Proposed Revision of Annual Information Return/Reports

[Federal Register: September 3, 1997 (Volume 62, Number 170)]
[Notices]
[Page 46555-46605]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03se97-137]

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

DEPARTMENT OF THE TREASURY

Internal Revenue Service

PENSION BENEFIT GUARANTY CORPORATION

Proposed Revision of Annual Information Return/Reports

AGENCIES: Department of Labor, Department of the Treasury, Pension Benefit Guaranty Corporation.

ACTION: Notice of proposed forms revisions.

SUMMARY: This document contains a proposal by the Department of Labor, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation (the Agencies) to streamline and simplify the annual return/report forms (the Form 5500 Series) filed for employee pension, welfare and fringe benefit plans under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986, as amended (the Code).

Dates, Written Comments and Public Hearing: The Agencies invite interested persons to submit written comments regarding the revised forms. Written comments (preferably 4 copies) should be submitted to: Office of Regulations and Interpretations, Pension and Welfare Benefits Administration, U.S. Department of Labor, Room N- 5669, 200 Constitution Ave., NW, Washington, DC 20210, Attention: Proposed Forms Revisions. Written comments on the revised forms must be received by the Department of Labor on or before November 3, 1997, and should include a reference to the relevant form, question, and related instruction.

A joint public hearing on the proposed revised forms will be held on November 17 and (if necessary) November 18, 1997, beginning at 10:00 a.m., in the Auditorium, Frances Perkins Building, U.S. Department of Labor, 200 Constitution Ave., NW, Washington, DC. Any interested person who wishes to present oral testimony at the hearing should submit on or before November 3, 1997 a written request to be heard, including a statement of the topics to be discussed. The request should be submitted to the Office of Regulations and Interpretations at the address above: Attention: Form 5500 Revisions Hearing. An agenda indicating the order of presentation of oral comments will be prepared. In the absence of special circumstances, each commentator will be allotted 10 minutes for his or her presentation. Information about the agenda may be obtained on or after November 3, 1997 by contacting George M. Holmes, Jr., Pension and Welfare Benefits Administration, U.S. Department of Labor, (202) 219-8515. Individuals not listed in the agenda will be allowed to make oral comments at the hearing to the extent time permits. Those individuals who make oral comments at the hearing should be prepared to answer questions regarding their comments. The hearing will be transcribed. All submissions will be open to public inspection in the Public Disclosure Room, Pension and Welfare Benefits Administration, Room N-5638, 200 Constitution Ave., NW, Washington, DC 20210.

The Agencies intend that, if adopted, the revised forms will be effective for plan years beginning on or after January 1, 1998.

FOR FURTHER INFORMATION CONTACT: George M. Holmes, Jr., Pension and Welfare Benefits Administration, U.S. Department of Labor, (202) 219-8515, for questions relating to the proposed Form 5500 as well as Schedules A, C, D, G, FIN and FIN-SP. James Flannery, Internal Revenue Service, (202) 622-6214, for questions relating to Schedules B, E, F, P, PEN, Q, and SSA. James J. Bloch, Pension Benefit Guaranty Corporation, (202) 326-4080 (x3530), for questions relating to line 10 of Schedule PEN as well as questions regarding information requirements under Title IV of ERISA. For further information on any item not mentioned above, contact Mr. Holmes. The telephone numbers referenced above are not toll-free numbers.

SUPPLEMENTARY INFORMATION: Under part 1 of Title I of ERISA, Title IV of ERISA, and the Code, as amended, administrators of pension and welfare benefit plans (collectively employee benefit plans) subject to those provisions are required to file return/reports annually concerning, among other things, the financial condition and operations of the plans. Employers sponsoring certain fringe benefit plans and other plans of deferred compensation that are not subject to Title I of ERISA are also required under the Code to file certain information annually with the IRS. These annual reporting requirements are satisfied generally by filing the Form 5500 Series in accordance with its instructions and the related regulations.

The existing Form 5500 Series includes the Form 5500 Annual Return/ Report of Employee Benefit Plan (with 100 or more participants), Form 5500-C Return/Report of Employee Benefit Plan (with fewer than 100 participants), Form 5500-R Registration Statement of Employee Benefit Plan (with fewer than 100 participants), and the statements and schedules required to accompany the forms. Currently, plans with fewer than 100 participants file the longer Form 5500-C at least every third year, and the shorter Form 5500-R registration statement in the two intervening years. The Form 5500-EZ Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan is specifically excluded from consideration in this publication.

In an effort to simplify and streamline the annual return/report and to reduce the reporting burden on filers, the agencies have developed one Form 5500 for use by both "large plan" filers (plans that previously filed the Form 5500) and "small plan" filers (plans that previously were eligible to file the Form 5500- C/R). The new form is intended to:

• Reduce the total amount of information required to be reported for many plans by eliminating information that is not useful to accomplish enforcement, research, or other statutorily mandated missions;

• Provide plans using simple tax qualification structures and financial operations with correspondingly streamlined annual reporting requirements;

• Allow large and small pension plan filers to report information on coverage requirements for qualified plans in accordance with the three-year testing cycle permitted under Rev. Proc. 93-42, 1993-2 C.B. 540;

• Target reporting requirements so that welfare plans generally complete fewer items than pension plans, and small plans complete fewer items than large plans;

• Establish the Form 5500 as the standardized reporting format for all so-called "direct filing entities"-- common/collective trusts, pooled separate accounts, master trusts, 103-12 investment entities, and group insurance arrangements;

• Eliminate redundant items and improve questions that historically produced frequent technical filing errors; and

• Reduce government and filer costs associated with filing, receiving and processing annual reports, speed government processing, and enable plans and their service providers to establish more streamlined record keeping and filing support systems.

The proposal eliminates the Form 5500-C/R, but maintains limited financial reporting similar to the Form 5500-R for small plans. Further, plans that are currently exempt from filing a return/report (such as certain small unfunded/insured welfare plans and certain SEPs) or that are eligible for limited reporting options (such as certain Code section 403(b) plans) will continue to be eligible for that annual reporting relief.

The proposal restructures the Form 5500 along the lines of tax returns familiar to individual and corporate taxpayers--a simple one-page main form with basic information necessary to identify the plan for which the report is filed along with a checklist to indicate the schedules being filed applicable to the filer's specific type of plan. For most plans, the basic identifying information does not change from year to year and pre-printing this information should ease reporting burdens and reduce filing errors. The Agencies are evaluating the feasibility of pre-printing the basic identifying information on the Form 5500 after the first full filing-year cycle under the new computer scannable forms discussed below. The structure of the proposed form should also aid filers by allowing them to assemble and file a report that is "customized" to their type of plan. The Agencies are also publishing as part of this proposal revised filing instructions that are intended to be easier to use, including a quick reference chart with guidelines on which schedules must be filed for each type of Form 5500 filer (large and small pension plans, large and small welfare plans, Direct Filing Entities and fringe benefit plans).

Taking into consideration the Agencies' enforcement, research and policy needs, as well as the Department of Labor's participant/public disclosure obligations, the Agencies believe this restructuring, and the other revisions of the Form 5500 discussed below, will reduce the burdens and costs attributable to compliance with the annual reporting requirements.

Although this publication concerns proposed revisions of the Form 5500 Series, the Agencies believe meaningful burden hour and cost reductions can be achieved only through integrated implementation of changes to the government's system to process the forms. Accordingly, the Department of Labor is preparing a Request for Proposal (RFP) for a contractor to develop and implement a new system to simplify and expedite the receipt and processing of the Form 5500 Series. The new system is to rely on electronic filing with optical scanning technology and optical character recognition to computerize the paper forms. Under the new system, the paper forms will have to be reformatted to be computer scannable. While the reformatting will affect the appearance and length of the form, the actual number of data elements will not be affected. The new system is also to be developed in a way that should substantially increase the percentage of plans filing their Form 5500 via electronic filing as a more efficient alternative to even scannable forms. A mock-up of a scannable Form 5500 is being published with the printed versions of the proposal. The scannable mock-up, however, does not necessarily reflect the way the final scannable forms will look. The final appearance will depend on the scanning technology selected for use in the new form processing system. Details on the processing system will be available as the RFP is finalized.

Overview of Forms Revisions

To assist interested parties in reviewing the revised forms, an overview of the Agencies' proposed changes to the Form 5500 Series is set forth below.

As noted above, by eliminating certain questions and developing new schedules, the Form 5500 itself has been revised into a short one-page form that serves both as a simple registration statement and as a "packing list" for attaching relevant schedules. The proposed Form 5500 constitutes eight basic questions that identify: (i) The type of annual report being filed, (ii) the plan on whose behalf it is being filed, and (iii) what schedules and how many of each are being filed as attachments to the Form 5500.

Under the proposal, there is a total of thirteen schedules--five pension schedules, seven financial schedules, and one fringe benefit schedule:

Pension Schedules: Schedule B (Actuarial Information), Schedule E (ESOP Information), Schedule PEN (Pension Plan Information), Schedule Q (Qualified Pension Plan Coverage Information), and Schedule SSA (Separated Vested Participant Information);

Financial Schedules: Schedule A (Insurance Information); Schedule C (Service Provider Information); Schedule D (Direct Filing Entity/ Participating Plan Information); Schedule FIN (Financial Information); Schedule FIN-SP (Financial Information--Small Plan); Schedule G (Financial Transactions) and Schedule P (Trust Fiduciary Information).

Fringe Benefit Schedule: Schedule F (Fringe Benefit Plan Information).

Below is a description of the five new schedules being established as part of this proposal (Schedules D, FIN, FIN-SP, PEN, and Q), the three existing schedules being revised (Schedules A, C, and G), and a statement of the reasons why the Agencies are proposing to leave the remaining five schedules (Schedules B, E, F, P, and SSA) unchanged.

1. Schedule A (Insurance Information)

Schedule A must be attached to the Form 5500 if any pension or welfare benefits under the plan (whether small or large) are provided by, or if the plan has any investment contracts with, an insurance company or other similar organization. Although most of the Schedule A data collection has been retained substantially unchanged, several significant revisions are being proposed which are designed to collect better information about insurance products, including conforming the Schedule A to recent accounting industry changes on "current value" financial reporting of investment-type contracts with insurance companies, and requiring: (i) Information on a plan year as opposed to insurance contract year basis; (ii) better identification of the type of insurance contracts and type of insured benefits being reported; and (iii) insurer's EIN (employer identification number) and NAIC (National Association of Insurance Commissioners) code.

2. Schedule C (Service Provider Information)

Schedule C must be attached to the Form 5500 filed by large plans if any person who rendered services to the plan received directly or indirectly $5,000 or more in compensation from the plan during the plan year. The proposal limits the schedule to the 40 top paid service providers at or above the $5,000 threshold. Further, the proposal also eliminates the separate requirement to file a Schedule C to identify annually plan trustees and limits the current requirement to file a Schedule C to explain service provider terminations to accountants and enrolled actuaries. Small plans would continue to be exempt from the Schedule C.

3. Schedule D (Direct Filing Entity/Participating Plan Schedule)

The Schedule D is a new standardized form for filing information on relationships between plans and master trust investment accounts (MTIAs), common/collective trusts (CCTs), insurance company pooled separate accounts (PSAs), investment entities covered under 29 CFR 2520.103-12 (103-12 IEs), and group insurance arrangements (GIAs), collectively known as "Direct Filing Entities" or "DFEs." Currently, if a group insurance arrangement files a Form 5500 on behalf of the participating plans under the Department of Labor regulation at 29 CFR 2520.104-43, the individual plans participating in the GIA are exempt from filing a Form 5500 or 5500-C/R. Plans currently participating in the other DFEs (MTIAs, 103-12 IEs, CCTs and PSAs) generally must file a Form 5500 or 5500- C/R; however, if the DFE files certain financial information directly on behalf of the administrators of all participating plans, the plans are allowed to limit the information in their separate Form 5500 or Form 5500-C/R because the DFE's filing is considered part of each participating plan's annual report. These DFE reporting rules were developed in an effort to simplify the annual reporting requirements for the participating plans. The absence of a standardized reporting format for DFE filings, however, makes it impossible for the Department to correlate and effectively use the data regarding approximately $1 trillion in plan assets reported by plans and DFEs. Accordingly, the proposal establishes the new Form 5500 as the standardized annual reporting format for all DFEs.

Under the proposal, MTIAs and 103-12 IEs would be required to complete: (1) Applicable items on the streamlined Form 5500; (2) a Schedule A for each insurance contract held by the DFE; (3) a Schedule C to list DFE service providers receiving compensation from the DFE; (4) one or more Schedules D to list all participating plans at any time during the year and all CCTs, PSAs or 103-12 IEs that the MTIA or 103-12 IE invested in during the year; (5) a Schedule FIN financial statement; (6) one or more Schedules G listing certain financial transactions; and (7) for 103-12 investment entities, a report of an independent qualified public accountant. Large plans that invest in MTIAs and 103-12 IEs would continue to report the value of their interests in these entities on one line in the plan's Schedule FIN as of the beginning and end of the plan year and as a single entry for net investment gain/loss.

Under the proposal, as under the current Form 5500 Series, CCTs and PSAs could elect to file information as a DFE. If a CCT or PSA elects to file, they would be required to complete (1) applicable items on the streamlined Form 5500; (2) one or more Schedules D to list all participating plans at any time during the year and all CCTs, PSAs, or 103-12IEs that the CCT or PSA invested in during the year; and (3) a Schedule FIN financial statement. Large plans investing in a CCT or PSA that files as a DFE would report the value of their interests in these entities on one line in the plan's Schedule FIN as of the beginning and end of the plan year and as a single entry for their net investment gain/loss during the year. If the CCT or PSA does not file a Form 5500 as a DFE, employee benefit plans would have to break out their percentage interest in the underlying assets of the CCT or PSA and report the dollar value in the appropriate categories in the Schedule FIN statement of assets and liabilities (and would still report the net investment gain/loss as a single entry on the Schedule FIN income and expense statement).

Both large and small plans would have to file a Schedule D listing the MTIAs, 103-12 IEs, CCTs and PSAs in which they participated, and would be required to list CCTs and PSAs regardless of whether the CCT or PSA filed as a DFE. Reports of small plans filing the Schedule FIN-SP are not expected to be otherwise significantly affected by these changes.

GIAs that file a Form 5500 (including applicable schedules and attachments) on behalf of their participating plans under the Department of Labor regulation at 29 CFR 2520.104-43, would be required to file a Schedule D listing the participating plans.

The Department is specifically soliciting comments from interested parties on how these DFE changes can be implemented in a manner that minimizes the impact on plan administrators and DFEs, including suggestions about the use of electronic filing options and delayed effective dates. The Department will also be publishing a separate Notice of Proposed Rulemaking on regulatory amendments needed to accommodate the DFE changes.

4. Schedules FIN (Financial Information)/ FIN-SP (Financial Information--Small Plan)

The proposal essentially incorporates the financial statements from the current Form 5500 (lines 31 and 32) as part of a new Schedule FIN ("Financial Information"). For small plan filers, the proposal includes a new Schedule FIN-SP ("Financial Information -- Small Plan") that maintains simplified financial statements similar to the current Form 5500-R and adds a limited number of specific investment categories that must be separately reported. The proposal also incorporates into the Schedules FIN and FIN-SP "yes/no and amount" questions focused on key compliance issues/enforcement areas involving investments, financial transactions, and handling of plan assets. The Schedule FIN also includes revised versions of the current Form 5500 questions on the accountant's opinion and report. Current regulatory exemptions, simplified reporting, and alternative methods of compliance for annual financial reporting by certain welfare and pension plans are expected to remain unchanged. /1/ Since the proposal eliminates various questions from the current Form 5500 Series that dealt with Title I compliance, the Department of Labor also developed an ERISA compliance quick checklist to help plan administrators and other fiduciaries comply with Title I requirements. The checklist is to be in the Form 5500 instruction package, but its use is to be voluntary, and it would not be filed with the Form 5500.

5. Schedule G (Financial Transactions)

Use of the Schedule G would be mandatory for the schedules now required by lines 27b, 27c, 27e, and 27f of the current Form 5500. The proposed Schedule G would have to be attached to the Form 5500 of a large plan, MTIA or 103-12 IE to report loans or fixed income obligations in default or determined to be uncollectible as of the close of the reporting year (Part I of Schedule G), leases in default or classified as uncollectible during the plan year (Part II of Schedule G), and to report nonexempt prohibited transactions (Part III of Schedule G). Large plans can aggregate participant loans in default as one item on Part I of the plan's Schedule G when certain requirements are met, including each loan being fully secured by the participant's account balance in the plan. Small plans are not required to file a Schedule G.

The proposal eliminates from the Form 5500 the schedules of assets held for investment purposes (line 27a of the current Form 5500) and the schedule of reportable (5%) transactions (line 27d of the current Form 5500). The requirement to report this information is eliminated, but the records needed to generate the information on the current schedule of reportable transactions and schedules of assets would have to be maintained, and administrators of large plans would have to prepare and disclose that information, on request, to participants and other authorized parties under sections 104(b)(2) and 104(b)(4) of ERISA. /2/ To satisfy that disclosure obligation, however, transactions effected at the affirmative direction of participants in defined contribution plans could be excluded from the definition of "transaction" for the schedule of reportable transactions, and no "historical cost" entry would be needed for such transactions on the schedules of assets. The disclosure would have to be presented in an understandable and non-misleading format. Because the schedules of assets and reportable transactions would not be part of the plan's annual report, the accountant's opinion required under ERISA 103(a)(3)(A) would not have to cover that information, but the underlying books and records of the plan would continue to be subject to the audit requirement. /3/ The Department of Labor will publish a Notice of Proposed Rulemaking on regulatory amendments necessary to accommodate these changes.

6. Schedule PEN (Pension Plan Information)

The Schedule PEN is a new schedule that is required to be filed by both tax qualified and nonqualified pension benefit plans that are required to file Form 5500, other than annuity arrangements and custodial accounts under Code section 403(b)(1) and 403(b)(7), and individual retirement accounts/annuities under section 408. The purpose of Schedule PEN is to report certain information on participant coverage, plan distributions and funding, and the adoption of amendments increasing the value of benefits in a defined benefit pension plan. As part of a publication describing various voluntary compliance programs administered by the Employee Plans function, the IRS is also developing a compliance checklist to help pension plan sponsors and administrators comply with the tax qualification requirements of the Code and Title II of ERISA.

7. Schedule Q (Qualified Pension Plan Coverage Information)

The Schedule Q is a new schedule for reporting qualified plan coverage information for qualified pension plans, including plans maintained by employers that operate QSLOBs, and for employers participating in multiple-employer plans. For a plan that is tested under the three-year testing cycle rule in Rev. Proc. 93-42, Schedule Q must be filed for the first year in the plan's testing year cycle. Schedule Q need not be filed for the subsequent years in the cycle if the employer is permitted to rely on the earlier year's testing. If the employer does not or cannot use the three-year testing rule in Rev. Proc. 93-42, Schedule Q must be filed annually. The adoption of this new schedule eliminates the separate Form 5500-C/R filing requirement that now applies to employers participating in plans that currently file Form 5500 as a "multiple-employer plan (other)." This schedule replaces separate statements currently required regarding the coverage of plans that must be disaggregated under section 1.410(b)-7 of the Income Tax Regulations.

8. Other Schedules

The Schedule B (Actuarial Information) and Schedule SSA (Separated Participants With Deferred Vested Benefits) were not revised because both were recently revised and it did not appear productive to propose further revisions at this time. The Schedule F (Fringe Benefit Plan Information) also was not revised because Code section 6039D mandates collection of the information reported on that schedule. Lastly, the Schedule E (ESOP Annual Information) was not revised because it is filed only by ESOPs and the IRS was not aware of substantial interest in changing the schedule. The Agencies welcome suggestions for making these schedules simpler. It is anticipated that the final version of these schedules will be revised at a minimum to reflect changes in law and other appropriate updates.

9. Quick Reference Chart

The Agencies developed a quick reference chart for the Form 5500 instructions that indexes the schedules required from each major class of filer. That chart is reproduced below:

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FOOTNOTES

/1/ For example, there is no change in the waiver of the independent qualified public accountant requirements in 29 CFR 2520.104-41 and 2520.104-46, or the small plan exemptions from the Schedule C (service provider information), the schedules of loans, leases or fixed income obligations in default and nonexempt transactions (revised Schedule G).

/2/ Participants and beneficiaries would be entitled to request, and receive automatically, the schedules of assets and schedule of reportable transactions that relate to the "latest" annual report of the plan. Other disclosure rights and obligations may arise based on facts and circumstances, in addition to those specified in ERISA section 104(b).

/3/ The general statutory provisions and fiduciary duties regarding maintenance of plan records would also continue to apply to participant directed transactions.

END OF FOOTNOTES