Guest Article

(From the July 31, 2006 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

DOL Mandates Electronic Filing of Form 5500 Beginning with 2008 Plan Years

The Department of Labor (DOL) has published regulations mandating electronic filing of Form 5500 Annual Reports beginning with the 2008 plan year. 71 FR 41359 (July 21, 2006). A voluntary electronic filing system is currently available through EFAST ("ERISA Filing Acceptance System"), but the vast majority of Form 5500 filers (98 percent in 2001) still use paper forms. The DOL simultaneously issued proposed revisions to the Form 5500 to facilitate the new electronic filing mandate. 71 FR 41616 (July 21, 2006).

"We are moving to a wholly electronic filing system that will be streamlined, cost-effective, and more efficient for plans. This new state-of-the-art system will increase the accuracy of information used by the public and the government," said Ann L. Combs, Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA). "At the same time, we are proposing to update the content of Form 5500 to simplify filing and ensure compatibility with the electronic processing system."

The electronic filing mandate applies only to Form 5500 annual reports required by ERISA Title I. However, the IRS has advised DOL that electronically filing a Form 5500 together with the required schedules and attachments will satisfy the annual reporting requirements under IRC §§ 6058(a) (information about qualification, financial condition, and operations of deferred compensation plans) and 6059(a) (actuarial report for defined benefit plans). Likewise, the PBGC has advised DOL that electronically filing a Form 5500 together with the required schedules and attachments will satisfy the annual reporting requirements under ERISA § 4065 for defined benefit plans.

Background

Last year the DOL proposed mandating electronic filing for the Form 5500 beginning with the 2007 plan year. The DOL's proposal came only months after the Government Accountability Office (GAO) recommended an electronic filing mandate. The DOL's own ERISA Advisory Council made the same recommendation in 2002.

Basically, the GAO argued mandating electronic filing would significantly speed up Form 5500 processing, and thus reduce the amount of time it takes to get individual Form 5500 filings to the principal federal agencies and Form 5500 data to the non-principal agencies and other interested parties. Currently it takes up to three years following the end of a plan year for Form 5500 data to become available to all stakeholders.

New Electronic Filing System

The DOL still is developing the new electronic filing system, so technical details are not available. However, according to the preamble to the final regulations the DOL intends "to ensure that the new e-filing system will remedy the existing technical difficulties that underlie the perceived limitations of EFAST's current electronic filing design and will provide an electronic filing process that will be simpler, easier, and more attractive to filers." For example, the Internet will be the sole medium for transmitting all filings. The current EFAST system permits transmission through various media, including diskettes, CD-ROMs and magnetic tapes.

The preamble states the new system will have the following two options for electronic filing:

Additionally, the new system will be designed to support all major operating systems (i.e., Windows, Mac, UNIX, Linux, etc.) and Web browsers.

Relief from Filing Penalties?

In response to the proposed regulations, the DOL received two requests for a one-time exemption from the ERISA civil penalty that can be imposed for failing to timely file a Form 5500. In general, this penalty can be as much as $1,100 per day. ERISA § 502(c)(2). The requests for a one-time waiver were based on concerns that some filers -- particularly smaller employers -- might have trouble meeting the filing deadline in the first year of the new system because they are unfamiliar with it.

The DOL acknowledges that some filers might encounter problems in the first year, but has decided it would be premature to announce a one-time exemption. However, the preamble indicates the DOL will "take into account technical and logistical obstacles experienced by plan administrators who acted prudently and in good faith in attempting to timely file a complete annual report during the first year of the wholly electronic filing system" when deciding whether to assess ERISA § 502(c)(2) civil penalties. Of course, the DOL does not have discretion to waive Internal Revenue Code penalties that also may apply. However, the preamble indicates DOL will be coordinating with the IRS on annual reporting compliance efforts.

No Change to Recordkeeping Requirements

The final regulation clarifies that the electronic filing mandate does not change applicable recordkeeping and disclosure obligations. Plans generally must retain records relating to their Form 5500 filings for at least six years. Additionally, the electronic filing mandate does not change the ERISA requirement for plans to maintain copies of their latest Form 5500 filing for examination and to furnish copies to participants and beneficiaries upon request.

Effective Date

The final regulations are effective September 19, 2006, but the mandatory electronic filing requirement applies only to plan years beginning on or after January 1, 2008. As a result, most filers will have until at least July 2009 to make any needed adjustments to comply with the electronic filing mandate. The DOL backed away from its original proposal to make the mandate applicable beginning with 2007 plan years in order to give filers and service providers time to prepare to comply, and "in order to ensure an orderly and cost-effective migration to an electronic filing system ...."

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Carlisle Toppin 202.220.2067, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2006, Deloitte.