Revision of Annual Information Return/Report

AGENCIES:

Pension and Welfare Benefits Administration, Labor; Internal Revenue Service, Treasury; Pension Benefit Guaranty Corporation.

ACTION:

Notice of adoption of revised forms.

SUMMARY:

This document announces the adoption of the revised 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, as amended (ERISA), and the Internal Revenue Code of 1986, as amended, (the Code). The Form 5500 Series is the principal source of information and data concerning the operation, funding, assets and investments of pension, welfare and fringe benefit plans, and also serves as the primary means by which the operation of plans can be monitored by participants, beneficiaries and the general public. The form revisions are being adopted concurrent with the implementation of a new computerized ERISA Filing Acceptance System (EFAST) to improve the forms and simplify and expedite the receipt and processing of the Form 5500 Series by relying on computer scannable forms and electronic filing technologies. The revised forms affect the financial and other information required to be reported and disclosed by employee benefit plans. The Form 5500-EZ is not discussed in this notice.

DATES:

Effective Date: This notice is effective on February 2, 2000.

Applicability Date: The revised forms apply for plan years beginning on or after January 1, 1999.

FOR FURTHER INFORMATION CONTACT:

George M. Holmes, Jr. or Eric A. Raps, Pension and Welfare Benefits Administration (PWBA), U.S. Department of Labor, (202) 219-8515, for questions relating to the Form 5500 and Schedules A, C, D, G, H and I as well as the reporting requirements under Title I of ERISA; James Flannery, Internal Revenue Service (IRS), (202) 622-6214, for questions relating to Schedules B, E, F, P, R, T and SSA as well as questions relating to the reporting requirements under Title II of ERISA; James J. Bloch, Pension Benefit Guaranty Corporation (PBGC), (202) 326-4080 (x 3530) for questions relating to Schedule B and line 9 of Schedule R as well as questions relating to the reporting requirements under Title IV of ERISA. For further information on an item not mentioned above, contact Mr. Holmes. The telephone numbers referenced above are not toll-free numbers.

SUPPLEMENTARY INFORMATION:

I. Background

Under part 1 of Title I of ERISA, Title IV of ERISA, and the Code, administrators of pension and welfare benefit plans subject to those provisions are required to file returns/reports annually concerning, among other things, the financial condition and operations of employee benefit 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 Form 5500 Series is the principal source of information and data concerning the operation, funding, assets and investments of more than 800,000 pension and welfare benefit plans with assets estimated at $4.3 trillion. Accordingly, the Form 5500 Series information and data necessarily constitute an integral part of each agency's enforcement, research and policy development programs and are a source of information and data for use by other federal agencies, Congress and the private sector in assessing employee benefit, tax, and economic trends and policies. The returns/reports also serve as the primary means by which the operations of plans can be monitored by participants, beneficiaries and the general public.

On September 3, 1997, the Department of Labor (Department), IRS and the PBGC (collectively the Agencies) published in the Federal Register (62 FR 46556) a notice of proposed revisions to the Form 5500 Series. The Agencies' proposal replaced the Form 5500, Form 5500-C and Form 5500-R with one Form 5500 intended to streamline the report and the methods by which it is filed. Concurrent with the development of the new Form 5500, the Agencies also developed a new computerized system to process Form 5500 returns/reports (the ERISA Filing Acceptance System or “EFAST”). The new computerized processing system is designed to simplify and expedite the receipt and processing of the new Form 5500 by relying on computer scannable forms and electronic filing technologies. The development of the new forms in conjunction with the EFAST system is intended to streamline and improve the Form 5500 Series and lower the administrative burdens and costs incurred by employee benefit plans that file the Form 5500 Series each year.

A public hearing on the proposed forms revisions was held on November 17, 1997, and written comments on the proposal were received until the public record was closed on December 3, 1997. The Agencies received oral testimony and over 60 written public comments from employer groups, employee representatives, financial institutions, service organizations and others on the form streamlining proposal. On February 4, 1998, the Department announced that, in response to public comments, the implementation of the new Form 5500 would be delayed until the 1999 plan year.

Public reaction to the September 3, 1997 Notice of Proposed Forms Revisions was generally supportive of the new streamlined structure of the Form 5500 Series. The Agencies decided to adopt the new forms largely as proposed, but, in response to public comments, made various adjustments to the proposed forms and instructions where consistent with the purposes of the Form 5500 and the objectives of the streamlining project. A revised version of the new Form 5500 was submitted to the Office of Management and Budget (OMB) for approval under the Paperwork Reduction Act (PRA) and a Notice was published in the Federal Register on June 24, 1998 (63 FR 34493) which provided a 30-day opportunity to submit comments to OMB on the new Form 5500 submission. At the same time, the revised Form 5500 was made available on PWBA's internet site (http://www.dol.gov/dol/pwba) as part of the Agencies' commitment to make information about the new forms available to plans and their service providers at the earliest opportunity. Following its PRA review, OMB gave conditional PRA approval to the new Form 5500 on August 26, 1998.

The new Form 5500 Series replaces the Form 5500 and the Form 5500-C/R with a single new Form 5500 with basic identifying information for use by all filers and 13 schedules focused on particular subjects and/or filing requirements—five pension schedules, seven financial schedules, and one fringe benefit schedule. The pension schedules are: Schedule B (Actuarial Information); Schedule E (ESOP Annual Information); Schedule R (Retirement Plan Information); Schedule T (Qualified Pension Plan Coverage Information); and Schedule SSA (Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits). The financial schedules are: Schedule A (Insurance Information); Schedule C (Service Provider Information); Schedule D (DFE/Participating Plan Information); Schedule G (Financial Transaction Schedules); Schedule H (Financial Information); Schedule I (Financial Information-Small Plan); and Schedule P (Annual Return of Fiduciary of Employee Benefit Trust). The fringe benefit schedule is Schedule F (Fringe Benefit Plan Annual Information Return). The new schedules are Schedules D, H, I, R and T; the schedules that have been revised are Schedules A, C and G; and the schedules that have either not been revised or have undergone minimal changes are Schedules B, E, F, P and SSA.

The revisions being adopted to the Form 5500 annual return/report provide plans using simple tax qualification structures and financial operations with correspondingly streamlined annual reporting requirements and also target reporting requirements so that welfare plans generally complete fewer items than pension plans and small plans generally complete fewer items than large plans. The Agencies have developed a reference guide, which is included in the instructions for the new Form 5500, that is designed to provide general information and guidance on completing the revised Form 5500 and schedules entitled: “Quick Reference Chart Form 5500 Schedules and Attachments.”

As part of the development of the revised Form 5500 Series, the Department also published in the Federal Register (63 FR 68370), on December 10, 1998, proposed amendments to the annual reporting regulations (Part 2520 of Chapter XXV of Title 29 of the Code of Federal Regulations) to implement under Title I of ERISA certain of the proposed changes to the Form 5500 Series. A number of other technical amendments to the regulations were proposed in order to update certain of the reporting and disclosure regulations. In the December 10, 1998 Notice, the Department stated that the public comments submitted in response to the September 3, 1997 Notice of Proposed Forms Revisions would be treated as part of the public record for the Notice of Proposed Rulemaking, and, to the extent those comments included information relevant to the proposed regulatory amendments, the Department would treat those comments as comments on the Notice of Proposed Rulemaking to avoid the need to submit duplicate public comments. The Department received four comments in response to the December 10, 1998 Notice. A notice of final rulemaking regarding those regulatory amendments will be published separately by the Department in the Federal Register.

The Agencies also published a Federal Register notice, on June 28, 1999 (64 FR 34686) soliciting public comments on the draft computer scannable versions of the new forms developed by two vendors who were competing for the contract to design and build the EFAST system. Specifically, contracts were awarded to two national computer firms to competitively develop a computerized form processing system and related computer scannable versions of the new Form 5500 Series. The Agencies subsequently selected one as the vendor to operate EFAST and process the new Form 5500 returns/reports.

As noted above, EFAST has been designed to simplify and expedite the receipt and processing of the Form 5500 Series by relying on computer scannable forms and electronic filing technologies. In that regard, the 1999 Form 5500 is available in two different computer scannable formats; both have the same data elements but provide filers with a choice of formats for preparing the Form 5500. The first format is a “machine print” format under which the filer uses a computer and software to enter data and complete the form. Upon completion of the data entries under this format, the completed forms and any required attachments may be filed through electronic means (provided the EFAST electronic specifications are met and a copy with all required signatures is retained as part of the plan's records), or the filer may print a paper copy, and after the required signatures have been affixed, mail the return/report to the address specified in the Form 5500 instructions under the heading labeled “Where To File.” The completed machine print Form 5500 return/report can be read by participants and beneficiaries, and the EFAST system will collect the data by scanning bar codes printed out at the bottom of each page. The second format is a “hand print” format under which the filer enters data by hand or typewriter on specially designed green drop-out ink forms and the EFAST system uses optical character recognition technology to scan the hand or typewritten data entries. The “hand print” format can be filed only by mail to the address specified in the Form 5500 instructions under the heading labeled “Where To File.”

The Agencies are printing in this notice informational copies of the hand print 1999 Form 5500 and schedules, and the instruction package for the 1999 Form 5500 return/report. However, because of the new technologies being used by the Agencies for processing the revised Form 5500, Federal Register copies of the Form 5500 and schedules will not be acceptable for filing. Informational copies of the hand print forms, machine print forms and the instruction package will also be posted on the Department's web page at www.dol.gov/dol/pwba. The 1999 Form 5500 package (hand print green drop-out ink forms and instructions) will be distributed to employee benefit plan filers in the same manner as in prior years. Refer to the EFAST web page at www.efast.dol.gov beginning in late March 2000 for information on obtaining the machine print forms and related software.

II. Summary of Comments on Proposed Forms

In addition to a number of general comments relating to the statutory and regulatory annual reporting scheme, the Agencies received a number of comments relating to specific elements of the proposed revisions to the Form 5500. Upon consideration of all the written comments and the record of the public hearing, as well as the Agencies' respective administrative, enforcement and informational requirements, the Agencies were unable to adopt all of the public suggestions and recommendations regarding revisions to the annual return/report. However, in an effort to facilitate both compliance with the annual reporting requirements and the processing of annual returns/reports, the Agencies have in response to public comments made certain changes to the forms and clarifications to the instructions accompanying the forms. The following is a summary of the major comments received by the Agencies which have been organized on a subject matter basis.

A. Annual Reporting Scheme

Some commentators recommended that Form 5500 return/report filers should not be required to report each year various information that was reported on the prior year's Form 5500 if the information remains unchanged. Other commentators recommended that certain information should not be required to be reported, but, instead, should be required to be maintained as part of the plan's records and provided to the Agencies only in response to a specific request for the information. The Agencies believe that adopting these recommendations would make it more difficult for the Agencies to carry out their enforcement, research and other responsibilities and would diminish the value of the Form 5500 as a disclosure document for plan participants and beneficiaries. The Agencies, therefore, have not adopted these recommendations. A few commentators recommended changes to the Form 5500 that would eliminate or modify reporting requirements or other features of the Form 5500 that, in the Agencies' view, are mandated by statute or regulations. The Agencies, accordingly did not adopt these changes.

B. Form 5500

1. Restructuring of the Form 5500 and Elimination of the Form 5500-C/R. In general, the comments were positive as to the restructuring of the Form 5500 Series, including the elimination of Form 5500-C/R. The Agencies, accordingly, have decided to adopt the new structure of the forms largely as proposed. However, several of the new schedules added as part of the proposal have been re-labeled to be consistent with the general practice in the current Form 5500 of using a single alphabetic identifier for schedules, i.e., Schedule FIN (Financial Information) is now Schedule H (Financial Information), Schedule FIN-SP (Financial Information-Small Plan) is now Schedule I (Financial Information-Small Plan), and Schedule PEN (Pension Plan Information) is now Schedule R (Retirement Plan Information). Further, the Schedule Q (Qualified Pension Plan Coverage Information) was re-labeled as Schedule T (Qualified Pension Plan Coverage Information) to avoid confusion with the Schedule Q introduced by the IRS for the Form 5300 Series.

2. Financial Reporting for Large and Small Plans. Several commentators requested that the Agencies require small plans (plans that previously were eligible to file the Form 5500-C/R) to report the same financial information that is required of large plans (plans that previously filed the Form 5500), or, in the alternative, require that small plans continue to report the financial information that is now contained in the current Form 5500-C. Other commentators suggested that the 100 participant threshold for determining whether a plan is “large” or “small” should be increased, for example, to 150 or 200 participants. With respect to the first comment, the Agencies concluded that significantly expanding the financial reporting for small plans would be inconsistent with a principal objective of this project which was to simplify and streamline the information collected on the Form 5500. Further, the Agencies believe that the financial reporting by small plans in the new Form 5500 contains much of the financial information on the Form 5500-C (lines 27 and 28) while providing improved disclosures over the current Form 5500-C. With respect to the second comment, the extension of the reporting threshold to a 200 participant threshold would expand the number of small plan filers by approximately 45,000 plans. In light of the fact that such a change may require legislation, and because the Agencies would need to more fully explore and consider the consequences of such an extension, the Agencies did not alter the current rules regarding the 100 participant threshold.

3. Preparer Identification. Several commentators indicated that it was not clear how filers would comply with the proposed requirement to identify the “preparer” of the Form 5500 because many persons may be involved in the collection and preparation of information reported on the Form 5500 return/report. The commentators asked for specific instructions regarding this requirement if it were to be maintained in the final form. In the alternative, a commentator asked that the “preparer” requirement be replaced with authorization for a party to be designated as an official contact to discuss filing errors. The Agencies agree that it may be difficult to identify a single preparer of the Form 5500 for many plans, and accordingly, have changed the item so that it is optional and allows a filer to designate the person or entity that the filer believes was principally responsible for the preparation of the annual return/report.

4. Multiple Signature Requirements. Several commentators questioned the need for multiple signatures on the Form 5500 return/report. In response, the Agencies have clarified the instructions for the Title I and II signature requirements for administrators and employers on the return/report and the IRS eliminated the employer signature requirement from the Schedule T. The other signatures required on the return/report (independent qualified public accountant's signature, enrolled actuary signature on Schedule B, trustee signature on Schedule P, and administrator signature on Schedule SSA) serve independent purposes such that it is not currently feasible to eliminate these signatures or consolidate them onto a single place on the form.

5. Elimination of Certain Compliance and Disclosure Questions. Several commentators suggested that the proposed elimination of certain compliance and disclosure questions may adversely affect plan participants. Specific areas identified included the following.

First, commentators questioned the proposed elimination of the reporting of the number of active participants who are fully vested, partially vested and nonvested. The Agencies did not reinstate these questions because the subgrouping of active participants by fully vested, partially vested and nonvested was not widely used by the Agencies, was a source of confusion for many filers, was duplicative of certain information reported on Schedule B, and was not required under the current or revised Form 5500 for the small plan filers which comprise the majority of all return/report filers. Further, to the extent individual participants want vesting information regarding their own benefits, they generally can obtain an individual benefit statement from their plan administrator.

Second, commentators questioned the proposed elimination of “yes/no” questions on plan amendments and distribution of summaries of material modifications (SMMs). Under Title I of ERISA, plan administrators must automatically furnish a notice to participants and beneficiaries of material modifications to the plan or changes in the information required to be included in the summary plan description (SPD) that were adopted during the reporting year. These notices typically must be furnished to participants and beneficiaries before the plan's Form 5500 return/report would be filed and available to participants and beneficiaries. Accordingly, participants and beneficiaries should have received a notice regarding the plan amendment before they ordinarily would have access to the answers to these “yes/no” questions on the form. Also, the Department has developed an ERISA Compliance Quick Checklist (to be included in the Form 5500 instruction package but not required to be filed with the government) that makes specific reference to these SPD/SMM requirements. The Department, accordingly, has not reinstated these questions.

Third, commentators asked that the Agencies reinstate the question for small plan filers on whether 20% or more of plan assets are held in a single investment and the question for all filers on compliance with fidelity bonding requirements. The Agencies decided to reinstate questions on these subjects because they serve important enforcement and disclosure functions and provide important protections to participants and beneficiaries.

6. Delay of Effective Date. In response to comments, the Agencies postponed the implementation year for the new forms from the 1998 plan year until the 1999 plan year. Thus, the earliest filing due date for returns/reports using the new forms for plans with calendar year plan years is July 31, 2000. (See below for a discussion of the transitional rules and special filing due date rules for common or collective trusts (CCTs) and pooled separate accounts (PSAs) electing to file as direct filing entities (DFEs)).

7. Uniform Method to Count Plan Participants. Several commentators noted that numerical counts of plan participants were required on several different schedules using several different counting formulas. One commentator suggested that proposed Form 5500 (Line 4), Schedule B (Line 2b), Schedule PEN (Lines 1a, 1b, and 1c), and PBGC Form 1 (Line 13) be revised to permit a plan administrator to provide the same participant count for each item. Another commentator suggested that all the requested information be in one place on the form. In response, the Agencies note that the different participant counts are used for different purposes and thus are difficult to make consistent. In an effort to clarify and simplify these questions, however, the Agencies decided to consolidate most of the participant count questions onto the Form 5500 instead of the various schedules (with the exception of certain questions on the Schedule B which are certified to by the enrolled actuary and certain questions on Schedule T which are unique to the application of the qualified plan minimum coverage requirements), and to return, in general, to the format for participant count questions used currently on the Form 5500. The Agencies have also attempted to clarify the accompanying instructions.

C. Schedule A (Insurance Information) and Other Reporting on Insurance Products

1. Policy Year vs. Plan Year Reporting. Several commentators asked the Department not to adopt the proposed change to require Schedule A reporting of insurance contracts on a plan year basis. The present rule allows reporting on a contract or policy year basis as an alternative to a plan year basis. The commentators indicated that plan year reporting would require a substantial revision of existing recordkeeping systems while not providing better information on the insurance contracts being reported. Two commentators, however, stated that the proposed change could help in coordinating financial information on plan investments provided by banks and insurance companies. The Department proposed the change to enable better coordination of information on the Schedule A regarding individual contracts with aggregate investment and benefit payment information on the Form 5500 financial statements (which is reported on a plan year basis). In view of the complexities and costs attendant to the proposed change, the Department has decided to retain the option of contract or policy year reporting on the Schedule A.

2. Insurance Company Noncompliance with Obligation to Provide Necessary Information to Plan Administrators. Several commentators described difficulty obtaining information (particularly fee and commission-related) from insurance companies. They expressed concern about requiring any new information on the Schedule A (such as the new requirement to report insurance company employer identification numbers (EINs) and National Association of Insurance Commissioners (NAIC) codes) because they expected that the new requirements would exacerbate the current problem. It is the view of the Department that compliance with annual reporting requirements requires the filing of complete, accurate and timely annual returns/reports, which includes the information required to be reported on the Schedule A. Accordingly, plan administrators are obliged to take reasonable and prudent steps to secure the necessary Schedule A information. In this regard, it should be noted that, with respect to the obligation of insurance carriers to furnish Schedule A information, ERISA section 103(a)(2) specifically provides in pertinent part that, if some or all of the information necessary to enable the administrator to comply with the requirements of Title I of ERISA is maintained by an insurance carrier or other organization which provides some or all of the benefits under a plan or holds assets of the plan in a separate account, such carrier or other organization is required to transmit and certify the accuracy of such information to the administrator within 120 days after the end of the plan year. The current instructions for the Schedule A state that if necessary information is missing because of an insurer's refusal to provide the information, the administrator should complete the Schedule A, to the extent possible, and file a timely return/report noting the refusal and any deficiencies in the Schedule A. The Department cautions administrators that annual return/report filings should not be delayed pending receipt of requested Schedule A information beyond the date on which the annual report is due (including any timely obtained extensions for filing), and that an amended return/report should be filed upon receipt of the deficient Schedule A information.

3. Fair Market Value vs. Contract Value Reporting for Insurance Contracts. Certain changes to the Schedule A and accompanying instructions were proposed by the Department in light of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 110 (FAS 110) and No. 126 (FAS 126) and American Institute of Certified Public Accountants Statement of Position 94-4 (SOP 94-4), which generally require that financial statements presented in accordance with Generally Accepted Accounting Principles (GAAP) must disclose the fair value of investment contracts with insurance companies (except for certain investment contracts held by defined benefit pension plans and “fully benefit responsive” contracts held by defined contribution plans with assets of $100 million or less). Commentators representing insurance companies indicated that determining whether a contract may be reported at “book value” or contract value under these accounting rules is a complex determination, and one that insurance companies generally will leave to the discretion of a plan's administrator and, if applicable, auditor. Therefore, the commentators asked the Agencies to permit contract value reporting for all applicable insurance and annuity contracts, or alternatively, confirm that an insurance company will satisfy its obligation under ERISA section 103(a)(2) by furnishing plan administrators with only contract value information. The Department did not adopt these recommendations. Section 103 of ERISA and the Department's regulations generally require reporting of plan assets valued at their “current value.” As noted above, insurance companies are required under ERISA section 103(a)(2) to provide the information needed by the plan administrator to complete the plan's annual report, including both contract value and fair value information if needed. The Department continues to believe that conforming the Schedule A to the financial statement disclosure provisions in FAS 110, FAS 126 and SOP 94-4 will foster greater uniformity in the reporting of plan asset values without imposing significant costs on either plans or service providers.

The proposal also called for Schedule A reporting of the current value of “plan assets” in the insurance company general account. Some commentators expressed concern about this requirement and asked for its elimination or clarification. This proposed Schedule A change was intended to provide a line on which plans could comply with the above described requirement to report certain general account contracts at fair value. One commentator suggested that the question be rephrased to ask for the current value of the “plan's funds” in the general account. Accordingly, the new question has been re-worded; however, for consistency with the existing Schedule A question on current value of the “plan's interest” in insurance company separate accounts, the question asks for the current value of the “plan's interest” in the insurance company general account.

4. Schedule A Reporting of Investment Contracts with Insurance Companies. Several commentators noted that the current Schedule A instructions read “This schedule must be attached to Form 5500 * * * where any benefits under the plan are provided by an insurance company, insurance service, or other similar organization.” The proposed instructions included the phrase “(or investments are managed) by an insurance company * * *.” Commentators expressed confusion about whether the instruction was intended to clarify existing reporting obligations or impose new ones. The proposed instruction was not intended to impose any new Schedule A reporting requirements, but rather was intended to state the current requirement to report on the Schedule A contracts with insurance companies (including investment and annuity contracts) that are part of the plan's “funding arrangement” as well as those that are part of the plan's “benefit arrangement.” Accordingly, the instruction has been revised to mirror the current Form 5500 instructions for line 14 of the Form 5500 and Line 14 of the Form 5500-C which explain Schedule A reporting is required for contracts with insurance companies that are part of the plan's “funding arrangement” as well as those that are part of the plan's “benefit arrangement.”

5. Reporting of Allocated Insurance Contracts. The Department received several comments on the reporting of allocated insurance contracts referred to in 29 CFR 2520.104-44(b)(2). Section 2520.104-44(b)(2) provides pension plans “the benefits of which are provided exclusively through allocated insurance contracts or policies” with a limited exemption from and alternative method of compliance with the annual audit requirement and the requirement to report certain financial information on the annual report. Although the Notice of proposed forms revisions and the proposed amendments to the Department's annual reporting regulations did not propose to modify the reporting for allocated insurance contracts, the commentators urged that the term “allocated insurance contract” should be broadened to include: (i) Insurance products that “guarantee benefits” even if they do not provide upon receipt of the required premium a retirement benefit of a specified amount; (ii) insurance products that guarantee a fixed rate of return even if they do not provide upon receipt of the required premium a retirement benefit of a specified amount, and (iii) group annuity contracts held by defined contribution plans where each participant's interest in the contract is credited or “allocated” to the participant's individual account in the plan, but the value of each participant's interest in the insurance contract is adjusted for market value fluctuations.

The term “allocated” insurance contract has been consistently defined in the instructions to the Form 5500 Series. Under that definition, contracts are not “allocated” unless the insurance company or organization that issued the contract has unconditionally guaranteed, upon receipt of the required premium or consideration, to provide a retirement benefit of a specified amount to each covered participant without adjustment for fluctuations in the market value of the underlying assets of the company or organization, and each participant has a legal right to such benefits which is legally enforceable directly against the insurance company or organization. See the March 1, 1989 Notice of Adoption of Revised Forms (1989 Notice), 54 FR 8631, 8635. The 1989 Notice included the following statements regarding the Department's longstanding view on this definition: “ ‘allocated’ contracts include only those contracts under which an insurance company immediately assumes upon receipt of contributions or premiums fixed dollar obligations to provide the retirement benefit specified in the plan * * *” and that the reporting exemption for allocated insurance contracts “is premised on the fact that under such contracts the plan has effectively transferred the risk for the payment of benefits accrued to that date * * * to the insurer and, accordingly, limited reporting is appropriate.” The types of contracts identified by the commentators either did not possess these characteristics and/or failed to satisfy other components of the definition, or the commentators did not provide sufficient information about the characteristics of the contract to support a conclusion that the policies underlying 29 CFR 2520.104-44 apply such that the audit and financial reporting relief for allocated contracts should be broadened to include these other types of contracts. Accordingly, the Department has not adopted these comments and has retained unmodified the Form 5500 return/report instructions pertaining to “allocated” insurance contracts.

A commentator also asked for the Department to clarify whether the reporting relief for allocated contracts applies only to defined benefit pension plans. Although the regulatory relief in 29 CFR 2520.104-44(b)(2) is limited to pension benefit plans the benefits of which are provided exclusively through allocated insurance contracts, neither the regulation nor the Form 5500 return/report instructions distinguish between defined contribution and defined benefit pension plans.

One commentator asked the Department to clarify the term “contracts with allocated funds” that is referred to on line 5 of Schedule A (Insurance Information). It is the Department's view that allocated funds referred to on line 5 represent the portion of an insurance contract that would otherwise meet all of the standards for an allocated insurance contract described above.

6. Reporting of Synthetic GICs and Similar Contracts at Book Value. Several commentators asked that the form or the instructions authorize “synthetic GICs,” “separate account GICs,” and insurance company “stable value funds” to be reported at contract or “book” value on the Schedule A, Schedule H and Schedule I because, according to the commentators, these contracts are designed to provide returns and investment features similar to insurance company general account investment contracts. Insufficient information was presented on the nature of these contracts, the implications of contract value reporting and the feasibility of reporting these various contracts on a single line item to enable the Agencies to adopt this recommendation. Thus, these contracts must continue to be reported in conformance with existing annual reporting requirements.

7. Insurance Fee and Commission Reporting. Several commentators noted that insurance fees and commissions must be individually reported on Schedule A, whereas fees and commissions on bank investment products, mutual funds, or other products are not individually reported on a separate schedule. These commentators suggested either eliminating the Schedule A requirement to report insurance fees and commissions or requiring broader fee/commission reporting from banks and other financial institutions. The Department did not adopt this recommendation because section 103(e) of ERISA specifically calls for the annual report to include information on fees and commissions paid by insurance companies, and the Department continues to believe that these Schedule A disclosures provide useful information. Also, the Department has been generally reviewing fee disclosure issues outside the context of this Form 5500 project.

Several commentators also questioned the proposed requirement to report fees and commissions paid to “other persons” noting that the current Schedule A requests this information only for “agents and brokers.” Section 103(e) of ERISA includes “other persons” with agents and brokers in defining the requirement to report insurance contract fees and commissions. Further, the current Schedule A instructions provide that fees paid by insurance carriers to persons other than agents and brokers should be reported on the Schedule A as acquisition costs, administrative expenses, etc., as appropriate, and note that for large plan filers these fees paid to “other persons” are subject to separate reporting on the Schedule C. In light of the above, the requirement to report fees and commissions paid to “other persons” has been retained in the Schedule A because the Department believes it serves important enforcement targeting and disclosure purposes to require individual identification of all persons who are paid insurance fees and commissions.

D. Schedule C (Service Provider Information)

1. Improve Reporting on Plan Fees and Expenses. Several commentators suggested that the Agencies require both large and small plans to report all fees and expenses whether paid for by the plan or employer, including break-out reporting of both bundled fees and fees on investment products that are included in determining the net investment gain (or loss). Other commentators suggested increasing the Schedule C threshold so that only persons receiving compensation in excess of substantially increased thresholds (e.g., $10,000, $25,000, or $100,000) be reported and/or that only the top 20 highest paid service providers be included. The Agencies concluded that requiring Schedule C reporting by small plan filers would not be consistent with a principal objective of the project which is to streamline the Form 5500. Similarly, the Agencies concluded that raising the reporting thresholds may result in the disclosure of inadequate service provider information. Accordingly, the Agencies decided not to adopt these suggested changes. However, as noted above, the Department is reviewing general fee disclosure issues outside the context of this Form 5500 project.

2. Reports on Trustee Identification and Service Provider Terminations. The proposal eliminated from the Schedule C the requirement that large plans list plan trustees annually and restricted the requirement to report service provider terminations to terminations of accountants and enrolled actuaries. Several commentators expressed concern that restricting the reporting of terminated parties on the Schedule C to accountants and actuaries would limit the Agencies' ability to evaluate possible fiduciary problems, and suggested that the Agencies either retain current requirements or broaden the report to include all terminated service providers. Others suggested that the Agencies reinstate the requirement to identify terminated trustees and add terminations of independent third party appraisers. Other comments supported the change, contending that the reports on service provider terminations and the trustee list are not useful. It is the view of the Agencies that the currently required annual information on Schedule C regarding trustees and termination of various service providers is not widely used and to a large extent is duplicative of information otherwise available to participants either as part of the plan's SPD and SMMs or by comparing consecutive annual reports. In addition, the majority of annual report filers are small plan filers which are already exempt from these requirements because the Schedule C only applies to large plan filers.

3. Clarify “Service Code” Entry. Under current rules, Schedule C reporting is generally required when any person receives, directly or indirectly, $5,000 or more in compensation for services rendered to a plan. A commentator asked that the instructions clarify how the $5,000 threshold is applied when multiple services are provided. The current instructions already make it clear that the $5,000 threshold is calculated taking into account compensation for all services provided (regardless of whether the compensation for any single service among the multiple services is less than $5,000). For example, the current instructions state: “If more than one service was provided, enter only the code of the primary service.” Nonetheless, to further clarify the instructions and to provide for more accurate disclosure of service fees, the Agencies have changed the service code rule to require the reporting of a service code for each service included in the total compensation figure.

4. Allow Cash or Accrual Basis Reporting on Schedule C. One commentator asked for clarification of whether the Schedule C permits use of either the cash or accrual basis method of accounting for reporting compensation paid to service providers. The Department has clarified the instructions to the Schedule C to provide for the use of either the cash or accrual basis method for recognition of transactions on the Schedule C as long as one method is consistently used.

E. Schedule D (DFE /Participating Plan Information)

1. Clarify DFE Requirements. The proposal called for a comprehensive restructuring of the way Direct Filing Entity (DFE) information is reported by PSAs, CCTs, master trusts investment accounts (MTIAs), 103-12 investment entities (103-12 IEs), and group insurance arrangements (GIAs). Specifically, under the proposal, the Form 5500 would be established as the standardized reporting format for DFEs. Several commentators described the new DFE provisions as an improvement because the standardized reporting format for DFEs clarifies the reporting process for DFEs and provides more understandable information to participants and beneficiaries regarding their plans' participation in these pooled investment and insurance arrangements. A commentator also suggested that all PSAs, CCTs, MTIAs, other investment entities that hold plan assets, and GIAs be required to file directly, and suggested the proposal be expanded to broaden disclosure to participants about the DFE investments. Some commentators expressed concern about possible competitive disadvantages for PSAs that do not choose to file as DFEs, requested that the Department reconsider the standardized filing requirement for DFEs, and also stated that the DFE changes would increase the reporting requirements for PSAs and CCTs.

The Department believes that the changes to the reporting requirements for plans participating in CCTs, PSAs, MTIAs, 103-12 IEs, and GIAs is the best alternative for capturing the information needed to carry out its oversight responsibilities over the plan assets held by these entities and ensuring that there is adequate disclosure of plan investment and insurance information to plan participants and beneficiaries. Continuation of the current annual reporting rules would perpetuate the Department's current inability to correlate and effectively use the data regarding the approximately $2 trillion in plan assets invested by plans in DFEs, and, therefore, would be adverse to the interests of participants and beneficiaries since the DFE information is an integral part of the annual report of each participating plan. Moreover, with the exception of abbreviated income and expense statements for CCTs and PSAs being required as part of their Schedule H filing, in the Department's view, substantially all of the information that would be required to be reported by DFEs under the new Form 5500 currently must be reported. Further, direct reporting by CCTs, PSAs, 103-12 IEs and GIAs continues to be optional. Thus, the Department believes that the major change in reporting with respect to DFEs is that information must be reported in a standardized format using the Form 5500 and associated schedules.

Some commentators expressed concern about the proposed requirement that plans classify and report the underlying assets of CCTs and PSAs that do not elect to report as DFEs. The commentators stated that implementation of this rule will be costly because, under the proposal, such plans will have to classify each investment held by the entity and report their percentage interest as of the beginning and end of the plan year. The commentators suggested that CCTs and PSAs currently are only required to provide participating plans and the Department with a statement of assets and liabilities as of their fiscal year end, and argued that the proposed change would require these entities to prepare statements of assets and liabilities on a monthly or more frequent basis. Under existing annual reporting rules, however, plans must include the current value of their investment in CCTs and PSAs in their annual reports as of the beginning and end of the plan year. Further, these asset break-out rules do not apply to small plan filers and the Department does not envision that the required asset break-out reporting rules will impose a substantial additional burden on large plan filers inasmuch as there is only a limited number of general asset categories on the Schedule H (Financial Information) that could be used, e.g., interest bearing cash; U.S. government securities; corporate debt instruments; corporate stock; partnership/joint venture interests; real estate; loans; other assets; and employer securities. Further, the Department does not believe that the new DFE rules should result in material cost increases or administrative burdens for plans because of the information required to be transmitted by CCTs and PSAs to their participating plans.

2. Notice of DFE Filing to Plans. Several commentators noted that there was no explicit provision in the proposed Form 5500 instructions that required CCTs and PSAs to annually notify their participating plans whether the CCT or PSA will file a Form 5500 as a DFE with the Department. The Department clarified the notice requirements in the proposed regulatory amendments to 29 CFR 2520.103-5 in a separate Notice of Proposed Rulemaking that was published in the Federal Register on December 10, 1998 (63 FR 68370). A notice of final rulemaking on those regulatory amendments will be published separately in the Federal Register.

3. Reconfigure Schedule D. Several commentators noted that the multi-purpose Schedule D as proposed was confusing, and one suggested that it be divided into two parts, Part I to be filed by plans and Part II to be filed by DFEs. The Department has restructured the Schedule D into two parts. Part I must be completed by plans and DFEs to report information on their investments in MTIAs, CCTs, PSAs and 103-12 IEs. Part II must be completed by DFEs to report information regarding participating plans. Another commentator indicated that it is unlikely that the space on the Schedule D would be sufficient to list, in many cases, every plan that at some time during a year participated in a DFE (particularly CCTs and PSAs). The Schedule D was restructured to address that issue by using a continuation page approach.

One commentator noted that among other information that must be reported on the Schedule D by a PSA electing to file as a DFE is each participating plan's EIN and plan number (PN). The commentator stated that most insurers do not possess this information, and, therefore, suggested that the Department permit insurers to use their contract identification number in lieu of the EIN and PN on the Schedule D. The Department did not adopt this recommendation. Plan administrators already must furnish EIN and PN information to banks and insurance carriers filing statements of assets and liabilities for CCTs and PSAs under current direct filing rules. This requirement was originally included in 29 CFR 2520.103-9(b)(2), adopted as a final rule on March 10, 1978 (43 FR 14009). Also, EIN and PN information facilitates effective correlation of information filed by plans and DFEs. Another commentator asked that the Schedule D listing of plan sponsor names and assets should not be open to public inspection. The content of the annual report under Title I of ERISA generally is required to be public information. See, e.g., ERISA section 106. Accordingly, the Department did not adopt this recommendation.

4. Filing Due Dates and Transitional Rules Regarding DFEs. Some CCTs and PSAs indicated an intent to file as DFEs but stated that substantial lead time would be needed to prepare for the new reporting requirements, and suggested making the filing optional for several years or otherwise delaying the implementation of the DFE rules. Some said no changes should be implemented until effective electronic filing options are available to DFEs.

As previously mentioned, implementation of the new Form 5500 has been delayed until 1999 plan year filings. To facilitate the transition to the new reporting rules for DFEs, the Department is also clarifying the due date for DFE Form 5500 filings and adopting a transitional reporting rule for plans and DFEs participating in CCTs and PSAs. First, as to the DFE Form 5500 due date, inasmuch as DFE filings continue to be considered an integral part of the annual report of each participating plan, each participating plan's Form 5500 return/report will be treated as incomplete unless the DFE information is filed within the prescribed time. The regulatory amendments clarify that, as with the current rule for statements of assets and liabilities, the DFE Form 5500 filing should pertain to the DFE fiscal year ending with or within the plan year. The regulatory amendments also establish the filing due date for all DFEs, other than GIAs, as no later than 9-1/2 months after the end of the DFE's fiscal year. This structure is intended to provide a predictable filing deadline for DFEs while also ensuring that all DFE filings will be due on or before the latest annual report due date for any participating plan regardless of the plan's reporting year.

A transitional rule applies to plans and DFEs participating in CCTs or PSAs which do not elect to file as a DFE for their fiscal year ending in 1999. The transitional rule waives for the 1999 reporting year the requirement that large plan filers and DFEs break out, as dollar value entries in the appropriate categories on the asset and liability statement contained in Schedule H (Financial Information), their percentage interest in the underlying assets of CCTs and PSAs that do not file as DFEs. Rather, for the 1999 reporting year only, large plans and DFEs may report their interest on the aggregate CCT or PSA lines of the Schedule H asset and liability statement (i.e., lines 1c(9) and 1c(10) of Schedule H) as of the beginning and end of the plan year even if the CCT or PSA does not file a Form 5500 as a DFE. Plans participating in a CCT or PSA also are not required to attach the CCT's or PSA's statement of assets and liabilities to its 1999 filing.

F. Schedule H (Financial Information), Schedule I (Financial Information—Small Plan) and Schedule G (Financial Transaction Schedules)

1. Employer Delinquent Transmission of Participant Contributions. One commentator requested a change to the question on participant contributions to require reporting only when contributions are not transmitted by the employer within 15 business days after the end of the month in which the contributions are withheld or received by the employer in the case of pension plans, and 90 days after such receipt or withholding in the case of welfare plans. In comparison, the proposed question on Schedule H and Schedule I (referred to as Schedule FIN and FIN-SP in the September 3, 1997 proposal) asks whether participant contributions were transmitted by the earliest date on which such contributions could reasonable be segregated from the employer's general assets (which date cannot exceed 15 business days after the end of the month in which the contributions are withheld or received by the employer in the case of pension plans and 90 days after receipt or withholding in the case of welfare plans). The commentator's suggested change would undercut the purpose of the question which was designed to identify circumstances under which the Department's regulatory requirements for timely handling of participant contributions may have been violated. Accordingly, the comment has not been adopted.

2. Direct Rollover Reporting. The Agencies proposed to add to the Schedule H a requirement to separately report plan distributions in the form of “direct rollovers” to IRAs and other qualified plans. Several commentators stated that this information is currently reported to the IRS on Form 1099-R and suggested that additional recordkeeping burdens would result from this requirement. The Agencies decided to eliminate this question from the Schedule H.

3. Schedule of Assets Held for Investment Purposes at End of Year, Schedule of Investment Assets Both Acquired and Disposed of Within the Plan Year, and Schedule of Reportable (5%) Transactions. The Department received comments both supporting and opposing the proposal to eliminate these schedules from the annual report. Several commentators said that elimination of these schedules would deprive participants, the Department, and others of valuable plan information. Other commentators supported the change as reducing reporting burdens by eliminating unnecessary information from the annual report, but noted the proposal did not result in significant overall burden savings because all the information still had to be retained so that it could be made available to participants, beneficiaries, the Department and other authorized parties on request. In view of the potential importance of the scheduled information to participants and others, and the few additional burdens attendant to the filing of such information in light of the continued disclosure obligation, the Department decided to retain these schedules as part of the annual report for large plan filers. However, the Department decided to adopt the elements of the proposal that (1) eliminated the requirement to report participant or beneficiary directed transactions under an individual account plan on the schedule of reportable (5%) transactions, and (2) eliminated the requirement to report the historical cost for assets held as a result of such participant or beneficiary direction on the Schedule of Assets Held for Investment Purposes at End of Year and the Schedule of Investment Assets Both Acquired and Disposed of Within the PlanYear. Further, the instructions to the Form 5500 return/report state that, although these schedules must continue to be attached to the Form 5500 for large plan filers to report assets held for investment and reportable transactions, filers are not required to use computer scannable forms for these attachments.

One commentator also requested that the Department eliminate altogether the requirement to report cost information on the schedule of reportable transactions and the schedules of assets for “participation units” in insurer pooled accounts regardless of participant or beneficiary direction of the asset because, according to the commentator, some insurers do not maintain “cost” information on such participation units. The commentator stated that there is no “natural historical cost number” for these participation units and there is no taxable transaction associated with interfund transfers while funds are held within a tax qualified plan. Requirements regarding reporting of cost of plan assets have long been part of the Title I annual reporting rules. Cost reporting in conjunction with current value reporting on these schedules for non-participant directed assets provides comparative information regarding the value of plan assets. The Department was unable to conclude, based on the limited information provided regarding the type of insurer accounts described by the commentator, that these accounts were not capable of being reported with a cost figure calculated on an acceptable accounting basis, and was unable to conclude that adopting this recommendation would be consistent with the purposes of Title I and would provide adequate disclosure to participants and beneficiaries and adequate reporting to the Department.

4. Reporting Participant Loans in Default. Several commentators asked for guidance on whether participant loans in default must continue to be reported on the Schedule G even after a “deemed distribution” has been reported to the IRS under the Code. Others asked that participant loans in default not be required to be reported if they are adequately secured by the participant's account balance in the plan. Under the proposal, participant loans in default could be reported as an aggregate figure rather than as individual loans on the Schedule G. In light of the above comments, several changes were made to the Schedule G as well as Schedule H and Schedule I to clarify the reporting requirements in a way that the Agencies believe will in the aggregate reduce administrative burdens and improve reporting regarding participant loans.

5. Reporting Preferred and Common Stocks, Preferred and Other Corporate Debt, and Realized and Unrealized Gains/Losses. Some commentators stated that the breakout of preferred versus common stock, preferred versus other bonds, and realized versus unrealized gains/losses is unnecessary and suggested that the Agencies consolidate those categories into stocks, bonds, and total gains/losses. Several commentators also stated that the recharacterization of corporate debt instruments from “preferred” and “other” to “long term” and “short term” would require reprogramming and questioned the value of this change. The Agencies have examined these breakouts and decided to retain them because they serve important enforcement and disclosure purposes, but, have decided to adopt the recommendation to retain the “preferred” and “other” categories for reporting corporate debt instruments.

6. Reporting of Corrective Distributions.—Plans that fail either the actual deferral percentage or actual contribution percentage tests, or certain plans that have Code section 415 excess annual additions may make corrective distributions to satisfy these rules. A commentator asked the Agencies to clarify how such corrective distributions should be reported on the form. In response, a new line was added to the Income and Expense Statements on Schedule H and Schedule I to report corrective distributions.

G. Schedule R (Retirement Plan Information)

Schedule R (Retirement Plan Information), referred to as Schedule PEN in the September 3, 1997 proposal, was modified in response to public comments. As noted above, the questions on the number of participants were consolidated into the Form 5500. The questions on plan distributions and funding were continued, but the requirement to report distributions that were not paid as qualified joint and survivor annuities, which some commentators characterized as burdensome, was replaced, at a commentator's recommendation, with the requirement to report the number of single sum distributions. The Agencies, however, retained the reporting of distributions paid in property other than cash, annuity contracts or publicly traded securities and the EINs of the two principal payors of plan benefits because they serve as valuable tools for monitoring plans' compliance with the requirements and objectives of ERISA and the Code.

H. Schedule T (Qualified Plan Coverage Information)

Schedule T, referred to as Schedule Q in the September 3, 1997 proposal, requires the reporting of specific plan coverage data pertinent to a plan's compliance with the minimum coverage requirements of the Code and is being adopted largely as proposed. The Form 5500 and the Schedule T allow plans, in appropriate circumstances, to report coverage information as infrequently as every third year under the three year testing cycle rule. In response to a commentator's request, a space was added to the Form 5500 that allows a filer to indicate that a Schedule T is not being attached because the plan is relying on coverage testing information for a prior year. Further, in response to one comment, the instructions for the Schedule T have been modified to allow plans maintained by more than one employer to report which of their participating employers automatically meet the minimum coverage requirements, thus eliminating the separate Schedule T that would otherwise have to be filed for these employers.

I. Miscellaneous Technical Adjustments

Various commentators submitted technical suggestions on how to further improve and clarify various portions of the proposal. Many of the suggestions focused on technical corrections and improvements in the instructions as opposed to changes on the forms. The Agencies have reviewed the comments and made various technical corrections/clarifications in response to those comments.

III. Regulations Relating to the Final Form

For purposes of Title I of ERISA, the filing of a completed Form 5500 (including the report of an independent qualified public accountant and any required statements, schedules and attachments) by plans with 100 or more participants constitutes compliance with the limited exemption and alternative method of compliance prescribed in paragraph (b) of 29 CFR 2520.103-1, promulgated in accordance with the authority granted the Secretary under sections 104(a)(3) and 110 of ERISA. The filing of a completed Form 5500, with the appropriate statements, schedules and attachments, also constitutes compliance with the simplified annual reporting requirements prescribed at 29 CFR 2520.104-41, adopted pursuant to the authority granted the Secretary under ERISA sections 104(a)(2)(A) and 104(a)(3). Also see 29 CFR 2520.103-1(c). In the supplementary information accompanying the 1997 proposed forms revisions (62 FR 46556), the Department noted that certain amendments to the annual reporting regulations would be necessary to accommodate certain proposed revisions to the forms. As stated previously, proposed amendments to the Department's annual reporting regulations were published in the Federal Register for public comment on December 10, 1998 (63 FR 68370). A final rule amending the Department's annual reporting regulations will be published separately by the Department in the Federal Register. The findings required under sections 104(a)(3) and 110 of ERISA relating to the use of the Form 5500, as revised, as an alternative method of compliance and limited exemption from the reporting and disclosure requirements of part 1 of Title I of ERISA will be contained in that final rule.

Paperwork Reduction Act

The Form 5500 Series contain information collection requirements. They have been approved by the Office of Management and Budget under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3506(c)). The Form 5500 Series has been assigned the following OMB Control Numbers: U.S. Department of Labor, Pension and Welfare Benefits Administration 1210-0110 and 1210-0089; U.S. Department of the Treasury, Internal Revenue Service 1545-1610; and Pension Benefit Guaranty Corporation 1212-0057. The OMB control numbers and estimates of the time required to complete the Form 5500 Series are presented in the Paperwork Reduction Act Notice contained in the instructions to the Form 5500 Series.

Statutory Authority

Accordingly, pursuant to the authority in sections 101, 103, 104, 109, 110 and 4065 of ERISA and sections 6039D and 6058 of the Code, the Form 5500 Series Annual Return/Report and the instructions thereto are adopted as set forth herein.