accounts, which could  include how the taxpayer should report contributions, earnings, and  distributions made from the account.
Why GAO Did This Study

Saving for retirement can be difficult. However, when participants lose their workplace retirement accounts when they change employers or participate in a workplace retirement plan abroad they can encounter additional challenges in securing adequate retirement savings. GAO was asked to review steps federal agencies might take to assist participants with these challenges.
This report examines key challenges U.S. participants face with: (1) unclaimed retirement accounts in the United States, and (2) complying with U.S. tax reporting requirements on their foreign retirement savings. GAO reviewed relevant federal laws and regulations, and reviewed selected tax treaties. GAO interviewed stakeholders in the United States and in Australia, Canada, Hong Kong, Switzerland, and the United Kingdom—chosen because these locations host relatively large populations of U.S. individuals and have well-developed workplace retirement systems.

What GAO Found

Plan participants in the United States face challenges after they change jobs, including not receiving communications from their plan sponsor and being vulnerable to unforeseen tax consequences that can result in a loss of retirement savings. GAO previously reported that when participants leave savings in a plan after separating from a job, the onus is on them to update former employers with their new address and to respond to their former employer's communications. GAO found that although an employer may incur costs searching for separated participants, there are no standard practices for the frequency or method of conducting searches. GAO reported that from 2004 through 2013, over 25 million participants in workplace plans separated from an employer and left at least one retirement account behind, despite efforts of sponsors and regulators to help participants manage their accounts. Department of Labor (DOL) officials told GAO that some sponsors do not search for participants when disclosures are returned as undeliverable. DOL has issued guidance on searching for missing participants for some plans that are terminating, but guidance does not exist on what actions DOL expects ongoing plan sponsors to take to keep track of separated participants. A key element of DOL's mission is to protect the benefits of workers and families. However, without guidance on how to search for separated participants who leave behind retirement accounts, sponsors may choose to do little more than remove unclaimed accounts from the plan when possible, and workers may never recover these savings.
Stakeholders told GAO that U.S. individuals who participate in foreign workplace retirement plans face challenges reporting their retirement savings for tax purposes because of complex federal requirements governing the taxation of foreign retirement accounts and a lack of clear guidance on how to report these savings. For example, stakeholders told GAO it is not always clear to U.S individuals or their tax preparers how foreign workplace retirement plans should be reported to the Internal Revenue Service (IRS) and the process for determining this can be complex, time-consuming, and costly. In the absence of clear guidance on how to correctly report these savings, U.S. individuals who participate in these plans may continue to run the risk of filing incorrect returns. Further, U.S. individuals in foreign retirement plans also face problems transferring retirement savings when they switch jobs. In the United States, transfers of retirement savings from one qualified plan to another are exempt from U.S. tax. However, foreign plans are generally not tax-qualified under the Internal Revenue Code, according to IRS officials, and such transfers could have tax consequences for U.S. individuals participating in foreign retirement plans. Officials from the Department of the Treasury (Treasury) told GAO that a change to the U.S. tax code could improve the tax treatment of transfers between foreign retirement plans that Treasury has already examined. Without action to address this issue, U.S. individuals may not consolidate their foreign retirement accounts or may have to pay higher U.S. taxes on transfers than taxpayers participating in qualified plans in the United States, threatening the ability of U.S. individuals to save for retirement abroad.

What GAO Recommends

GAO recommends Congress consider addressing taxation issues affecting the transfer of retirement assets between plans within the same foreign country. GAO is making seven recommendations, including that DOL issue guidance to help ongoing plan sponsors search for separated participants, and that IRS issue guidance to clarify how U.S. individuals should report foreign retirement savings to the IRS. The agencies generally agreed with GAO's recommendations. IRS disagreed with two of GAO's recommendations.