# Annual Reporting and Disclosure

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A2016-14892

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** July 21, 2016
- **Citation:** 81 FR 47496

## Text

DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Parts 2520 and 2590
RIN 1210-AB63
Annual Reporting and Disclosure

AGENCY:

Employee Benefits Security Administration, Labor.

ACTION:

Proposed rule.

SUMMARY:

This document contains proposed amendments to Department of Labor (DOL) regulations relating to annual reporting requirements under Part 1 of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The proposed amendments contained in this document would conform the DOL's reporting regulations to proposed revisions to the Form 5500 Annual Return/Report of Employee Benefit Plan and Form 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan, which are being published concurrently in today's
Federal Register
in a separate Notice of Proposed Forms Revisions (NPFR) prepared jointly by the Department of Labor (DOL), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) (collectively the Agencies). The proposed regulation, and related forms revisions, would improve employee benefit plan reporting for filers, the public, and the Agencies. The revision is necessary because the annual return/report forms have not kept pace with market developments and changes in the laws covering employee benefit plans, presenting problems with outdated and missing information that negatively impact the Agencies' effective and efficient protection of employee retirement and health benefits. The proposed revisions would affect employee pension and welfare benefit plans, plan sponsors, administrators, and service providers.

DATES:

Written comments must be received by the Department of Labor on or before October 4, 2016.

ADDRESSES:

To facilitate the receipt and processing of written comment letters on the proposed regulation, EBSA encourages interested persons to submit their comments electronically. You may submit comments, identified by RIN 1210-AB63, by any of the following methods:

Federal eRulemaking Portal: http://www.regulations.gov.

Follow instructions for submitting comments.

Email: e-ORI@dol.gov.
Include RIN 1210-AB63 in the subject line of the message.

Mail:
Office of Regulations and Interpretations, Employee Benefits Security Administration, Attn: RIN 1210-AB63; Annual Reporting and Disclosure, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210.

Hand Delivery/Courier:
Office of Regulations and Interpretations, Employee Benefits Security Administration, Attn: RIN 1210-AB63; Annual Reporting and Disclosure, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210.

Instructions:
All comments received must include the agency name and Regulatory Identifier Number (RIN) for this rulemaking (RIN 1210-AB63). Persons submitting comments electronically are encouraged not to submit paper copies. All comments received will be made available to the public, posted without change to
http://www.regulations.gov
and
http://www.dol.gov/ebsa,
and made available for public inspection at the Public Disclosure Room, N-1513, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210, including any personal information provided.

FOR FURTHER INFORMATION CONTACT:

Mara S. Blumenthal, Office of Regulations and Interpretations, Employee Benefits Security Administration, U.S. Department of Labor, (202) 693-8523 (not a toll-free number) for all changes other than group health plan information; Suzanne Adelman, EBSA, U.S. Department of Labor, 202-693-8383 (not a toll-free number), for questions relating to the collection of group health plan information.

SUPPLEMENTARY INFORMATION:

I. Executive Summary

A. Purpose of the Regulatory Action

Under Titles I and IV of ERISA and the Internal Revenue Code (Code), pension and other employee benefit plans are generally required to file annual returns/reports concerning, among other things, the financial condition and operations of the plan. Filing a Form 5500 Annual Return/Report of Employee Benefit Plan (Form 5500 Annual Return/Report), or a Form 5500-SF Short Form Annual Return/Report of Small Employee Benefit Plan (Form 5500-SF) (depending on certain plan characteristics), together with any required schedules and attachments (together “the Form 5500 Annual Return/Report”), in accordance with their instructions, generally satisfies these annual reporting requirements. In addition to being an important disclosure document for plan participants and beneficiaries, the Form 5500 Annual Return/Report is a critical enforcement, compliance, and research tool for the DOL, IRS, and the PBGC (together “Agencies”). It is also an important 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. In the United States, there are an estimated 2.3 million health plans, a similar number of other welfare plans, and nearly 681,000 private pension plans. These plans cover roughly 143 million private sector workers, retirees, and dependents, and have estimated assets of $8.7 trillion. The Form 5500 Annual Return/Report is the principal source of information and data concerning the operations, funding, and investments of more than 806,000 of these pension and welfare benefit plans.

Generally, the Agencies have conducted notice and comment rulemaking before making significant changes to the forms and schedules. This proposed revision to the DOL's reporting regulations is needed to implement the forms revisions proposed in the three-agency (DOL, IRS, and the PBGC) Notice of Proposed Forms Revisions (NPFR), which is being published separately in today's
Federal Register
.

As noted above and discussed in detail below, because the Form 5500 Annual Return/Report has not kept pace with market developments and changes in the laws covering employee benefit plans, problems with outdated and missing information negatively impact the Agencies' effective and efficient protection of employee retirement and group health benefits. That fact is reflected in the more than 15 reports that have been issued since the publication of the last major forms revisions from the Government Accountability Office (GAO), the DOL's Office of Inspector General (DOL-OIG), the United States Treasury Inspector General for Tax Administration (the TIGTA), and the ERISA Advisory Council that all call for expanded annual reporting by employee benefit plans and improvements in the Form 5500 Annual Return/Report.
1

In

developing these proposed updates to the Form 5500 Annual Return/Report, the DOL, along with IRS and PBGC, carefully considered those reports in determining where changes are needed.

1

See, e.g., U.S. Gov't Accountability Office, GAO-10-54, Private Pensions: Additional Changes Could Improve Employee Benefit Plan Financial Reporting

(2009) (available at
www.gao.gov/assets/300/298052.pdf
);
U.S. Gov't Accountability Office, GAO-14-441, Private Pensions: Targeted Revisions Could Improve Usefulness of Form 5500 Information
(2014) (available at
www.gao.gov/products/GAO-14-441
); 2013
ERISA Advisory Council Report: Private Sector Pension De-risking and Participant Protections, Dep't of Labor, www.dol.gov/ebsa/publications/2013ACreport2.html
);
Dep't of Labor Office Of Inspector Gen., 05-14-003-12-12, EBSA Could Improve Its Usage of Form 5500 Data
(2014) (available at
www.oig.dol.gov/public/reports/oa/2014/05-14-003-12-121.pdf
);
U.S. Gov't Accountability Office, GAO-14-92, Private Pensions: Clarity of Required Reports and Disclosures Could Be Improved
(2013) (available at
www.gao.gov/assets/660/659211.pdf
);
U.S. Gov't Accountability Office, GAO-14-92, Private Pensions: Clarity Of Required Reports And Disclosures Could Be Improved, Report to Congressional Requesters
(2013) (available at
www.gao.gov/assets/660/659211.pdf
);
U.S. Dep't of Labor Office of Inspector Gen., 09-13-001-12-121, Employee Benefits Security Administration Needs to Provide Additional Guidance And Oversight to ERISA Plans Holding Hard-to-Value Alternative Investments
(2013) (available at
www.oig.dol.gov/public/reports/oa/2013/09-13-001-12-121.pdf
);
U.S. Gov't Accountability Office, GAO-12-665, Private Sector Pensions: Federal Agencies Should Collect Data and Coordinate Oversight of Multiple Employer Plans
(2012) (available at
www.gao.gov/assets/650/648285.pdf
);
U.S. Dep't of Labor Office Of Inspector Gen., 09-12-002-12-121, Changes Are Still Needed In The ERISA Audit Process To Increase Protections For Employee Benefit Plan Participants
(2012) (available at
www.oig.dol.gov/public/reports/oa/2012/09-12-002-12-121.pdf
);
U.S. Gov't Accountability Office, GAO-12-325, 401(K) Plans: Increased Educational Outreach and Broader Oversight May Help Reduce Plan Fees
(2012) (available at
www.gao.gov/products/GAO-12-325
);
U.S. Gov't Accountability Office, GAO-08-692, Defined Benefit Plans: Guidance Needed to Better Inform Plans of the Challenges and Risks of Investing in Hedge Funds and Private Equity
(2012) (available at
www.gao.gov/products/GAO-08-692
);
Treasury Inspector Gen. for Tax Administration, The Employee Plans Function Should Continue Its Efforts to Obtain Needed Retirement Plan Information
(2011) (available at
www.treasury.gov/tigta/auditreports/2011reports/201110108fr.pdf
);
2011 ERISA Advisory Council Report: Hedge Funds and Private Equity Investments, Dep't of Labor, www.dol.gov/ebsa/publications/2011ACreport3.html
);
2013 ERISA Advisory Council Report: Locating Missing and Lost Participants, Dep't of Labor, www.dol.gov/ebsa/publications/2013ACreport3.html#2;

2010 ERISA Advisory Council Report: Employee Benefit Plan Auditing and Financial Reporting Models, Dep't of Labor, www.dol.gov/ebsa/publications/2010ACreport2.html;

2008 ERISA Advisory Council Report: Working Group on Hard-to-Value Assets and Target Date Funds, Dep't of Labor, www.dol.gov/ebsa/publications/2008ACreport1.html.

In addition, a significant update being made to the Form 5500 Annual Return/Report is the introduction of basic reporting requirements for all plans that provide group health benefits that have fewer than 100 participants and are covered by Title I of ERISA, most of which are currently exempt from reporting requirements, and the addition of a new schedule (Schedule J) proposed to be required for all group health plans. This reflects a new emphasis on transparency under the Affordable Care Act
2

and a desire to offer plan sponsors the opportunity to satisfy certain Affordable Care Act reporting requirements addressed in this proposal by a more robust Form 5500 Annual Return/Report filing for those group health plans currently required to file and by elimination of the current exemption for plans that provide group health benefits that have fewer than 100 participants that are fully insured, unfunded, or a combination. Once finalized, these proposed changes will result in annual return/report forms that are a more effective policy, enforcement, and research tool, and one that will increase transparency, accountability, and confidence in the employee benefit plan system.

2
The Patient Protection and Affordable Care Act, Public Law 111-148, was enacted on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010, Public Law 111-152, was enacted on March 30, 2010. These statutes generally are collectively known as the “Affordable Care Act.”

The Agencies' proposed changes to the Form 5500 Annual Return/Report also should be viewed in light of the fact that the last two major revisions of the Form 5500 Annual Return/Report
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occurred in 1999 and 2009 in connection with a major shift from a paper-based filing system to the current internet-based wholly electronic filing and electronic data processing system (EFAST and now EFAST2), which is operated by a private sector contractor. For the last two major form revision cycles, the Agencies were focused on moving filers to new technologies for filing Form 5500 Annual Return/Report data. In recognition of the burden and challenges that filers would face in migrating to new filing technologies, the Agencies' generally deferred proposing major form changes that would add substantial new burdens. In fact, by deferring our current proposals until now, the new EFAST2 capabilities are making more feasible and efficient processing of both the existing and the expanded data we are proposing to collect.

3
The Agencies' last tri-agency major revision to the Form 5500 Annual Return/Report series was effective for the 2009 plan year forms. Before that, the last major revision was effective for the 1999 plan year forms and was implemented together with the initial implementation of EFAST. In interim years, the Agencies have made other focused changes, which are set forth annually in the “Changes to Note” section in the instructions.

B. Summary of the Major Revisions of the Regulatory Action

The proposed forms revisions and the DOL implementing regulations are intended to address changes in applicable laws and the employee benefit plan and financial markets, and corresponding shifts in agency priorities and needs since the last major revision. The proposed revisions are also expected ultimately to make filing and processing more efficient and accurate and to restore a greater level of transparency in the employee benefit plan market.
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The proposed forms revisions fall under the following general categories:

4
In addition, this rulemaking and forms revisions are being coordinated generally with a re-bid and updating of the ERISA Filing Acceptance System (EFAST2)—the wholly electronic Form 5500 Annual Return/Report filing and processing system. Unlike the 1999 and 2009 forms revisions, the re-bid of EFAST2 does not involve major changes in the EFAST2 key system requirements, capabilities, and functions. Rather, although there are some changes to the system, the re-bid process is largely being undertaken in response to Federal Acquisition Regulation (FAR) requirements on periodic re-bidding of longer term contracts. Under these circumstances, there may be opportunities to implement various form changes either before or after the re-bid EFAST2 contract is awarded. The timing of the re-bid of EFAST2 and implementation of form changes may also be affected by whether funds necessary for the re-bid or form implementation are appropriated as part of the Agencies' respective budgets. Accordingly, although the overall objective is to implement these proposed form changes as part of a re-bid EFAST2 contract, rulemaking and budget issues may require the Agencies to consider a more staged approach.

1. Modernize Financial and Investment Reporting by Pension Plans

A key component of the proposal would expand and modernize financial and investment information reported by pension plans. Reporting on the financial operations and integrity of U.S. private pension plans (both defined benefit and defined contribution) is critical given the ongoing importance of such plans to the retirement security of America's workforce. Moreover, improved transparency of financial products and investments acquired by plans is critical to the ability of the Agencies to fulfill their statutory oversight role. It is also important for ongoing monitoring of retirement plans by employers, plans, participants and beneficiaries, and policy makers. These proposed changes to financial reporting are specifically designed to improve reporting of alternative investments, hard-to-value assets, and investments through collective investment vehicles and participant-directed brokerage accounts.

An overriding objective of these proposed revisions to the financial

information collected as part of the annual return/report is to present plan financial and balance sheet information, including the currently required schedules of assets, in a way that better reflects the investment portfolios and asset management practices of employee benefit plans. The basic objective of ERISA's mandatory financial reporting is to provide information about the reporting entity for the Agencies' enforcement, research, and policy formulation programs; for other federal agencies, Congress, and the private sector to assist them in assessing employee benefit, tax, and economic trends and policies; and for plan participants and beneficiaries and the general public to understand and monitor better the activities and investments of employee benefit plans. As reflected in the various reports from the GAO, the DOL-OIG, the ERISA Advisory Council, and the TIGTA, the current information collected on the Form 5500 Annual Return/Report and Form 5500-SF is insufficient to satisfy those objectives.

The financial statements contained in the current Schedule H (Large Plan Financial Information) and Schedule I (Small Plan Financial Information) are based on data elements that have remained largely unchanged since the Form 5500 Annual Return/Report was established in 1975. Over the past four decades, the U.S. private pension system has shifted from defined benefit (defined benefit or DB) pension plans toward defined contribution (defined contribution or DC) pension plans, often participant-directed 401(k)-type DC pension plans. The financing of retirement benefits has changed dramatically coincident with the shift from DB to DC pension plans. In 1978, when legislation was enacted authorizing 401(k) plans that allow employees to contribute to their own retirement plan on a pre-tax basis, participants contributed only 29 percent of the contributions to DC pension plans and only 11 percent of total contributions to both DB and DC pension plans. “In the years following 1978, employee contributions to DC pension plans steadily rose to a peak of approximately 60 percent in 1999, where it has remained.”
See Dep't of Labor, Private Pension Plan Bulletin Abstract of 2012 Form 5500 Annual Reports,
at 1 (2015). Simultaneously, the number of single-employer DB pension plans has decreased from 92,000 in 1990 to just under 29,000 single-employer pension plans in 2009.
See U.S. Gov't Accountability Office, GAO-09-291, Defined Benefit Pensions: Survey Results of the Nation's Largest Private Defined Benefit Plan Sponsors Highlights
(2009) (available at
http://www.gao.gov/new.items/d09291.pdf
).

The shift from DB pension plans to DC pension plans—and the corresponding increase of participants' own contributions to those plans as opposed to employer contributions—has led to increased responsibility for participants to manage their own retirement savings, which includes having to select among investment options in their retirement plans.
See Private Pension Plan Bulletin Abstract Of 2012 Form 5500 Annual Reports,
at 2 (Of the 516,000 section 401(k)-type plans in 2012, 87.8 percent allowed participants to direct investment of all of their assets, and 3.1 percent allowed participants to direct investment of a portion of their assets.) The need for more relevant and comparable financial information is not limited to 401(k) and other DC pension plans; it also extends to DB pension plans. Reports cited above from GAO, the DOL-OIG, the TIGTA, and the ERISA Advisory Council also have focused on the need for increased transparency and accountability generally in connection with employee benefit plan investments in hard-to-value and alternative assets, as well as assets held through pooled investment vehicles.

Further, the Agencies need better information to effectively oversee and enforce existing rules and regulations. For example, as part of the 1999 and 2009 forms revisions, the Agencies stopped collecting a variety of information regarding ESOPs. ESOPs, however, continue to be a significant enforcement focus and concern for both DOL and the Department of Treasury (Treasury)/IRS. Under the proposal, ESOPs would be required to again report information, on the Schedule E, about their employer stock acquisitions. Plan investment in hard-to-value and other alternative investments, such as derivatives, limited partnerships, hedge funds, private equity, and real estate, was highlighted as an oversight risk by both GAO and the DOL-OIG. Plans invested in derivatives, limited partnerships, hedge funds, private equity, real estate, and other alternative investments would be required under the proposal to identify such investments specifically. Having plans and direct filing entities (DFEs) report this information would be a significant improvement; the Agencies would no longer be limited to identifying issues involving investments in derivatives and other hard-to-value assets by opening investigations on a plan-by-plan basis. For example, regulators would be able to search the data base for particular investments or managers where there were indications that there were problems with such investment or manager for all plans that made such investments. The improved financial transparency in the proposed revisions to the Form 5500 Annual Return/Report data collection in general would better enable public and private data users to identify patterns and trends in plan investments and behavior.

For defined contribution pension plans, especially participant-directed plans, the proposal also would provide better information on employee participation rates in 401(k)-type plans and more relevant information on the types of investment alternatives available in such plans (including information on each designated investment alternative in the plan, information on qualified default investment alternatives, and information on whether the investment alternatives are actively managed or passively managed index funds). As Form 5500 Annual Return/Report information is required by Title I of ERISA to be publicly available, not only would expanded data collection assist in the Agencies' research and policymaking objectives, public access to this information would enable interested private sector and other governmental stakeholders to perform data-based research or help plan sponsors, fiduciaries, and participants and beneficiaries better understand their plan and plan investments. For example, it would be more feasible to compare performance of plans based on types of investments, and get information on how certain plan investment options and structures might correlate to participation, overall performance, or best preparation of workers for retirement.

2. Support Oversight of Group Health Plans and Ongoing Implementation of the Affordable Care Act

The proposed forms revisions and DOL implementing regulations would expand Form 5500 reporting by group health plans
5

by eliminating obsolete

exemptions for certain plans from Form 5500 reporting. Specifically, most private employer-sponsored group health plans with fewer than 100 participants that are fully insured, unfunded, or a combination of the two, currently do not file the Form 5500 Annual Return/Report under the terms of the current DOL exemptions. As a result, for policy formulation, research, and regulatory impact analyses, the DOL must rely on surveys, instead of Form 5500 Annual Return/Report data, to generate even basic estimates of the size of the ERISA group health plan universe that is a major part of the nation's health care delivery system. The current lack of information collected on the Form 5500 Annual Return/Report from group health plans impairs the effectiveness of EBSA's ability to develop health care regulations and complicates the DOL's ability to enforce such regulations and educate plan administrators regarding compliance.

5
Under the proposed changes, all “group health plans” that meet the definition in 733(a) of the Act, including plans that claim “grandfathered” status under 29 CFR 2950.715-1251, are required to file some or all of the Form 5500 Annual Return/Report and applicable schedules, including the Schedule J, regardless of whether such plans are exempt from certain market reform requirements under ERISA § 732(a) (exemption for certain small group health plans that have less than two participants who are current employees) or ERISA § 733(c) (group health plans consisting solely of excepted benefits). Employee welfare benefit plans as defined in ERISA § 3(1) that do not meet the definition of “group

health plan” under 733 of the Act (
i.e.,
they do not provide benefits for medical care) are not subject to the proposed enhanced reporting requirements applicable to group health plans.

In addition, section 1253 of the Affordable Care Act requires the Secretary of Labor to prepare an annual report that includes certain general information on self-insured group health plans using data collected from the Form 5500 Annual Return/Report (the “Self-Insured Health Plan Report”). Current Form 5500 Annual Return/Report data provides the basis only for an incomplete assessment of self-insured plans. For example, information about the amount of outstanding claims for a self-insured plan, a proposed new data element on the Schedule J, would be a critical flag that would identify the need for further inquiry or investigation of a group health plan that may be unable to pay outstanding claims. Early intervention by EBSA could prevent a participant from facing bankruptcy over unpaid medical expenses that otherwise would have been covered had the group health plan been properly funded.

We expect more group health plan filings will help the DOL allocate enforcement resources and streamline enforcement actions. For example, these additional filings will enable the DOL to correlate information reported by different group health plans to help identify widespread noncompliance perpetuated by a common service provider rather than relying on multiple investigations of client plans to detect a pattern of non-compliance by a single service provider. Obtaining a correction by going directly to the service provider makes the correction process more efficient for the service provider and the Department and results in uniform and efficient corrective action for participating plans. EBSA anticipates that Form 5500 Annual Return/Report data may similarly be used in future versions of the biennial Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act (MHPAEA) Report to Congress on the compliance of group health plans and health insurance coverage offered in connection with such plans with the requirements of MHPAEA. The proposed changes to group health plan reporting thus are important to the government's ability to accomplish oversight obligations under the Affordable Care Act and other federal laws governing group health plans, to more effectively monitor health policy issues as they pertain to ERISA-covered plans, and to provide Congress with accurate information about self-insured plans and whether the plan is complying with the protections of MHPAEA.

3. Reporting To Satisfy Public Health Service Act Sections 2715A and 2717

Sections 2715A and 2717 of the Public Health Service Act (PHS Act), as added by the Affordable Care Act and incorporated into ERISA section 715,
6

include important new reporting requirements for group health plans and health insurance issuers in the group and individual markets. Specifically, section 2715A of the PHS Act incorporates the transparency provisions of section 1311(e)(3) of the Affordable Care Act to require non-grandfathered group health plans and health insurance issuers offering non-grandfathered group or individual health insurance coverage to make available to the DOL, the Department of Health and Human Services (HHS), Treasury, State insurance commissioner, and the public a host of information on health plan enrollment and claims.
7

This includes: (1) Claims payment policies and practices; (2) periodic financial disclosures; (3) data on enrollment and disenrollment; (4) data on the number of denied claims; (5) data on rating practices; (6) information on cost-sharing and payments with respect to any out-of-network coverage; (7) information on enrollee and participation rights; and (8) other information as determined by the Secretary. Moreover, section 2717 of the PHS Act generally requires non-grandfathered group health plans and health insurance issuers offering non-grandfathered group or individual health insurance coverage to report annually to the DOL, HHS and the Treasury and to enrollees under the plan whether the benefits under the plan: (A) Improve health outcomes through the implementation of activities such as quality reporting, effective case management, care coordination, chronic disease management, and medication and care compliance initiatives, including through the use of the medical homes model as defined for purposes of section 3602 of the Affordable Care Act, for treatment or services under the plan or coverage; (B) implement activities to prevent hospital readmissions through a comprehensive program for hospital discharge that includes patient-centered education and counseling, comprehensive discharge planning, and post discharge reinforcement by an appropriate health care professional; (C) implement activities to improve patient safety and reduce medical errors through the appropriate use of best clinical practices, evidence based medicine, and health information technology under the plan or coverage; and (D) implement wellness and health promotion activities.

6
Sections 2715A and 2717 of the PHS Act are also incorporated into section 9815(a)(1) of the Code.

7
Information required under sections 2715A and 2717 of the PHS Act that is provided as part of a Form 5500 Annual Return/Report would be made available to the public and to the plan's participants and beneficiaries. Section 104(b)(4) of ERISA requires the plan administrator, on written request of a participant or beneficiary, to furnish among other documents, a copy of the latest annual report. See also 29 CFR 2520.104b-1(b)(2). The DOL's regulation at 29 CFR 2520.104b-30 provides that the plan administrator of an employee benefit plan may impose a reasonable charge that is not to exceed 25 cents per page to cover the cost of furnishing the latest annual report, but also provides that participants and beneficiaries must be provided at no charge a copy of the statement of the assets and liabilities of the plan and accompanying notes, and the statement of income and expenses of the plan and accompanying notes. See also 29 CFR 2520.104b-10(d)(3) and (4).

These regulations propose conforming amendments in 29 CFR 2590.715-2715A and 29 CFR 2590.715-2717 to clarify that compliance with the reporting requirements in 29 CFR 2520.103-1 (including filing any required schedules to the annual report) by plans subject to ERISA would satisfy the reporting requirements of PHS Act sections 2715A and 2717, incorporated in ERISA through ERISA section 715(a)(1).
8

As explained in FAQs issued

August 11, 2015,
9

HHS proposed an information collection for public comment in connection with the transparency provisions of section 1311(e)(3) of the Affordable Care Act. The proposed data collection would collect certain information from Qualified Health Plan (QHP) issuers in Federally-facilitated Exchanges and State-based Exchanges that use the federal eligibility and enrollment platform. The HHS proposal explained that other reporting requirements would be proposed at a later time, through a separate rulemaking with respect to non-Exchange coverage, including those that extend to health insurance issuers offering non-grandfathered group or individual health insurance coverage outside of the Exchanges and non-grandfathered group health plans (including large group and self-insured health plans).
10

8
The Treasury Department and the IRS intend to publish proposed regulations in 26 CFR 54.9815-2715A and 54.9815-2717 clarifying that group health plans required to file an annual report pursuant to section 104 of ERISA that comply with the reporting requirements in 29 CFR 2520.103-1 (including filing any required schedules to the

annual report) would satisfy the reporting requirements of sections 2715A and 2717 of the PHS Act, as incorporated in the Code. Group health plans that are not required to file an annual report pursuant to section 104 of ERISA but that are subject to sections 2715A and 2717 of the PHS Act as incorporated in the Code, will not be required to do any reporting to comply with sections 2715A and 2717 of the PHS Act, as incorporated in the Code, unless and until the Treasury Department and the IRS issue subsequent further guidance or rulemaking regarding any such reporting by such plans.

9

See
FAQs about Affordable Care Act Implementation (Part XXVIII), available at
http://www.dol.gov/ebsa/faqs/faq-aca28.html
and
https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/ACA-FAQ-Part-XXVIII-transparency-reporting-final-8-11-15.pdf.

10
Nonfederal governmental plans (as defined in PHS Act section 2791(d)(8)(C)) and health insurance issuers (as defined in PHS Act section 2791(b)(2) and ERISA section 733(b)(2)) are not required to file annual reports pursuant to ERISA sections 103 or 104. Accordingly, any reporting required of such plans and issuers to satisfy PHS Act sections 2715A and 2717 will be addressed separately by HHS in future rulemakings and/or guidance.

This rulemaking proposes transparency and quality reporting for non-grandfathered group health plans under PHS Act sections 2715A and 2717, as incorporated in ERISA. It takes into account differences in markets and other relevant factors to streamline reporting under multiple reporting provisions and reduce unnecessary duplication. The DOL is proposing to collect and provide high-value data to participants, beneficiaries, and regulators, such as information about benefits and plan design characteristics, funding, grandfathered plan status, rebates received by the plan (such as medical loss ratio rebates), service provider information (including information regarding any third party administrators, pharmacy benefit managers, mental health benefit managers, and independent review organizations), information on any stop loss insurance, claims processing and payment information (including number of claims filed, paid, appealed and denied), wellness program information, and other compliance information. In addition to improving DOL's oversight and enforcement activities, the collection of high-value data will lead to greater transparency for consumers, which may assist them in making a decision whether to elect the coverage or opt for another plan such as through their spouse's employer, with the caveat that these data will be collected a number of months after the end of the plan year they describe and thus will not be timely for use in concurrent oversight, enforcement, or consumer choice activities. The DOL may propose collecting additional data in the future. The DOL requests comments regarding other plan characteristics that may be helpful for participants to have information on in evaluating their plan. Further, as noted above, this document includes proposed conforming amendments in 29 CFR 2590.715-2715A and 29 CFR 2590.715-2717 to clarify that compliance with the proposed annual reporting requirements by plans subject to ERISA that provide group health benefits would satisfy the ACA reporting requirements under PHS Act sections 2715A and 2717 incorporated in ERISA through ERISA section 715(a)(1). The Department is specifically seeking public comments on those conforming amendments and the proposed annual reporting requirements for plans that provide group health benefits, including the new Schedule J, in light of the Supreme Court's recent decision in
Gobeille
v.
Liberty Mutual Insurance Co.,
136 S. Ct. 936 (2016).

4. Modernize Data Collection and Usability

This project would standardize and structure the Form 5500 Annual Return/Report to make key retirement and health and welfare benefit data, including information on assets held for investment, more available and usable in the electronic filing and data environment. Modernization is consistent with the Administration's “Smart Disclosure” effort.
Executive Office of the President of the United States, Nat'l Science and Technology Council, Smart Disclosure and Consumer Decision-making: Report of the Task Force on Smart Disclosure
(2013). The proposed changes would enable private sector data users to develop more individualized tools for employers to evaluate both their retirement and welfare plans and for employees to manage their retirement savings and welfare plan choices.

5. Updating and Improving Reporting of Service Provider Fee and Expense Information

The DOL has been engaged in a long term initiative focused on transparency and oversight of service provider and investment fees and expenses. The fee initiative has focused on reporting indirect compensation received by service providers (2009 Form 5500 Annual Return/Report revisions), disclosures about service provider compensation to plan fiduciaries (DOL's regulation, effective in 2012, at 29 CFR 2550.408b-2), and plan disclosures to participants and beneficiaries particularly in 401(k)-type plans (DOL's regulation, effective in 2012, at 29 CFR 2550.404a-5).

The fee disclosure regulations were finalized after the publication of the 2009 forms changes. The 2009 indirect compensation reporting requirements permitted filers to disclose rather than report most indirect compensation. This was in response to commenters concerns about potentially inconsistent requirements in Form 5500 reporting and disclosure under the then proposed disclosure regulations. Accordingly, the 21st Century initiative includes proposed revisions that are designed to harmonize Form 5500 reporting requirements with the now final disclosure regulations, especially the ERISA section 408b-2 regulation. The GAO, in particular, recommended that the DOL require plans to report all indirect compensation received by certain of their service providers and to harmonize the ERISA section 408b-2 regulation disclosure and annual reporting requirements.
U.S. Gov't Accountability Office, GAO-14-441, Private Pensions: Targeted Revisions Could Improve Usefulness of Form 5500 Information
(2014) (available at
www.gao.gov/products/GAO-14-441
).

A key purpose of the required fee disclosures in the ERISA section 408b-2 regulation is to help make sure that pension plan fiduciaries can more effectively negotiate service provider fees based on a better understanding of compensation that the service provider expects to receive, including from third-party sources that might represent a conflict of interest. We believe that annually reporting compensation received by a service provider and its sources on the Form 5500 Annual Return/Report will provide a powerful tool and economic basis for improved evaluation of investment, recordkeeping, and administrative service arrangements. We have already

seen innovative uses of Form 5500 Annual Return/Report data by private sector companies that have created tools for evaluating and benchmarking employee benefit plans. Further, service provider failures to disclose indirect compensation as required under the ERISA section 408b-2 regulation have resulted in EBSA obtaining corrective monetary recoveries to plans. Comparing disclosures of anticipated compensation under the ERISA section 408b-2 regulation to compensation received as reported on the Form 5500 Annual Return/Report may uncover disparities between anticipated and actual compensation, which may provide the basis for improved targeting of our enforcement actions.

6. Improving Employee Benefit Plan General Compliance With ERISA and the Code

The Form 5500 Annual Return/Report and related financial audit requirements historically have served to establish discipline for plan fiduciaries by requiring an annual examination of the employee benefit plan's financial and administrative operations. The proposed forms revisions and DOL implementing regulations would add selected new questions regarding plan operations, service provider relationships, and financial management of plans. These questions are intended to compel fiduciaries to evaluate plan compliance with important requirements under ERISA and the Code and to provide the Agencies with improved tools to focus oversight and enforcement resources. The proposed regulations would also update the requirements for certifications for limited scope audits under 29 CFR 2520.103-8.

C. Costs and Benefits

The regulatory impact analysis includes a qualitative discussion of the benefits associated with the proposed rules' five primary objectives. Under the current regulations and forms, the Form 5500 Annual Return/Report annually collects data from approximately 816,000 large and small plan filers—pension and all types of welfare plans, including group health—and DFEs with an aggregate annual cost of $488.1 million. The Form 5500 Annual Return/Report is a central part of the Agencies' enforcement programs, but the benefits of an updated Form 5500 Annual Return/Report would extend beyond the value of enhanced enforcement. A modernized Form 5500 Annual Return/Report that is more aligned with current investment practices and reflects the requirements of current law also has benefits for plan sponsors, plan participants, Congress, academics, and others, as explained in more detail below.

As with the current reporting scheme, the proposed revisions are crafted to limit burden increases for small plans, both pension and welfare, including group health plans. The burden increase for small pension plans that are eligible to file the Form 5500-SF is much less than it is for those pension plans filing the Form 5500 Annual Return/Report that have complex portfolios that include alternative and hard-to-value assets or are employee stock ownership plans, which plans are of greater concern with respect to retirement security of their participants. Similarly, the burden increase for fully insured welfare plans that provide group health benefits with fewer than 100 participants, is much less than it is for welfare plans that provide group health benefits and are fully or partially self-insured, which are at greater risk for non-payment of benefit claims. As is discussed in more detail below, the burden increase for small pension plans that are invested in simple, Form 5500-SF eligible portfolios is very modest, and the changes that apply to those plans (which will mostly apply to all filers) will provide much needed information about the operations, compliance, and asset allocations of such plans. Similarly, welfare plans that provide group health benefits with fewer than 100 participants and that are fully insured, which are currently exempt from filing any Form 5500 Annual Return/Report, would file limited identifying and coverage information. The changes were intentionally limited in order that the burden would be as minimal as possible, while still getting the crucial information about that significant component of the nation's healthcare delivery system and reinforcing for the fiduciaries responsible for many of those plans the need to satisfy important consumer protections required by Title I of ERISA and the Affordable Care Act-related health care benefits. The proposed changes involve only a nominal burden increase for welfare plans other than group health.

Under the proposed regulations and revised forms, the Form 5500 Annual Return/Report would collect data from approximately 2.97 million filers with an aggregate annual cost of $817.0 million. New reporting requirements for the 2.15 million welfare plans that provide group health benefits that we estimate are currently covered under Title I of ERISA, but exempt under current Form 5500 annual reporting rules, represent over 73 percent of the increased burden for the entire proposal. That increase is largely due to the number of new filers and not the per plan cost. Other than the initial filing year burden for learning the new reporting requirements, the burden per plan for even these new filers, almost all of which are fully insured plans with fewer than 100 participants, is very limited because they are only required to provide registration-type and other nominal benefit coverage information.

This expansion in the number of first-time filers that are plans that provide group health benefits that have fewer than 100 participants represents new data on group health care issues that is otherwise unavailable or not gathered in a way that is readily usable for ERISA compliance, policy, and enforcement purposes. From a compliance perspective, requiring reporting will be useful to educate plan sponsors and fiduciaries of their obligations with respect to group health plans. Getting first time information on the full breadth of plans providing health benefits that are subject to ERISA will be key data for policy-making regarding such plans and their participants. From an enforcement perspective, data analysis could lead to detection and intervention in a distressed health plan, which could help minimize financial harm suffered by participants when medical claims are unpaid by such plans. Medical bills contribute to a large and increasing share of personal bankruptcies in the United States.
11

Moreover, the potential burden for new filers is expected to be overcome by satisfying, to some extent, data collections required by Congress in the Affordable Care Act. Sections 2715A and 2717 of the PHS Act, as added by the Affordable Care Act, significantly expand reporting requirements for group health plans subject to ERISA. EBSA is coordinating with HHS on using the Form 5500 Annual Return/Report as an alternative mechanism to satisfy these reporting requirements.
12

11
David U. Himmelstein, M.D., Deborah Thorne, Ph.D., Elizabeth Warren, JD, and Steffie Woolhandler: The American Journal of Medicine, Medical Bankruptcy in the United States, 2007: Results of a National Study. Available online at
http://www.amjmed.com/article/S0002-9343(09)00404-5/abstract?cc=y=
.

12
Section 2715A of the PHS Act extends the transparency reporting provisions set forth in section 1311(e)(3) of the Affordable Care Act (applicable to issuers of “qualified health plans” offered on Exchanges) to non-grandfathered group health plans and non-grandfathered group or individual health insurance coverage offered through or outside of Exchanges. As more fully described on pages 13-14 herein, section 2717 of the PHS Act generally requires non-grandfathered group health plans and health insurance issuers

offering non-grandfathered group or individual health insurance coverage to submit annual reports to the DOL, HHS and the Treasury regarding quality of care programs offered by the plan.

Revisions to the financial schedules (Schedule H and related investment asset reporting changes) and service provider reporting (Schedule C changes) impact predominantly large plans with complex investment portfolios (often involving alternate investments, hard-to-value assets and employer securities). These changes comprise the second and third largest shares of the burden increase, respectively, adding $57.6 million and $12.9 million. Small pension plans that are subject to expanded reporting under these proposed revisions are a small percentage of total small pension plan filers and the additional burdens are generally limited to those plans that choose to invest in alternative and hard-to-value assets, which present more risk and demand more transparency.

Revisions to Schedule D and DFE reporting represent the largest burden reduction within the proposed changes. These changes affect all DFEs and those plans that invest in DFEs and reduce aggregate burden by $10.1 million.

In addition, it is important to note that the total burden associated with the Form 5500 Annual Return/Report has risen from $327.98 million to $488.1 million since the last rulemaking in November 2007 primarily due to the increase in wage rates and the number of plan filers over the last eight years under the current rule. In other words, approximately 90 percent of the $160.1 million increase to the baseline burden since the last RIA was prepared is simply due to changes in the broader economy over the past decade, not this rulemaking.

Estimated Burden Change

Estimated Total Burden Change

Annual costs
(millions)

Annual burden hours
13

Total for current reporting requirements
$488.1
4.4 million.

Change due to proposed GHP requirements
241.6
2.2 million.

Change due to all other Proposed Requirements
87.2
798,000.

Total for Proposed Reporting Requirements
817.0
7.2 million.

Increase in baseline since 2007 due to update in wage rates
127.0
0.

Increase in baseline since 2007 due to update in number of plans (not including plans subject to new GHP reporting)
16.9
149,000.

Estimated

Burden Change by Type of Filer

13
The Burden Hours column shows the amount of time necessary to fulfill filing requirements, whether that burden is incurred by the plans themselves or by outside service providers hired by the plans. The Cost column shows the monetized version of those burden hours.

Type of filer

Number of
filers under
current
(thousands)

Number of
filers under
proposed
(thousands)

Aggregate
annual cost under current requirements
(millions)

Aggregate
annual cost under
proposed
requirements
(millions)

Aggregate
annual cost change
(millions)

Form 5500 Large Plans
148.5
148.5
$252.4
$309.3
$56.9

Pension/Large
75.1
75.1
141.2
174.6
33.5

Welfare/Large Health
47.9
47.9
91.7
114.2
22.5

Welfare/Large Non-Health
25.6
25.6
19.6
20.5
1.0

Form 5500 Small Pension and Non-Health Plans
29.7
29.7
14.4
38.3
23.9

Pension ESOP
3.8
3.8
1.8
5.8
4.1

Pension Non-ESOP
22.6
22.6
11.1
29.9
18.8

Welfare/Non-Health
3.3
3.3
1.5
2.5
1.0

Form 5500-SF Small Pension and Non-Health Plans
622.4
622.4
205.8
227.3
21.5

Pension
621.8
621.8
205.6
227.0
21.4

Non-Health Welfare
0.7
0.7
0.2
0.2
0.0

Form 5500 Small Health
6.2
2,158.0
4.1
227.9
223.86

Fully Insured Health
0.0
1,869.0
0.0
69.6
69.6

Other Health
6.2
289.0
4.1
158.2
154.2

DFEs
9.4
8.9
11.4
14.2
2.8

Overall Total
816.3
2,967.5
488.1
817.0
328.8

Note:
Some displayed numbers do not sum up to the totals due to rounding.

Large plans—100 participants or more.
Small plans—generally fewer than 100 participants.

Estimated Burden Change by Form Revision

Revisions

Change in
annual costs
(millions)

Change in
annual burden hours
(thousands)

Filers under current
requirements
(thousands)

Filers under proposed
requirements

(thousands)
14

Annual cost per affected filer

Changes in Schedule H (Including changes to Schedules of Assets and Reportable Transactions) and Eliminate Schedule I
$57.6
535.4
115.1
114.6
$502

Schedule C
12.9
116.6
82.4
100.2
128

DFE Reporting Changes (Including changes to Schedule D)
−10.1
−94.2
61.1
8.9
−1,137

Schedule E
2.5
22.0
0.0
6.7
374

Completion of lines 1-5 on Form 5500 and lines 1-8 on Schedule J by fully insured GHPs with fewer than 100 participants
69.6
623.0
0.0
1,869
37

Completion of Form 5500 by GHPs with fewer than 100 participants that are unfunded, combination unfunded/fully insured, or funded with a trust and GHPs with 100 or more participants
39.0
349.1
54.1
336.9
116

Completion of Schedule J by GHPs with fewer than 100 participants that are unfunded, combination unfunded/fully insured, or funded with a trust and GHPs with 100 or more participants
133.0
1,179.2
0.0
336.9
395

All Other Revisions
24.4
217.9
1,076.7
1,024.2
24

14
The elimination of the concept of Master Trust Investment Account reporting and requiring reporting by a master trust instead, whose burden change is accounted for in the DFE Reporting Changes row, results in a reduction in the number of schedules attached. These reductions are reflected in the rows specific to the schedule affected.

II. Discussion of the Proposed Revisions to 29 CFR Part 2520

ERISA section 103 broadly sets out annual financial reporting requirements for employee benefit plans. The Form 5500 Annual Return/Report and the DOL's related regulations generally are promulgated under the ERISA provisions authorizing limited exemptions to these requirements and simplified reporting and disclosure for welfare plans under ERISA section 104(a)(3), simplified annual reports under ERISA section 104(a)(2)(A) for pension plans that cover fewer than 100 participants, and alternative methods of compliance for all pension plans under ERISA section 110. The forms, instructions, and related regulations are also promulgated under the DOL's general regulatory authority in ERISA sections 109 and 505.

The forms, schedules, and instructions, in addition to providing an alternative method of compliance under ERISA section 110 for the mandatory reporting requirements under section 103, also serve to help the DOL carry out its statutory directives under sections 506 and 513 of ERISA. Specifically, section 506(a) of ERISA authorizes the Secretary of Labor to coordinate with other Agencies to avoid unnecessary expense and duplication of functions among Government agencies; the Form 5500 Annual Return/Report is designed to simultaneously satisfy annual reporting requirements for each of the three Agencies and help the Agencies more effectively and efficiently (from both an Agency and a public perspective) enforce the provisions of ERISA and the Code. Section 506(b) gives the DOL responsibility for detecting and investigating civil and criminal violations of Title I of ERISA. The Form 5500 Annual Return/Report is one of the important tools the DOL uses to effectuate its responsibility to detect and investigate such violations. Section 513(b)(2) of ERISA specifically directs DOL to undertake research studies relating to pension plans, including but not limited to (A) the effects of this subchapter upon the provisions and costs of pension plans, (B) the role of private pensions in meeting the economic security needs of the Nation, and (C) the operation of private pension plans including types and levels of benefits, degree of reciprocity or portability, and financial and actuarial characteristics and practices, and methods of encouraging the growth of the private pension system. The Form 5500 Annual Return/Report is the most important overall tool DOL has to fulfill this statutory imperative, and the changes in the proposal are essential for required research, as well as enforcement.

The proposed changes to the Form 5500 Annual Return/Report and regulations are designed to: (1) Modernize financial information filed regarding plans; (2) harmonize information on fees and expenses that plans pay to service providers with the information that service providers disclose to plans under 29 CFR 2550.408b-2; (3) enhance mineability of data filed on the Form 5500 Annual Return/Report; (4) require reporting by all plans covered by Title I of ERISA that provide health benefits, including adding a new Schedule J (Group Health Plan Information); and (5) focus filers on compliance with certain ERISA and Code provisions through new questions on plan operations, service provider relationships, and financial management. If adopted, the changes generally would apply for plan years beginning on or after January 1, 2019. See the regulatory impact analysis in this document for a discussion of how the proposed amendments and the proposed form revision address these goals. These revisions are being proposed in conjunction with recompeting the contract for operation of the ERISA Filing and Acceptance System (EFAST2), which is expected to begin processing Plan Year 2019 forms, beginning January 1, 2020. Certain changes may be made earlier, particularly those changes collecting information under the Code or Title IV of ERISA that do not require amendment to DOL regulations to implement (but not those related to group health plans). The Notice of Proposed Forms Revisions published concurrently in today's
Federal Register
sets forth a comprehensive discussion of form and instruction changes that relate to this proposed regulation.

1. Section 2520.103-1

Section 2520.103-1 generally describes the content of the Form 5500 Annual Return/Report as a limited

exemption and alternative method of compliance for ERISA-covered employee benefit plans to satisfy annual reporting requirements under Title I. To accommodate the form, schedule, and instruction changes in the Notice of Proposed Forms Revisions, the proposed regulatory amendments in this document would update form and schedule references in § 2520.103-1. The proposal would also require all plans that provide group health benefits, regardless of size, to file the Form 5500 Annual Return/Report in accordance with the instructions. Group health plans, regardless of size, would not be eligible to file the Form 5500-SF.
15

The proposal would also require pension benefit plans with fewer than 100 participants that are required to file the Form 5500 Annual Return/Report to file the Schedule C (Service Provider Information). It would also generally require both large and small employee stock ownership plans to file the Schedule E (ESOP Information). Under the proposal, only DFEs would be required to complete the Schedule D to report participating plan information; plans would no longer be required to file Schedule D because they would be reporting detailed information about the collective investment vehicles in which they invest, including DFEs, on the Schedule of Assets Held for Investment and the Schedule of Assets Disposed of During Plan Year. In order to improve the transparency of reporting for plans that participate in a master trust, the proposal would require that master trusts operate either on a calendar year basis or on the same fiscal year as all the plans that participate in the master trust. In general, a master trust is a trust maintained by a bank or similar institution to hold the assets of more than one plan sponsored by a single employer or by a group of employers under common control.

15
The details of the limited reporting that would be required for small fully insured group health plans would be set forth in the instructions.

2. Section 2520.103-2

Section 2520.103-2 describes the content of the Form 5500 Annual Return/Report for a group insurance arrangement (GIA) that files an annual report under § 2520.104-43. The amendments proposed in this document include the requirement to file the proposed new Schedule J. Group health plans that are part of a GIA would continue to be exempt from filing a Form 5500 Annual Return/Report under 29 CFR 2520.104-43. For plans to be eligible for this exemption, the GIA would have to file a separate Schedule J for each group health plan participating in the GIA.

3. Section 2520.103-3, 2520.103-4, and 2520.103-1(e)

Section 2520.103-3 provides an exemption for employee benefit plans from certain annual reporting requirements for plan assets held in a common collective trust (CCT) maintained by a bank, trust company, or similar institution. Section 2520.103-4 provides a similar exemption for plan assets held in a pooled separate account (PSA) maintained by an insurance carrier. Section 2520.103-1(e) provides for special reporting rules for plans that participate in a master trust. The Notice of Proposed Forms Revisions would alter the annual reporting requirements for plans investing in CCTs, PSAs and master trusts in significant ways to increase the transparency of plan investments in such pooled investment vehicles. The DOL proposes revising language to 29 CFR 2520.103-3, 29 CFR 2520.103-4, and 29 CFR 103-1(e) to reflect those changes.

4. Section 2520.103-6

Section 2520.103-6 sets forth the contents of the Schedule of Reportable Transactions that is part of the Form 5500 Annual Return/Report. The Schedule of Reportable Transactions is required to be filed by plans and DFEs that file their own Form 5500 Annual Return/Report. This schedule is used to report, subject to conditions and exceptions, individual transactions or series of transactions that involve more than five percent of the current value of the assets of the plan or DFE. The existing rules require the schedule to include the name of each party to a “reportable transaction.” The form and instructions changes being published concurrently with this document include certain additions and clarifications of the content of the Schedule of Reportable Transactions designed to improve the information regarding parties involved in these significant plan transactions or series of transactions. 29 CFR 2520.103-6(d)(1) sets forth the content requirements for the Schedule of Reportable Transactions. Rather than list all the schedules' content requirements, the proposed amendment to paragraph (d)(1) would simply reference the schedules' contents in the relevant Form 5500 Annual Return/Report instructions.

5. Section 2520.103-8

Section 2520.103-8 implements the limited-scope audit exemption described in ERISA section 103(a)(3)(c). Specifically, this exemption allows a plan to exclude from the examination and report of an independent qualified public accountant (IQPA) any statement or information regarding plan assets held by banks, similar institutions, or insurance carriers if the statement or information is prepared and certified by the bank, similar institution, or insurance carrier. The GAO and the DOL's Inspector General (DOL-OIG) have recommended that the Department revise section 2520.103-8 to improve the information being reported by plan administrators electing a limited scope audit. The DOL agrees that better information is needed by plan administrators in connection with limited scope audits. To address concerns it has observed, as well as to respond to the GAO and the DOL-OIG recommendations,
16

the DOL proposes amending section 2520.103-8. Currently, section 2520.103-8 requires the bank or insurance company to certify the accuracy and completeness of the information being provided by a written declaration which is signed by a person authorized to represent the bank or insurance carrier. The DOL proposes to amend the requirements under section 2520.103-8 to require that the certification:

16
The Agencies discuss various GAO and DOL-OIG recommendations with respect to the Form 5500 Annual Return/Report and the steps the Agencies are taking that are consistent with the recommendations in the Notice of Proposed Forms Revisions published today in the
Federal Register
.

(1) Appear on a separate document from the list of plan assets covered by the certification;

(2) Identify the bank or insurance company holding those plan assets that are the subject of the certification;

(3) Describe the manner in which the bank or insurance company is holding the assets covered by the certification;

(4) State whether the bank or insurance company is providing current value information regarding the assets covered by the certification, and if so, state that the assets for which current value is being certified are separately identified in the list of assets covered by the certification;

(5) If current value is not being certified for all of the assets covered by the certification, include a caution that the certification is not certifying current value information and the asset values provided by the bank or insurance company may not be suitable for use in satisfying the plan's obligation to report current value information on the Form 5500 Annual Return/Report; and

(6) If the certification is being provided by an agent on behalf of the bank or insurance company, a statement

certifying that the person providing the certification is an authorized agent acting on behalf of the bank or insurance company and affirming that the bank or insurance company is taking responsibility for the accuracy and completeness of the certification and the underlying records used as a basis for the information being certified.

6. Section 2520.103-10

Section 2520.103-10 identifies the financial schedules that are required to be included as part of the Form 5500 Annual Return/Report, which include the “Schedule of Assets Held for Investment” and “Schedule of Assets Acquired and Disposed within the Plan Year.” Paragraph (b)(1)(i) of § 2520.103-10 sets forth the content requirements for the Schedule of Assets Held for Investment. The Notice of Proposed Forms Revisions proposes certain additions and clarifications to the content of the Schedule of Assets Held for Investment that are designed to improve the information regarding parties and assets involved in these significant plan investments. Rather than list all the required contents of this schedule, the proposed amendment to paragraph (b)(1)(i) of § 2520.103-10 would simply reference the contents of the schedule listed in the relevant Form 5500 Annual Return/Report instructions.

Paragraph (b)(2)(i) of § 2520.103-10 sets forth the content requirements for the “Schedule of Assets Acquired and Disposed of During the Plan Year.” This proposed amendment reflects the Agencies' proposal to revise and rename the current “Schedule of Assets Acquired and Disposed of Within the Plan Year.” Filers would be required to report information on the disposal of certain assets, regardless of when the assets were acquired. The Notice of Proposed Forms Revisions also includes certain proposed additions and clarifications of the content of the Schedule of Assets Disposed of During the Plan Year that are designed to improve the information regarding parties and assets involved in these plan transactions. Rather than list the required contents of the Schedule of Assets Disposed of During the Plan Year, the proposed amendment to paragraph (b)(2)(i) of § 2520.103-10 would reference the contents of the schedule listed in the relevant Form 5500 Annual Return/Report instructions.

7. Section 2520.104-20 and 2520.104-26

Section 2520.104-20 provides an exemption from certain annual reporting and disclosure provisions of ERISA for certain welfare plans that cover fewer than 100 participants at the beginning of the plan year and for which benefits are paid exclusively from the general assets of the employer or employee organization sponsoring the plan, exclusively through insurance, or a combination of both. An expansion of the annual reporting of information regarding plans that provide group health benefits is described in detail in the Notice of Proposed Forms Revisions. To implement those changes, the DOL proposes eliminating the existing regulatory exemption for welfare plans that provide group health benefits (the exemption will continue to apply to other small welfare plans). Thus, small plans that provide group health benefits that are unfunded, or a combination of unfunded and fully insured, will be required to file an annual return/report, including the new Schedule J, in accordance with the requirements in the proposed instructions. Under the proposal, small fully insured plans will only be required to answer basic identifying and plan characteristic information on the Form 5500 and limited health plan benefit, insurance, and participant information on the Schedule J. Similarly, the limited exception in
§
2520.104-26 for certain unfunded dues-financed welfare plans maintained by employee organizations would be amended to further limit the exemption to those unfunded dues-financed welfare plans that do not provide health benefits.

8. Section 2520.104b-10

Section 104(b)(3) of ERISA provides in part that, each year, administrators must furnish to participants and beneficiaries receiving benefits under a plan materials that fairly summarize the plan's annual report. Section 2520.104b-10 sets forth the requirements for the Summary Annual Report (SAR) and prescribes formats for such reports. The amendments being proposed do not include any change to the SAR requirements. However, in order to facilitate compliance with the SAR requirement, the DOL is updating its cross-reference guide to correspond to the line items of the Form 5500 Annual Return/Report and Form 5500-SF. The cross-reference guide has also been updated to reflect that defined benefit pension plans that furnish an annual funding notice to participants and beneficiaries, pursuant to 29 CFR 2520.101-4, are not required to furnish a SAR. This update reflects statutory changes enacted as part of the Pension Protection Act of 2006 extending the annual funding notice requirements of section 101(f) of ERISA. The cross-reference guide, as before, would continue to be an appendix to 29 CFR 2520.104b-10.

9. Technical and Conforming Changes for Forms and Instructions

Various other technical and conforming changes are being proposed as part of the restructuring of the Form 5500 Annual Return/Report.

III. Regulatory Impact Analysis

Executive Order 12866 and 13563 Statement

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, and public health and safety effects; distributive impacts; and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility.

Under Executive Order 12866, it must be determined whether a regulatory action is “significant” and therefore subject to the requirements of the Executive Order and review by the Office of Management and Budget (OMB). Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an action that is likely to result in a rule's (1) having an annual effect on the economy of $100 million or more, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities (also referred to as “economically significant”); (2) creating serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs, or the rights and obligations of recipients thereof; or (4) raising novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

Pursuant to the terms of the Executive Order, it has been determined that this regulatory action is likely to have an annual effect on the economy of $100 million or more. Therefore, this action is being treated as “economically significant” and subject to OMB review under section 3(f)(1) of Executive Order 12866. The DOL accordingly has undertaken to assess the costs and

benefits of this regulatory action in satisfaction of the applicable requirements of the Executive Order and provides herein a summary discussion of its assessment.

Table 1—Accounting Statement: Estimated Costs From Current Reporting Requirements to 2019 Reporting Requirements
[In millions]

Category
Estimates

Primary
estimate

Low
estimate

High
estimate

Units

Year
dollar

Discount
rate
(percent)

Period
covered

Benefits:

Annualized Monetized

($millions/year)

Annualized Quantified

Qualitative
The proposal pursues five main objectives: (1) Improve reliability of reporting and transparency of financial products and investments acquired by plans, especially alternative investments, hard-to-value assets, and investments through collective investment vehicles; foster ongoing monitoring of retirement plans by employers, plans, participants and beneficiaries, and policymakers; and better leverage the ability of the Agencies to fulfill their statutory oversight role. (2) Establish better compliance awareness and education, provide critical data for Agency oversight, collect information needed for Congressionally mandated reports on group health plans, and satisfy certain reporting requirements under sections 2715A and 2717 of the PHS Act as added by the Affordable Care Act and incorporated into ERISA section 715. (3) Standardize and structure the Form 5500 Annual Return/Report to make key retirement and health and welfare benefit data, including information on assets held for investment, more available and usable in the electronic filing and data environment, which, consistent with the Administration's “Smart Disclosure” effort, to enable private sector data users to develop more individualized tools for employers to evaluate their retirement plans and for employees to manage their retirement savings. (4) By harmonizing reporting on Schedule C of the Form 5500 Annual Return/Report with the now final disclosure requirements in DOL's regulation at 29 CFR 2550.408b-2, provide a powerful tool and economic basis for improved evaluation of investment, recordkeeping, and administrative service arrangements, including potential innovative uses of Form 5500 Annual Return/Report data by private sector companies that have created tools for evaluating and benchmarking employee benefit plans, provide tools to benefit participants where failures to disclose indirect compensation received by a service provider have resulted in corrective monetary recoveries to plans, as well as minimize filer confusion with the harmonization of reporting and disclosure requirements. (5) Enhance reporting on plan compliance to improve plan operations, protect participants and beneficiaries and their retirement benefits, and educate and provide annual discipline for plan fiduciaries.

Costs:

Annualized Monetized
372.6

2016
7
2019 and later.

($millions/year)
366.2

2016
3
2019 and later.

Annualized Quantified

Qualitative

Background and Need for Regulatory Action

The Form 5500 Annual Return/Report is the principal source of information and data available to the Agencies concerning the operations, funding, and investments of pension and welfare benefit plans covered by ERISA and the Code. Accordingly, the Form 5500 Annual Return/Report is essential to each Agency's enforcement, research, and policy formulation programs and is 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 Form 5500 Annual Return/Report also serves as the primary means by which the operations of plans can be monitored by plan participants and beneficiaries and the general public.

As discussed in the Notice of Proposed Forms Revisions published concurrently with this document and below, the DOL has received several reports from the GAO, the DOL-OIG, and the ERISA Advisory Council indicating the need for substantive changes to annual reporting forms and regulations. TIGTA has also suggested to the IRS that substantive changes are needed. In response to these reports, the continued shift from DB to DC plans, and legislative and regulatory changes that have been issued since the last major revision to the Form 5500 Annual Return/Report, the DOL has determined that the substantial revisions to the reporting scheme discussed earlier in this preamble and in the Notice of Proposed Forms Revisions, published concurrently, are necessary and appropriate. These changes will ensure that the Agencies, plan participants and beneficiaries and the general public can monitor the operations of employee benefit plans. With their help, the Form 5500 Annual Return/Report will continue to serve its essential functions.

As described earlier in this document, the proposed revisions to the Form 5500 Annual Return/Report reflect priorities of and efforts by the Agencies to improve the quality of the information collected, while limiting wherever possible, especially for small pension plans invested in easy to value assets and plans that provide group health benefits that have fewer than 100

participants that are fully insured, the overall burden of the statutory reporting requirements and the forms. To accomplish this goal, the Agencies have pursued five objectives. The need for regulatory action to achieve these objectives is discussed below.

(1)
Modernizing financial information.

Modernizing the Schedule H Balance Sheet and Income Statement:
The financial statements contained in the current Schedule H (Large Plan Financial Information) and Schedule I (Small Plan Financial Information) are based on data elements that have remained largely unchanged since the Form 5500 Annual Return/Report was established in 1975. Many investments in alternative and hard-to-value assets and those held through collective investment funds that are frequently held by plans and the investment industry today were not as prevalent in 1975. Thus, they do not fit squarely into any of the existing Schedule H reporting categories. Further, some of these investments in alternative and hard-to-value assets, including those held through collective investment funds, are sufficiently complex that plan administrators and plan accountants may not completely understand how they fit into the balance sheet reporting on the Form 5500 Annual Return/Report. This results in inconsistent financial reporting by filers because certain types of investments may arguably fall into one or more categories. For example, a “hedge” fund could potentially be reported as a limited partnership or some other type of collective investment entity, or could be reported in a different reporting category based on the primary assets held through a particular type of collective investment vehicle.

Additionally, many filers simply report investments that do not readily fit into one of the existing categories in “Other.” For example, large retirement plans reported having $153 billion in assets that they categorized as “Other” on the Schedule H balance sheet for 2013. DFEs reported an additional approximately $407 billion in assets as “Other” for the 2013 plan year. In order to determine why there is a substantial amount in “Other,” the Agencies now have to rely on the current, unstructured Schedule H Line 4i Schedules of Assets, which might not specifically indicate the necessary details, or the Agencies would need to contact the filer for the information. The types of alternative and hard-to-value assets that might be reported in “Other” include: Options, index futures, state and municipal securities, hedge funds, and private equity. Some of these asset types can be fairly complex and merit more rather than less transparency in order to determine the overall financial health of the plan. The inability to distinguish these types of assets on the Form 5500 Annual Return/Report reduces the form's usefulness for policy analysis and research as well for monitoring plans for enforcement purposes.

A recent GAO report stated, for example, that, “while hedge funds and private equity have very different risk, return, and disclosure considerations from state and municipal securities, all of these investments could be included in the “other plan asset” category.”
17

GAO also noted that the plan asset categories on the Schedule H are not representative of current plan investments, and provide little insight into the investments themselves, the level of associated risk, or structures of the investments.
18

The DOL-OIG also recommended that the Agencies revise the Form 5500 Annual Return/Report to improve reporting of hard-to-value assets and alternative investments.
19

Based on their own assessment and experience in research and enforcement and the use of the Form 5500 Annual Return/Report to support these critical agency functions and responsibilities, as well as in response to these recommendations, as discussed in detail earlier in this document, the Agencies are proposing to make changes to the Schedule H balance sheet and income statement.

17

GAO, Private Pensions: Targeted Revisions Could Improve Usefulness of Form 5500 Information,
at 12.

18

Id.
at 11-12.

19

EBSA Needs to Provide Additional Guidance and Oversight to ERISA Plans Holding Hard-To-Value Alternative Investments,
at 4, 18, and 19.

Modernizing the Schedule H, Line 4i Schedules of Assets:
As discussed in detail in the Notice of Proposed Forms Revisions published simultaneously with this document, the Agencies are proposing structural, data element and instruction changes to the current Schedule H, Line 4i(1) Schedule of Assets Held for Investment and Line 4i(2) Schedule of Assets Acquired and Disposed of Within Year. These schedules are filed by plans required to file the Schedule H and by certain DFEs. The Schedules of Assets are a central element of the financial disclosure structure of ERISA. They are the only place on the Form 5500 Annual Return/Report where plans are required to list individual plan investments identified by major characteristics, such as issue, maturity date, interest rate, cost and current value. As such, they are the only part of the Form 5500 Annual Return/Report that can be used to evaluate the year-to-year performance, liquidity, and risk characteristics of a plan's individual investments.

The current reported information, however, suffers from several shortcomings. First, this information is not reported in a data-capturable format. Only an image or picture of the attachments that are currently filed as non-standard attachments to filers' electronic Form 5500 Annual Return/Report filings is available through the EFAST2 public disclosure function. Second, the Line 4i Schedules of Assets are not always found in the same place in each annual return/report. For example, the Line 4i Schedules of Assets are often incorporated in the larger audit report of the plan's IQPA that itself is filed as a nonstandard attachment to the Form 5500 Annual Return/Report. Third, the schedules do not require a standardized method for identifying and describing assets on the Line 4i Schedules. Therefore, under the current reporting rules, the same stock or mutual fund may be identified with various different names or abbreviations.

The creation of more detailed and structured Schedules of Assets is a specific recommendation of the DOL-OIG and the GAO.
20

The proposed changes to the Schedules of Assets are designed to remedy the shortcomings described above. In addition, data capturability of the Line 4i Schedules of Assets will make it much easier and more efficient to monitor plan holdings as computer programs can read and analyze the data much more efficiently. It will allow the Agencies and the interested public to monitor a larger number of pension plans and their asset allocations. The existence of a group of private companies that are transforming the Line 4i Schedule of Assets Held for Investment of the larger pension plans into data-capturable information and using it to compare plan investment menus and investment allocations is a clear indication that plans sponsors and their service providers also are interested in having access to these data. For example, one of these companies sent a letter to DOL stating that they believe that the information on the Form 5500 Annual Return/Report is very useful in “helping the agency understand the performance and design of retirement plans in the market place” and that the data availability fosters “third party data collection and

evaluation efforts that in turn help protect retirement plan participants.”
21

Plan sponsors can use this information to see how their investment menus compare to similarly situated plans and service providers often use this information to identify plans with underperforming investments in order to attract new business. This can lead to more competition and improved plan performance, which will ultimately benefit participants.

20

See EBSA Needs to Provide Additional Guidance and Oversight to ERISA Plans Holding Hard-to-Value Alternative Investments, at 17; Private Pensions: Targeted Revisions Could Improve Usefulness of Form 5500 Information,
at 37.

21
See August 23, 2010 Comment Letter from Ryan Alfred, President, BrightScope, Inc. Re: Proposed Extension of Information Collection, Form 5500
http://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201009-1210-002
).

Changes to DFE Reporting:
Under the current reporting rules, DFEs are permitted, or in some cases required, to file their own Form 5500 Annual Return/Report. Generally, pension plans that invest in DFEs only are required to report their interest in the DFE but do not have to report detailed information regarding the underlying investments in the DFE. Such plans are required to file a Schedule D on which the plans identify each DFE in which they invest and the year-end values of the plans' interests. Although DFEs file their own Form 5500 Annual Return/Report, only Master Trust Investment Accounts (MTIAs) and entities meeting the conditions of DOL regulation 29 CFR 103-12 (103-12 IEs) are required to include as part of their own Form 5500 Annual Return/Report, detailed asset holdings on the Schedule H, Line 4i Schedules of Assets. Insurance company pooled separate accounts (PSAs) and bank common/collective trusts (CCTs), which together account for 32 percent of large plans' reported DFE holdings, do not report such information, nor are the investing plans required to report it, although the information is required by regulation to be provided by PSAs and CCTs to investing plans on an annual basis.

The Agencies have encountered, and researchers have reported to the DOL,
22

difficulties matching plans' investments in DFEs reported by investing plans and DFEs in which the plans and other DFEs are participating. Some of this stems from incomplete, unreliable, or inconsistent data on Schedule D filings. For example, for 2013, about 57 percent of plans and 17 percent of DFEs that filed a Schedule D and reported non-zero amounts of interest in DFEs on Schedule H have at least one discrepancy in reporting of more than $1,000 between the value of the investment in a DFE on their Schedule D and their Schedule H. There might be some legitimate reasons for these discrepancies,
e.g.
different plan year dates, but these discrepancies make it difficult to verify filing accuracy. Another more troubling issue is that there are more than 7,000 plan filings for 2013 that report investments in DFEs that cannot be directly linked to any applicable DFE filings. This problem primarily involves CCTs and PSAs. Investments in these unlinked DFEs account for more than $382 billion in assets. A serious consequence of not being able to link these plan filings and assets to DFE filings is that the Agencies and participants do not get information on their plan investments and thus are not able to monitor these investments.

22
See “Invisible Pension Investments,” Peter J. Wiedenbeck, Rachael K. Hinkle & Andrew D. Martin (
http://sites.lsa.umich.edu/admart/wp-content/uploads/sites/127/2014/08/vatr13.pdf
).

GAO has recommended that the Agencies take steps to address the problem of incomplete or inaccurate matching between plan and DFE filings.
23

Therefore, as discussed in detail earlier in this document, the Agencies are proposing to revise the reporting structure of both Schedule H and the Line 4i Schedules of Assets, with corresponding changes to Schedule D, that are intended to ensure that the Agencies, plan fiduciaries, plan service providers, and other users of data have the tools to create a more complete picture of plans' investment in pooled investment vehicles.

23

See,
GAO
Private Pensions: Targeted Revisions Could Improve Usefulness of Form 5500,
at 14-15.

Changes to Financial Information Reporting for Small Plans:
Small pension plans that are invested in “eligible” plan assets and otherwise meet certain requirements are eligible to file Form 5500-SF, which was established in part to comply with provisions of the PPA requiring a simplified form of reporting for plans with fewer than 25 participants.
24

Currently, the Form 5500-SF does not require filers to breakout assets on the balance sheet into specific categories. Small plans that are not eligible to file the Form 5500-SF because they are invested in hard-to-value and alternative investments currently file Schedule I, but the Schedule I does not require small plan filers to provide detailed plan asset information and does not provide significantly more useful financial information than the Form 5500-SF with respect to alternative and hard-to-value assets.

24
See section 1103(b) of the Pension Protection Act of 1996, Public Law 109-280, 120 Stat. 780 (2006).

The lack of specific questions on the investment activity of small pension plans, which comprise over 80 percent of filers, impairs the usefulness of the Form 5500 Annual Return/Report as a tool to obtain a meaningful picture of small plan investments, especially investments in hard-to-value and alternative investments. As the GAO has noted, the limited financial information provided on the Schedule I creates a challenge for participants, beneficiaries, oversight agencies, researchers, and other users of the Form 5500 Annual Return/Report or Form 5500 Annual Return/Report data.
25

Therefore, as discussed in detail in the Notice of Proposed Forms Revisions published today, under the proposal, Form 5500-SF filers would be required to provide a modest additional breakout of plan investments on the balance sheet. The proposal also would eliminate the Schedule I for small plans that are not eligible to file the Form 5500-SF, predominantly because they are invested in hard-to-value and alternative investments, including employer securities. Under the proposal, such plans instead would be required to complete Schedule H and the Line 4i Schedules of Assets. These changes are designed to ensure that the Agencies are able to collect critical information regarding small plan investments in hard-to-value and alternative investments.

25
GAO
Targeted Revisions Could Improve Usefulness of Form 5500 Information,
at 18.

Although the proposed elimination of Schedule I and the addition of basic investment category information to the Form 5500-SF balance sheet would result in additional reporting for those small plans invested in hard-to-value and alternative investments, those small plans with simple investment portfolios would not see a significant increase in their annual reporting burden. In light of changes in the financial environment and increasing concern about investments in hard-to-value assets and alternative investments, however, the Agencies believe that requiring the more detailed financial information regarding hard-to-value investments on the Schedule H is important for regulatory, enforcement, and disclosure purposes for those small plans with more complex portfolios that include hard-to-value or alternative investments. The inherent increased risk posed by hard-to-value or alternative investments affects participants in small plans as well as large plans, but without these proposed revisions, the participants in small plans are left without the protection afforded participants in large plans that comes from the reporting that large plans are already required to do. Although such small plans would be

required to complete the Schedule H instead of the Schedule I, including the Schedule H Line 4i(1) and 4i(2) Schedules of Assets, eligible small plans, as under the current rules, would still be eligible for a waiver of the annual examination and report of an IQPA under 29 CFR 2520.104-46, and the number count required to determine eligibility would be changed from the number of participants at the beginning of the plan year to the number of participants with account balances at the beginning of the plan year.

(2)
Updating fee and expense information on plan service providers with a focus on harmonizing annual reporting requirements on Schedule C with DOL's final disclosure requirements at 29 CFR 2550.408b-2.

The current rules for reporting indirect compensation on the Schedule C as part of the Form 5500 Annual Return/Report, including the limited reporting option for “eligible indirect compensation,” were implemented starting with the 2009 forms.
26

Those changes were part of a three-pronged regulatory initiative that included the DOL's regulations under 29 CFR 2550.408b-2 and participant-level disclosure regulations under 29 CFR 2550.404a-5. At the time the 2009 Schedule C rules were finalized, neither the ERISA section 408b-2 regulation nor the ERISA section 404a-5 regulation had been promulgated. Some elements of the 2009 Schedule C, for example, the eligible indirect compensation provisions, were adopted in light of the fact that it was not certain at the time what the ERISA section 408b-2 final rule would require. Those provisions were also meant to respond to concerns from the regulated community, especially large plan service providers, about having to create two different record-keeping systems to meet the various requirements of the Form 5500 Annual Return/Report and disclosures required under 408b-2 should the later promulgated provisions differ from the Form 5500 reporting requirements on indirect compensation.

26

See
72 FR 74731 (Nov. 16, 2007).

Now that EBSA has promulgated the ERISA sections 408b-2 and 404a-5 final regulations, there is a need to harmonize fee reporting under the Schedule C and ERISA section 408b-2 regulations to: (1) Make it easier to understand the disclosure and reporting rules regarding indirect compensation; (2) improve quality of data by minimizing any filer confusion that might result from differences in the two requirements and having all the compensation required to be disclosed to be reported on the Schedule C; (3) reduce burden by synchronizing the record-keeping that would be required for ERISA section 408b-2 regulations before-the-fact disclosure with Schedule C's after-the-fact reporting; and (4) make the information easier to understand for end users of the forms by bringing consistency between the service provider fees disclosed to the plan fiduciaries and the service provider fees reported to the Agencies and made public. In this regard, a recent GAO report stated that some filers advised that there was confusion over what Schedule C requires to be reported, including in comparison to what is required under the ERISA section 408b-2 regulations disclosure scheme.
27

Therefore, as discussed in detail earlier in this document, the Agencies are proposing various changes to the Schedule C to better harmonize it with the disclosure requirements under the final ERISA section 408b-2 regulation. Among other changes, the Agencies are proposing to eliminate the concept of “eligible indirect compensation” on Schedule C in part because “eligible indirect compensation” was created prior to the finalization of ERISA section 408b-2 rules to address concerns about possible future inconsistencies that are no longer applicable. Instead of being able to rely on the construct of “eligible indirect compensation” to report only the name of the person providing the disclosures to the plan administrator, the proposal would require filers to report all types of compensation for ERISA section 408b-2 “covered” service providers. This change will also help address concerns raised by other data sources on service provider compensation about the completeness of Schedule C compensation data. A recent survey by Deloitte Consulting LLP for the Investment Company Institute reported fees paid by 401(k) plans that greatly exceeded fees reported on the Schedule C at every asset level.
28

27

See
GAO
Targeted Revisions Could Improve Usefulness of Form 5500 Information,
at 22.

28
Deloitte Consulting LLP (2014, August).
Inside the Structure of Defined Contribution/401(k) Plan Fees, 2013: A Study Assessing the Mechanics of the `all-in' Fee.
(Available at
https://www.ici.org/pdf/rpt_14_dc_401k_fee_study.pdf
).

The proposed forms revisions, and implementing DOL regulations, would also require small pension plans that are not eligible to file the Form 5500-SF and welfare plans that are funded with a trust with fewer than 100 participants to file the Schedule C. Currently, only large pension plans and large welfare plans that are not unfunded or insured (
e.g.,
funded using a trust) must file the Schedule C, thus excluding almost 90 percent of current pension plan filers and over 80 percent of current welfare plan filers from having to disclose service provider fees. The DOL recognizes the burdens small plans face in complying with reporting obligations, but must weigh them against the market efficiencies that can be gained through improved transparency and fee disclosure. The DOL therefore proposes to require small pension plans to file Schedule C only if they do not meet the eligibility conditions for filing the Form 5500-SF, which predominantly are those pension plans that are invested in alternative or hard-to-value assets. The DOL proposes to require welfare plans that offer group health benefits with fewer than 100 participants to file Schedule C only if they are not unfunded or insured (
e.g.,
funded with a trust), because those plans are most likely to experience financial difficulties. Defined contribution pension plan Form 5500-SF filers, as well as defined contribution pension plan Form 5500 Annual Return/Report filers required to complete the Schedule H, would also have to attach the comparison chart that is required to be furnished to participants under the DOL's regulation at 29 CFR 2550.404a-5. Although the comparison chart would not be attached in a “structured” format, it would provide, with a minimal burden increase, a picture of the investment earnings and fees for defined contribution pension plans, which constitute the majority of small plan filers.

Requiring those small pension plans that are not eligible to file the Form 5500-SF and welfare plans that include group health benefits with fewer than 100 participants that are not unfunded or insured (
e.g.,
funded with a trust) to complete the Schedule C as part of their Form 5500 Annual Return/Report filing, and requiring Form 5500-SF defined contribution pension plan filers to include the 404a-5 comparison chart should address some of the GAO's concerns that service provider fee information is incomplete because plans with fewer than 100 participants are not currently required to file information about indirect compensation received by the plans' service providers.
29

Both the proposed Schedule C information for small plans not eligible to file the Form 5500-SF and the 404a-5 information would also enable sponsors of small plans to more easily compare fee information between their plans and increase competition for these services.

In addition, financial information reporting could be better aligned with recently adopted disclosure rules to ensure that all fees are reported by the plans.
30

29

See
GAO
Targeted Revisions Could Improve Usefulness of Form 5500 Information,
at 25.

30

Id.
at 50.

(3)
Enhancing usability of data filed on the annual return/report.

E-filing, as well as advances in information technology, have changed both the regulated community's and government's ability to use the Form 5500 Annual Return/Report data. The government can now provide the data in a much more timely and comprehensive manner. As a result, the Form 5500 Annual Return/Report data sets are posted on the Internet, updated monthly, and the images of the individual filings and attachments are made available at no cost to the requester.
31

This has allowed the public as well as the Agencies to monitor plan investments and trends more efficiently. Several private companies have started to build data sets and applications using the Form 5500 Annual Return/Report data to compare plans and service providers and make these services available to plan sponsors and service providers. These developments can lead to better review of plan investments and increased competition, ultimately benefiting plans and participants.

31
Requests for individual filings and attachments are available at no cost to the requester. Bulk requests are available at a minimal cost to the requester. See Guide to Submitting Requests Under the Freedom of Information Act, Section VIII (
http://www.dol.gov/dol/foia/guide6.htm
).

The usefulness of the Form 5500 Annual Return/Report data for comprehensive plan monitoring is dependent on comparable data being available for all or most plans and on the data being available in data-capturable formats. The current financial reporting structures and requirements, however, do not allow the data to be utilized to the fullest extent. As stated above, the Schedule H Line 4i, Schedules of Assets, and the Line 4j, Schedule of Reportable Transactions, as well as other attachments to various schedules (including Schedules MB and SB) are not filed in a standardized electronic format and therefore cannot be searched and analyzed electronically. As a result, the Agencies, other governmental users, including policymakers, and the public have difficulty accessing and making most effective use of key information about pension plan investments.

The proposed requirement for filers to complete a standardized Schedule H Line 4i(1), Schedule of Assets Held for Investment and Line 4i(2) Schedule of Assets Disposed of by End of Plan Year, in a data-capturable format would address some of the critical gaps in available data on pension plan investing, which accounts for over $7.87 trillion of United States savings. The Agencies' proposal to standardize the Schedule H, Line 4i Schedules of Investments also is responsive to the DOL-OIG's recommendation that the Agencies create a searchable reporting format for the Schedule H, Line 4i Schedules of Assets and otherwise increase the accessibility of Form 5500 Annual Return/Report data, particularly information on hard-to value assets and multiple-employer plans.
32

32

See EBSA Needs to Provide Additional Guidance and Oversight to ERISA Plans Holding Hard-to-Value Alternative Investments,
at 17;
see also GAO Private Pensions: Targeted Revisions Could Improve Usefulness of Form 5500 Information,
at 37;
GAO, Federal Agencies Should Collect Data and Coordinate Oversight of Multiple Employer Plans,
at 30.

In addition, this proposal would enhance the usability of data by replacing some of the attachments to the various schedules (including some attachments to Schedules MB and SB)
33

with text fields and having filers report required information in text fields on the face of the forms and on schedules instead of requiring this information to be filed as non-standard attachments. The Agencies took into account the size and complexity of the attachments in determining which should be text fields and which should continue to be attachments, despite the overarching goal of improving data usability for the complete form. In a few cases, especially for detailed actuarial charts, the Agencies determined that requiring standardized attachments or requiring the information to be provided on the face of the forms and schedules could potentially be overly difficult, costly, and complex, and therefore the costs would outweigh the benefits.

33
The proposed Schedule E, which is based in large part on the Schedule E from 2008 and earlier, would use text fields rather than attachments for some of the previously asked questions.

Further improvements would be realized from the proposal's requirement that other currently unstructured data or new elements would also be collected as structured data. These include the lists of employers participating in multiple-employer and controlled group plans required to be attached to the Form 5500 Annual Return/Report or Form 5500-SF; the Schedule H, Line 4a Schedule of Delinquent Contributions, and Schedule H, Line 4j Schedule of Reportable Transactions. Having information on delinquent participant contributions and reportable transactions in a “structured” data format would benefit the Agencies by allowing them to identify common types of violations across plans, more quickly respond to any identified issues, and better determine areas where more enforcement and encouragement of compliance and education is needed. Having this data reported in a structured format would also benefit the Agencies and the general public by identifying the universe of employers that participate in multiple-employer and controlled group plans and allowing them to quickly identify plan sponsors that might be affected by adverse market conditions or financial distress.

In summary, advances and developments in technology allow data users to run increasingly sophisticated analyses using the existing Form 5500 Annual Return/Report data, but this is dependent on the availability of these data in a data-capturable format. In addition to researchers interested in studying trends in the employee benefits industry, some companies have reached out to the DOL to request that Form 5500 Annual Return/Report data be collected in a more standardized and consistent format.
34

If these data were available in such a format, researchers, businesses and plan professionals could use the data more efficiently to inform employers and participants on plan structures, operations, and finances. Particularly important in a constrained federal budgetary environment, such data will allow EBSA's enforcement staff to monitor many more employee benefit plans in a systematic and efficient way, producing more fruitful investigations and reducing the inefficiencies and disruptions resulting from unnecessary investigations.

34
See August 23, 2010 Comment Letter from BrightScope Re: Proposed Extension of Information Collection, Form 5500 (
http://www.dol.gov/EBSA
).

(4)
Requiring reporting by all group health plans covered by Title I of ERISA, including adding a new Schedule J (Group Health Plan Information).

The enactment of the Affordable Care Act expanded DOL's already growing oversight and regulatory responsibilities with respect to the provision of group health benefits to workers in private sector employer-sponsored group health plans. Generally most welfare plans that include group health benefits that have fewer than 100 participants do not currently file the Form 5500 Annual Return/Report. The current regulation exempts small plans from the requirement to file if they are unfunded, fully insured or combination unfunded/fully insured.
35

The current lack of information collected on the Form 5500

Annual Return/Report from group health plans diminishes the effectiveness of EBSA's ability to develop health care regulations and complicates the DOL's ability to enforce such regulations and educate plan administrators regarding compliance. Congress, DOL, other governmental users, private researchers, service providers, and other members of the regulated community currently are not able to confidently estimate even the most basic information regarding group health plans, such as the total number of plans that exist or trends that are occurring in the marketplace.

35
29 CFR 2520.104-20.

The Affordable Care Act requires the Secretary of Labor to provide Congress with an annual report containing general information on self-insured employee health benefit plans and financial information regarding employers that sponsor such plans. This “Annual Report on Self-Insured Group Health Plans,” by the terms of the statute, must use data from the Form 5500 Annual Return/Report. However, as noted above, those small plans that are self-insured and do not use a trust are not required to file the Form 5500 Annual Return/Report with the DOL and the Form 5500 Annual Return/Report only collects limited information from self-insured plans that do file.
36

Also, as the 2015 Report states, “health benefits may be reported together with certain other benefits, such as disability or life insurance benefits, on a single Form 5500 Annual Return/Report. This makes it difficult to distinguish how the different benefits are financed.”
37

To fulfill its responsibility to Congress, the DOL has developed an algorithm to try to infer the funding method for plans that file. This methodology, however, may not accurately identify self-insured plans and can only draw information from the Form 5500 Annual Returns/Reports filed, which are a limited sample, and the methodology may compromise the validity of any conclusions drawn from the report and any resulting policy prescriptions.

36
Only a little over 20,000 self-insured and approximately 4,000 mixed self-insured health plans file annually with the DOL under the current reporting scheme. See “Report to Congress: Annual Report on Self-Insured Group Health Plans,” March 2015, page iii (available at
http://www.dol.gov/ebsa/pdf/ACAReportToCongress2015.pdf
).

37
Id. at v.

In addition, sections 2715A and 2717 of the PHS Act, as added by the Affordable Care Act and incorporated into ERISA section 715, include important new reporting requirements for group health plans subject to ERISA. Specifically, section 2715A of the PHS Act incorporates the transparency provisions of section 1311(e)(3) of the Affordable Care Act to require non-grandfathered group health plans and health insurance issuers offering non-grandfathered group or individual health insurance coverage to make available to the public, and the government a host of information on health plan enrollment and claims, including: (1) Claims payment policies and procedures; (2) periodic financial disclosures; (3) data on enrollment and disenrollment; (4) data on the number of denied claims; (5) data on rating practices; (6) information on cost-sharing and payments with respect to any out-of-network coverage; (7) information on enrollee and participant rights; and (8) other information as determined by the Secretary. Moreover, section 2717 of the PHS Act generally requires non-grandfathered group health plans and health insurance issuers offering non-grandfathered group or individual health insurance coverage to report annually whether the benefits under the plan: (A) Improve health outcomes through the implementation of activities such as quality reporting, effective case management, care coordination, chronic disease management, and medication and care compliance initiatives, including through the use of the medical homes model as defined for purposes of section 3602 of the Affordable Care Act, for treatment or services under the plan or coverage; (B) implement activities to prevent hospital readmissions through a comprehensive program for hospital discharge that includes patient-centered education and counseling, comprehensive discharge planning, and post discharge reinforcement by an appropriate health care professional; (C) implement activities to improve patient safety and reduce medical errors through the appropriate use of best clinical practices, evidence based medicine, and health information technology under the plan or coverage; and (D) implement wellness and health promotion activities.

These regulations propose conforming amendments in 29 CFR 2590.715-2715A and 29 CFR 2590.715-2717 to clarify that compliance with the reporting requirements in 29 CFR 2520.103-1 (including filing any required schedules to the annual report) by plans subject to ERISA would satisfy the reporting requirements of PHS Act section 2715A and 2717,
38

incorporated in ERISA through ERISA section 715(a)(1).
39

As explained in FAQs issued August 11, 2015,
40

HHS proposed an information collection for public comment in connection with the transparency provisions of section 1311(e)(3) of the Affordable Care Act. The proposed data collection would collect certain information from Qualified Health Plan (QHP) issuers in Federally-facilitated Exchanges and State-based Exchanges using the federal eligibility and enrollment platform. The HHS proposal explained that other reporting requirements would be proposed at a later time, through a separate rulemaking with respect to non-Exchange coverage, including those that extend to health insurance issuers offering non-grandfathered group and individual health insurance coverage outside of Exchanges and non-grandfathered group health plans (including large group and self-insured health plans).

38
The Treasury Department and the IRS intend to publish proposed regulations in 26 CFR 54.9815-2715A and 54.9815-2717 clarifying that group health plans required to file an annual report pursuant to section 104 of ERISA that comply with the reporting requirements in 29 CFR 2520.103-1 (including filing any required schedules to the annual report) would satisfy the reporting requirements of sections 2715A and 2717 of the PHS Act, as incorporated in the Code. Group health plans that are not required to file an annual report pursuant to section 104 of ERISA but that are subject to sections 2715A and 2717 of the PHS Act as incorporated in the Code, will not be required to do any reporting to comply with sections 2715A and 2717 of the PHS Act, as incorporated in the Code, unless and until the Treasury Department and the IRS issue subsequent further guidance or rulemaking regarding any such reporting by such plans.

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Nonfederal governmental plans (as defined in PHS Act section 2791(d)(8)(C)) and health insurance issuers (as defined in PHS Act section 2791(b)(2) and ERISA section 733(b)(2)) are not required to file annual reports pursuant to ERISA section 103. Accordingly, any reporting required of such plans and issuers to satisfy PHS Act sections 2715A and 2717 will be addressed separately by HHS in future rulemakings and/or guidance.

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See
FAQs about Affordable Care Act Implementation (Part XXVIII), available at
www.dol.gov/ebsa/faqs/faq-aca28.html
and
www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/ACA-FAQ-Part-XXVIII-transparency-reporting-final-8-11-15.pdf.

This rulemaking proposes transparency and quality reporting for non-grandfathered group health plans under PHS Act sections 2715A and 2717, as incorporated in ERISA. It takes into account differences in markets and other relevant factors and reduces unnecessary duplication. The DOL is proposing to collect and provide high-value data to participants, beneficiaries, and regulators, such as information about benefits and plan design characteristics, funding, grandfathered plan status, rebates received by the plan (such as medical loss ratio rebates), service provider information (including information regarding any third party administrators, pharmacy benefit managers, mental health benefit

managers, and independent review organizations), information on any stop loss insurance, claims processing and payment information (including number of claims filed, paid, appealed and denied), wellness program information, and other compliance information. The collection of high-value data will lead to greater transparency for consumers and assist in their decision-making process.

As discussed in detail in the Notice of Proposed Form Revision, the proposal would make significant changes to group health plan reporting. First, the proposal would add a new Schedule J (Group Health Plan Information). Plans that provide group health benefits that have 100 or more participants, all of which are currently required to file a Form 5500 Annual Return/Report, would have to include the new Schedule J in their annual report, with the remaining reporting requirements generally unchanged, except as proposed to be changed for all filers. Plans that provide group health benefits with fewer than 100 participants that are funded using a trust would generally be required to report the same information as plans that provide group health benefits with 100 or more participants that are funded using a trust; they would no longer be permitted to file the Form 5500-SF. Although this would require such plans to complete the Schedule C and the Schedule H, for plans with simple investments, there should only be a modest burden increase over completing the Form 5500-SF. Small welfare plans funded with a trust that are invested in assets that are not “eligible plan assets” for purposes of Form 5500-SF filing, are already required to file the Form 5500 Annual Return/Report, along with the Schedule I, and if applicable, Schedule A.

Group health plans that have fewer than 100 participants currently exempt from filing an annual report under 29 CFR 2520.104-20 because they are completely unfunded or combination unfunded/fully insured now would be required to file a Form 5500, a Schedule J, and, if applicable, a Schedule A. Plans that are unfunded pay some or all of their benefits out of the plan sponsors' general assets, which exempts them from state insurance regulation, making the DOL their sole regulatory agency. Because such small plans are not currently required to file the Form 5500 Annual Return/Report, there is no comprehensive and direct source of data about the number and characteristics of these plans. Further, because these plans are small, they are more susceptible to financial difficulties. Because of these concerns, the DOL believes that it is important to have more detailed benefit, financial, and compliance information for “unfunded” plans that are self-insured or partially self-insured than for those small plans that are fully insured. These plans would be required under the proposal to file the complete Form 5500 and Schedule J and, if applicable, Schedule A.

Plans that provide group health benefits that have fewer than 100 participants that are fully insured would be required to answer only limited questions on both the Form 5500 and Schedule J, and would not be required to file any other schedules or attachments. Collecting this limited data on fully insured plans providing group health benefits that have fewer than 100 participants would give the DOL basic information to identify health insurance plans they regulate and allow them to better monitor plan trends and activities, but minimize the reporting burden from more detailed reporting that is more generally required on the Form 5500, Schedule A, Schedule J, and any other applicable schedules that comprise the Form 5500 Annual Return/Report.

(5)
Improving compliance under ERISA and the Code through selected new questions regarding plan operations, service provider relationships, and financial management of the plan.

In an era of limited financial resources, the Agencies must pursue new and creative ways to maximize the efficacy of their enforcement budgets. Improving compliance under ERISA and the Code reduces the need for costly enforcement actions. Focusing filer compliance through selected new questions regarding plan operations, service provider relationships, and financial management of the plan under ERISA and the Code can also have the effect of allowing the Agencies' enforcement staff to work more efficiently, and therefore better protect plan participants and beneficiaries.

Analysis of Benefits and Costs

The DOL believes that the benefits to be derived from this proposal, including the amendments to the reporting regulations and the forms revisions, would justify their costs. The DOL further believes that these revisions to the existing reporting requirements will enhance protection of ERISA rights by improving the effectiveness of enforcement actions and by improving the quality of data used for research and policymaking purposes. The DOL conducted a detailed a

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2016-14892. Public record. Not legal advice.