Proposed Revisions to Certain Regulations Regarding Annual Reporting and Disclosure Requirements
Federal RegisterDec 10, 1998
Ask Donna
What actually matters in this document.
Text
SUMMARY: This document contains proposed amendments to Department of
Labor (Department) regulations relating to the annual reporting and
disclosure requirements under part 1 of Title I of the Employee
Retirement Income Security Act of 1974, as amended (ERISA or the Act).
In part, the amendments contained in this document are necessary to
conform the regulations to the previously published revisions to the
annual return/report forms (Form 5500 Series) filed by administrators
of employee pension and welfare benefit plans under part 1 of Title I
of ERISA. The regulatory amendments, in conjunction with the revisions
to the Form 5500 Series, are intended to reduce the annual reporting
burdens on employee benefit plans while ensuring that the Department
has access to the information it needs to carry out its administrative
and enforcement responsibilities under ERISA and that participants and
beneficiaries have access to the information they need to protect their
rights and benefits under ERISA. Other proposed amendments contained in
this document would modify the reporting requirements for certain group
insurance arrangements. The remaining amendments are technical in
nature and are designed to either simplify or clarify the existing
reporting regulations. If adopted, the amendments will affect the
financial and other information required to be reported and disclosed
by employee benefit plans filing Form 5500 Series reports under part 1
of Title I of ERISA.
DATES: Written comments on the proposed regulations must be received by
the Department on or before February 8, 1999.
ADDRESSES: Interested persons are invited to submit written comments
(preferably three copies) concerning the proposals herein to: Office of
Regulations and Interpretations, Room N-5669, Pension and Welfare
Benefits Administration, U.S. Department of Labor, 200 Constitution
Avenue, N.W., Washington, DC 20210, ATTENTION: Proposed Amendments to
Annual Reporting Regulations. All written comments should clearly
reference the relevant proposed amendment(s). All submissions will be
open to public inspection in the Public Disclosure Room, Pension and
Welfare Benefits Administration, Room N-5638, 200 Constitution Avenue,
N.W., Washington, D.C.
FOR FURTHER INFORMATION CONTACT: Eric A. Raps, Office of Regulations
and Interpretations, Pension and Welfare Benefits Administration, (202)
219-8515 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
A. Background
Under Titles I and IV of ERISA, and the Internal Revenue Code, as
amended, pension and other employee benefit plans are generally
required to file annual return/reports concerning, among other things,
the financial condition and operations of the plan. These annual
reporting requirements can be satisfied by filing the Form 5500 Series
in accordance with its instructions and related regulations. The Form
5500 Series is the primary source of information concerning the
operation, funding, assets and investments of pension and other
employee benefit plans. In addition to being an important disclosure
document for plan participants and beneficiaries, the Form 5500 Series
is a compliance and research tool for the Department, and 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.
During the last two years, the Department's Pension and Welfare
Benefits Administration (PWBA), the Internal Revenue Service and the
Pension Benefit Guaranty Corporation (the Agencies) have conducted an
extensive review of the Form 5500 Series in an effort to streamline the
information required to be reported and the methods by which the
information is filed and processed. A Notice of Proposed Forms
Revisions soliciting public comments on proposed revision of the Form
5500 Series was published in the Federal Register on September 3, 1997
(62 FR 46556). The Agencies' proposal replaced the Form 5500, Form
5500-C and Form 5500-R with one Form 5500 intended to streamline the
report and the methods by which it is filed. Concurrent with the
development of the new forms, the Agencies are also developing a new
computerized system to process the Form 5500 (the ERISA Filing
Acceptance System or ``EFAST''). The new computerized processing system
is designed to simplify and expedite the receipt and processing of the
new Form 5500 by relying on computer scannable forms and electronic
filing technologies. The overall proposal is intended to streamline and
improve the Form 5500 Series and lower the administrative burdens and
costs incurred by the more than 800,000 employee benefit plans that
file the Form 5500 Series each year. A public hearing on the proposed
forms revisions was held on November 17, 1997, and written comments on
the proposal were received until the public record was closed on
December 3, 1997. The Agencies received over 60 public comments and
received oral testimony from employer groups, employee representatives,
financial institutions, service organizations and others on the form
streamlining proposal. On February 4, 1998, the Department announced
that, in response to public comments, the implementation of the new
Form 5500 would be delayed until the 1999 plan year.
Public reaction to the September 3, 1997 Notice of Proposed Forms
Revisions was generally supportive of the new streamlined structure of
the Form 5500 Series. The Agencies, accordingly, decided to adopt the
new reporting structure largely as proposed. In response to public
comments, the Agencies made various adjustments to the proposed forms
and instructions where consistent with the purposes of the Form 5500
and the objectives of the streamlining project. A revised Form 5500 was
submitted to the Office of Management and Budget (OMB) for approval
under the Paperwork Reduction Act and a Notice was published in the
Federal Register on June 24, 1998 (63 FR 34493) which provided a 30-day
opportunity to submit comments to OMB on the new Form 5500 submission.
The new Form 5500 was also made available on PWBA's internet site
(http://www.dol.gov/dol/pwba) as part of the Agencies' commitment to
make information about the new forms available to plans and their
service providers at the earliest opportunity. Following its Paperwork
Reduction Act review, OMB gave conditional Paperwork Reduction Act
approval to the new Form 5500 on August 26, 1998. The approval is
conditioned on the Agencies soliciting public comments on the computer
scannable version of the new form after its development and making
minor technical adjustments to
[[Page 68371]]
the form.1 After the computer scannable versions of the new
forms and electronic filing options are developed as part of the EFAST
project, the Agencies intend to publish a Federal Register notice
soliciting public comments. The final computer scannable version of the
forms which will be required to be used for 1999 plan year filings will
be published in the Federal Register following the Agencies' evaluation
of public comments.
---------------------------------------------------------------------------
\1\ The conditions regarding form changes involved (i)
consolidating the separate reporting of long-term and short-term
corporate debt instruments into one line item for all corporate debt
instruments on the Schedule H (Income and Expense Statement), (ii)
adding a clarifying instructional statement to the text on line 5 of
Schedule R, (iii) bolding instructional text on line 3 of Schedule
T, (iv) adding a statement to the Schedule C instructions that
trades and businesses (whether or not incorporated) are ``persons''
required to be reported as service providers, and (v) clarifying the
instructions for line 3b(2) of Schedule H regarding the
inapplicability of the ``short plan year'' provisions of 29 CFR
2520.104-50 to Direct Filing Entity Form 5500s filed for group
insurance arrangements and investment entities described in 29 CFR
2520.103-12 (103-12 IEs) .
---------------------------------------------------------------------------
The proposed amendments published herein to the Department's annual
reporting regulations (Part 2520 of Chapter XXV of Title 29 of the Code
of Federal Regulations) are intended, in major part, to make the
technical and conforming changes to the regulations necessary to
implement the new Form 5500 Series. As stated in the September 3, 1997
Notice of Proposed Forms Revisions, the new Form 5500 Series will not
become effective as an alternative method of compliance and limited
exemption from the reporting and disclosure requirements of part 1 of
Title I of ERISA until these regulations are issued in final form.
B. Request for Comments
Interested persons are invited to submit written comments
(preferably three copies) concerning the proposals herein to: Office of
Regulations and Interpretations, Room N-5669, Pension and Welfare
Benefits Administration, U.S. Department of Labor, 200 Constitution
Avenue, N.W., Washington, DC 20210, Attention: Proposed Amendments To
Annual Reporting Regulations. All written comments should clearly
reference the relevant proposed amendment(s). All submissions will be
open to public inspection in the Public Disclosure Room, Pension and
Welfare Benefits Administration, Room N-5638, 200 Constitution Avenue,
N.W., Washington, D.C.
The regulatory amendments proposed herein do not involve revisions
to the Form 5500 Series itself and generally do not announce changes to
the annual reporting requirements for employee benefit plans in
addition to those described in the previously published forms
revisions. The Agencies in developing the revisions to the Form 5500
Series previously considered the comments submitted in response to the
September 3, 1997 Notice of Proposed Forms Revisions and the June 24,
1998 Notice. Those comments will be treated as part of the public
record for this Notice of Proposed Rulemaking, and, to the extent those
comments include information relevant to the regulatory amendments
proposed herein, the Department will treat those comments as comments
on this Notice of Proposed Rulemaking to avoid the need to submit
duplicate public comments.
C. Discussion of the Proposal
1. Section 2520.103-1
Section 2520.103-1 generally describes the content of the Form 5500
Series as a limited exemption and alternative method of compliance. One
of the central changes announced in the Notice of Proposed Forms
Revisions for improving the Form 5500 Series and reducing the reporting
burden on filers was the development of one Form 5500 for use by both
``large plan'' filers (plans that previously filed the Form 5500) and
``small plan'' filers (plans that previously were eligible to file the
Form 5500-C/R) that was structured along the lines of tax returns
familiar to individual and corporate taxpayers `` a simple one-page
main form with basic information necessary to identify the plan for
which the report is filed that guides each filer to those schedules
applicable to the filer's specific type of plan. The Form 5500-C/R is
being eliminated, but limited financial reporting options for small
plans are being maintained.2 To accommodate these form
changes, the proposed regulatory amendments would update the references
in Sec. 2520.103-1 to the annual report to reflect the new structure of
the Form 5500.3
---------------------------------------------------------------------------
\2\ For example, plans eligible to file as small plans that take
advantage of the simplified reporting rules would continue to be
exempt from the annual audit requirements contained in ERISA
Sec. 103 and would continue to be relieved of the obligation to file
certain schedules required for large plan filers (e.g., Schedule C
--Service Provider Information).
\3\ The proposal also would delete the cross-reference to
obsolete Sec. 2520.103-7. This provision was removed from the Code
of Federal Regulations on July 1, 1996 (61 FR 33847).
---------------------------------------------------------------------------
2. Section 2520.103-2
Welfare plans participating in a group insurance arrangement (GIA)
are exempt from filing individual annual reports under Sec. 2520.104-43
provided that the trust, trade association, or other entity which holds
the insurance contracts and acts as a conduit for the payment of
insurance premiums files an annual report for the entire arrangement.
Section 2520.103-2 prescribes the contents of the annual report for
GIAs in order for the participating plans to be eligible for the
exemption described in Sec. 2520.104-43. The annual report required to
be filed under Sec. 2520.103-2 must contain a completed Form 5500,
including any required schedules, a report by an independent qualified
public accountant (IQPA), and separate financial statements if prepared
by the IQPA in order to form the opinion required by Sec. 2520.103-
2(b)(5). The Department is proposing amendments to Sec. 2520.103-2 that
are consistent with the changes proposed for Sec. 2520.103-1, as
applicable, and Secs. 2520.104-21 and 2520.104-43 (described in section
C.7 of this preamble). Of particular note for GIAs is the addition of a
new Schedule D (DFE/Participating Plan Information) to the Form 5500.
The Schedule D is intended to serve as a multipurpose schedule for
reporting certain information on relationships between plans and
entities that are classified as ``Direct Filing Entities'' or DFEs,
including investment entities covered under Sec. 2520.103-12, master
trust investment accounts, common or collective trusts (CCTs), pooled
separate accounts (PSAs), and GIAs. In the case of GIAs, the new
Schedule D would be a standardized form that GIAs would be required to
use to satisfy the current requirement to file a list of participating
plans. (See discussions below of CCTs, PSAs, master trusts and 103-12
investment entities for more information on applicable requirements for
plans and entities required to file the new Schedule D).
3. Sections 2520.103-3, 2520.103-4, 2520.103-9, 2520.103-12 and
2520.103-1(e)
(a) Common/Collective Trusts and Pooled Separate Accounts
Section 2520.103-3 provides an exemption from certain annual
reporting requirements for plan assets held in a CCT maintained by a
bank, trust company or similar institution. Section 2520.103-4 provides
a similar exemption for plan assets held in a PSA maintained by an
insurance carrier. Pursuant to Secs. 2520.103-3 and 2520.103-4, a plan
investing in these entities generally need not include information
regarding the individual transactions of the entity in the plan's
annual report. Rather, the plan must
[[Page 68372]]
include in its annual report certain information regarding: (i) the
current value of the plan's units of participation in the CCT or PSA,
(ii) transactions involving the acquisition and disposition of units of
participation in the CCT or PSA, and (iii) a statement of the assets
and liabilities of the CCT or PSA. Further, the Department, pursuant to
Sec. 2520.103-9, exempts plans from including a statement of the assets
and liabilities of the CCT and/or PSA with their annual report if the
bank, trust company or insurance carrier sponsoring the CCT or PSA,
respectively, files its statement of assets and liabilities directly
with the Department and certain other conditions are met. The statement
of assets and liabilities of a CCT and PSA is not required to be
reported in a standardized format. The absence of standardized
reporting for CCTs and PSAs has made it virtually impossible for the
Department to correlate and effectively use the data regarding the
approximately 226.2 billion dollars in plan assets held by CCTs and
PSAs. The Department has concluded that a change in the current
reporting rules is needed to enable it to continue to satisfy its
research and enforcement responsibilities.
Under the proposed forms revisions, as under the current Form 5500
Series, CCTs and PSAs may elect to file information on behalf of their
participating plans. As noted above, the revisions to the Form 5500
Series include a new Schedule D (DFE/Participating Plan Information).
The Schedule D is a standardized schedule for filing certain
information on relationships between plans and CCTs and PSAs (as well
as other entities that are classified as ``Direct Filing Entities'' or
DFEs, including investment entities covered under Sec. 2520.103-12,
master trust investment accounts, and GIAs). In the case of a CCT or
PSA that elects to file as a DFE, the CCT or PSA would be required to
complete: (1) applicable items on the revised Form 5500; (2) one or
more Schedules D (to list all participating plans at any time during
the year and all CCTs, PSAs, or investment entities described in
Sec. 2520.103-12 (103-12 IEs) that the CCT or PSA invested in during
the year; and (3) a Schedule H (Financial Information) (formerly
referred to as the Schedule FIN in the September 3, 1997 Federal
Register Notice of Proposed Forms Revisions).
A large plan investing in one or more CCTs or PSAs which file as a
DFE would report the value of its respective interests in each of these
entities as a single entry on the appropriate lines in the plan's asset
and liability statement as of the beginning and end of the plan year. A
large plan investing in a CCT or PSA which files as a DFE also would
report on the plan's Schedule H income and expense statement the net
investment gain/loss for the DFE as part of a single entry for each
class of DFE. As indicated previously, the new Schedule D (DFE/
Participating Plan Information) would be added to the Form 5500. The
Schedule D would be required to be attached to the plan's Form 5500 to
report information about the plan's participation in CCTs and PSAs.
In the case of small plans with CCT or PSA investments, regardless
of whether the CCT or PSA files directly with the Department, the small
plan would file a Schedule D, but would report total assets and total
income, respectively, on single line items of the small plan Schedule I
financial statements without separate Schedule I financial statement
reporting on CCT or PSA investments.
Thus, the reporting for large plans investing in CCTs and PSAs that
elect to file as DFEs and for small plan filers would not change
significantly from the current reporting requirements. Similarly,
except for the addition of Schedule H (Part II), generally the
information that would be filed by a CCT or PSA that elects to file as
a DFE would be substantially the same as the current reporting
requirements with the major change being that the information would be
required to be filed on the Form 5500 as the standard reporting format
for all filers.
If a CCT or PSA does not file a Form 5500 as a DFE, large employee
benefit plans would be required to break out their percentage interest
in the underlying assets of the CCT or PSA and report that interest as
a dollar value in the appropriate categories on the asset and liability
statement contained in Schedule H (Financial Information). The failure
by a large plan to break out its allocated interest in a CCT or PSA on
the asset and liability statement contained in Schedule H when the CCT
or PSA does not file as a DFE would be considered a failure by the plan
administrator to file a complete Form 5500. The Department does not
envision this as imposing a substantial additional burden on large plan
filers because there is only a small number of other general investment
categories on the Schedule H, such as: interest bearing cash; U.S.
government securities; corporate debt instruments; corporate stock;
partnership/joint venture interests; real estate; loans; registered
investment companies, other assets; and employer securities. Further,
the currently required asset and liability statement of the CCT or PSA
should provide for many filers most of the detail needed to break the
assets and liabilities into these categories. Furthermore, large plan
filers investing in CCTs and PSAs that do not file as DFEs would still
report the net investment gain/loss with respect to their participation
in a CCT or PSA as part of single entries on Part II of the Schedule H
(income and expense statement) and would continue to report their
interest in a CCT or PSA on the Form 5500 financial schedules (other
than Part I of Schedule H) in the same general manner as under current
rules (e.g., current value of the units of participation in CCTs and
PSAs would be reported on the schedule of assets held for investment
and the Schedule D).
The Department believes that changing the reporting requirements
for plans investing in CCTs and PSAs is the only viable alternative for
capturing the information needed to carry out its oversight
responsibilities about plan assets and ensuring that there is adequate
disclosure of plan investment information to plan participants and
beneficiaries. The Department, therefore, is exercising its regulatory
authority under sections 103(b)(4), 104(a)(3), 110 and 505 to modify
the reporting requirements with respect to plans that participate in
CCTs and PSAs. The Department views the proposed changes as important
and necessary in light of the dramatic growth in the value of plan
assets held by CCTs and PSAs. For example, the value of plan assets
invested in CCTs and PSAs increased between 1990 and 1995, the latest
year for which information is available, from $113.9 billion to $226.2
billion. In order to minimize the costs and paperwork burdens on CCTs
and PSAs associated with this proposal, it is anticipated that
processing improvements would be implemented in the near future so this
information could be filed with the Department either via magnetic
media (magnetic tapes, floppy diskettes) or other electronic means.
(b) 103-12 Investment Entities and Master Trusts
Section 2520.103-1(e) provides for special reporting rules for
plans that participate in a master trust. In general, a master trust is
a trust maintained by a bank or similar institution to hold the assets
of several plans that are all sponsored by a single employer or by
several employers which are under common control. Such plans must
report the value of their interest in the
[[Page 68373]]
master trust as a single asset category in the plan's statement of
assets and liabilities. The plan's share of earnings, realized and
unrealized gains and losses of the master trust is reported in the
plan's statement of income, expenses and changes in net assets for the
plan year. A separate annual report for the master trust is required
under current rules. The proposed amendments to Sec. 2520.103-1(e) do
not change the information required to be reported regarding the master
trust, but rather establish the Form 5500 Series as the standard
reporting format for master trusts.
Similarly, section 2520.103-12 provides an exemption and
alternative method of reporting for plans investing in certain
investment entities the assets of which are deemed to include plan
assets under section 2510.3-101. Under the alternative method, the plan
administrator need not include in the plan's annual report any
information regarding the underlying assets and individual transactions
of the 103-12 investment entity. Instead, the administrator is required
to report only the value of the plan's investment or units of
participation in the investment entity. As a condition to using this
alternative, however, certain information must be filed by the 103-12
investment entity directly with the Department. The proposed amendments
to Sec. 2520.103-12(b) do not change the information required to be
reported by the 103-12 investment entity, but rather establish the Form
5500 Series as the standard reporting format.
4. Section 2520.103-5
Section 2520.103-5 implements section 103(a)(2) of the Act. Section
103(a)(2) of the Act requires insurance carriers or other organizations
which provides some or all of the benefits under a plan or holds plan
assets, banks or similar institutions which holds plan assets, and plan
sponsors to transmit and certify to the accuracy and completeness of
such information as is needed by the plan administrator to comply with
the requirements of Title I of the Act. Because the filing requirements
for a plan participating in a CCT or PSA generally will be affected by
whether such CCT or PSA directly files with the Department, section
2520.103-5 is proposed to be modified to conform to the new direct
filing entity (DFE) reporting regime and ensure that administrators
have adequate advance knowledge about their reporting responsibilities.
In the case of a CCT or PSA, the proposed amendments would require
that such CCT or PSA notify its participating plans of whether or not
it intends to file a Form 5500 as a DFE, and to furnish the plan
administrator with the information about the assets held by such CCT or
PSA, respectively, needed by the plan administrator to satisfy its
obligations under Title I of ERISA. These notifications must be made
within the same period of time for transmitting information already
required by existing Sec. 2520.103-5 (i.e., 120 days after the close of
each participating plan's plan year). The proposal does not contain any
detailed rules relating to the manner of the exchange of information
between the plan and the CCT or PSA. The Department has decided to let
the plan administrator develop with the sponsor of the CCT or PSA a
suitable procedure whereby the plan administrator can establish to his
or her satisfaction that the administrator and the Department will
receive all of the required information in a timely fashion. This does
not, of course, relieve the plan administrator of the responsibility to
monitor the conduct of the CCT or PSA sponsor and to obtain whatever
financial information concerning the CCT or PSA that is necessary for
the administrator to satisfy his or her obligations under ERISA.
The proposed forms revisions did not affect the information
required from plan sponsors and the Department is not proposing any
amendment to the plan sponsors' obligations described in Sec. 2520.103-
5.
5. Section 2520.103-6 and Section 2520.103-11
Section 2520.103-6 sets forth the definition of reportable (5%)
transactions for the Form 5500. Section 2520.103-11 provides rules for
preparing the schedule of assets held for investment purposes and the
schedule of assets held for investment purposes that were both acquired
and disposed of within the same plan year (hereinafter collectively
referred to as the schedules of assets held for investment). The new
Form 5500 as proposed would have eliminated for large plan filers the
requirement to file with their annual report a schedule of reportable
(5%) transactions (line 27d of the current Form 5500) and schedules of
assets held for investment (line 27a of the current Form 5500).
Although the Department proposed in September 1997 to remove the
requirement to submit the line 27a and line 27d schedules as part of
the annual report, the proposal attempted to preserve affected
participants' access to the information by providing them with the
right to request and receive reportable transaction information and a
detailed list of investments. In developing the proposed forms
revisions, the Department estimated that fewer than 60,000 plans out of
the over 800,000 pension and welfare benefit plans that file an annual
report would be affected by this aspect of the proposal. Because the
60,000 affected plans are larger plans, the filing of schedules
detailing plan investments often involves substantial amounts of paper.
As proposed, the new Form 5500 would still have required a financial
statement reflecting assets on an aggregate rather than individual
basis, and the affected plans would have still have been subject to an
annual audit by an IQPA. Finally, there did not seem to be a
substantial need for the schedules to be on file at the Department's
public disclosure room because the Department receives only a small
number of requests per year for copies, and the Department could make a
request for copies from the plan administrator on behalf of any plan
participants or beneficiaries.
The Department, however, received public comments on the proposal
that raised serious concerns about adverse consequences of eliminating
these schedules from the annual report. In light of those comments and
testimony received at the November 17, 1997 hearing on the proposed
forms revisions, the Department has decided not to adopt this change.
The Department nonetheless believes that it is possible to make a
number of modifications to these schedules to eliminate certain burdens
associated with the production of information that is already available
to participants and beneficiaries. Accordingly, the proposal amends the
reportable transactions rules to no longer require that transactions
effected at the affirmative direction of participants or beneficiaries
under an individual account plan be taken into account when completing
the schedule of reportable transactions. Because of the administrative
burdens and recordkeeping complexity associated with compiling
aggregate cost of assets for which investment decisions are directed by
participants and beneficiaries, the proposal also eliminates for such
participant directed assets the requirement to prepare the ``historical
cost'' entry on the schedules of assets held for investment. The
proposal would not relieve the administrator from including in the
schedules of assets held for investment descriptions and current values
for assets held at a participant's or beneficiary's direction. Finally,
the IQPA's opinion must cover the schedule
[[Page 68374]]
of reportable transactions and schedules of assets held for investment.
The proposed regulation would also provide that, solely for
purposes of this reporting relief, a transaction will be considered
``directed'' by a participant or beneficiary to the extent that the
individual, in fact, affirmatively authorized the investment of the
asset allocated to his or her account. This reporting relief is broader
than the fiduciary liability relief prescribed by Sec. 2550.404c-1 that
applies to a narrower class of transactions in which participants and
beneficiaries exercise control over the assets involved in the
transaction.
Because the proposal retains the schedule of reportable
transactions and schedules of assets held for investment as part of the
annual report primarily to meet participant disclosure concerns, not to
satisfy research and enforcement needs, the Department is not requiring
use of a standardized computer scannable form for the schedule of
reportable transactions or schedules of assets held for investment
(unlike the Schedule G which will be mandatory for the other financial
transaction schedules). Rather, administrators would be allowed to use
any format for preparing the schedule of reportable transactions and
schedules of assets held for investment as long as the content
requirements of Secs. 2520.103-6 and 2520.103-11 are met and the same
size paper as the Form 5500 is used (electronic filing requirements for
these schedules will be developed as part of the, previously described,
EFAST project).
The Department is also proposing to amend section 2520.103-6 to
include a special rule for the reportable transaction schedule for
initial plan years. Section 2520.103-6(b)(1)(i) currently requires that
the 5% thresholds for reportable transactions be calculated using
current value of assets as of the beginning of the initial plan year.
Concerns have been expressed by filers that in most cases the current
rule results in virtually all investment transactions during the
initial plan year being reportable transactions under section 2520.103-
6. The Department does not believe that this result was intended under
ERISA inasmuch as the purpose of the reportable transaction rules was
to identify transactions relating to a significant portion of the
plan's assets because these transactions may pose the greatest
financial risk to a plan. Accordingly, the Department is proposing that
the current value of plan assets for purposes of preparing the schedule
of reportable transactions for the initial plan year would be the
current value of plan assets at the end of the initial plan year.
6. Section 2520.103-10
Section 2520.103-10 identifies the financial schedules that are
required to be included with the filing of the Form 5500. The
Department is proposing to amend Sec. 2520.103-10 to conform it to the
new Form 5500 and other regulatory amendments described elsewhere in
this preamble. Accordingly, as proposed, Sec. 2520.103-10 would be
amended to update references to the annual report financial schedules
to conform the references to the schedules associated with the new Form
5500.
Further, under the proposal, the use of the revised Schedule G will
be mandatory for the schedule of party in interest transactions,
schedule of obligations in default, and schedule of leases in default.
These schedules are now required by lines 27b, 27c, 27e and 27f of the
current Form 5500 and may be filed using a similar format and using the
same size paper as the current Schedule G. Because the Department will
be developing and implementing a new system to simplify and expedite
the receipt and processing of the Form 5500 Series by using optical
scanning technology and optical character recognition, it would not be
possible for the Department to process Schedule G information and
include such information in our data base unless the use of Schedule G
is mandatory. The proposed Schedule G would have to be attached to the
Form 5500 of a large plan, master trust investment account or 103-12 IE
to report loans or fixed income obligations in default or determined to
be uncollectible as of the close of the reporting year (Part I of
Schedule G), leases in default or classified as uncollectible during
the plan year (Part II of the Schedule G) and nonexempt transactions
(Part III of the Schedule G).
The proposed changes to the schedule of reportable transactions and
the schedules of assets held for investment (which are not included on
the new Schedule G) are discussed in paragraph C.5 of this preamble.
7. Section 2520.104-21 and Section 2520.104-43
Section 2520.104-21 provides an exemption from certain Title I
reporting and disclosure requirements for welfare plans that are part
of a group insurance arrangement (GIA) as defined in paragraph (b) of
that regulation.4 The exemption is available for welfare
plans which have fewer than 100 participants and which are part of a
GIA, if the arrangement, among other things, uses a trust (or other
entity such as a trade association) as the holder of the insurance
contracts and the conduit for payment of premiums to an insurance
company. See Sec. 2520.104-21(b)(3). Section 2520.104-43 provides plans
(regardless of whether such plans have 100 or more participants) with
relief from filing the annual report in cases where the GIA described
in Sec. 2520.104-21 files a Form 5500 report on behalf of all the
participating plans. The Department is proposing to amend
Secs. 2520.104-21 and 2520.104-43 to provide that the exemptions would
only be available in those cases in which the GIA utilizes a trust as
the conduit for the payment of the premiums. The proposal also would
modify the examples in paragraph (d) of Sec. 2520.104-21 to reflect
these changes. The Department believes that interpreting the reporting
exemption as providing GIAs with an exemption from the substantive
requirement to hold plan assets in trust is not in the interest of
participants and beneficiaries, and needs correction. Indeed, adoption
of the proposed amendment would conform the reporting regulations for
GIAs with ERISA Sec. 403 and Sec. 2550.403a-1, which do not provide a
trust exception for GIAs. The Department does not envision that the
proposed amendment will create administrative burdens for GIAs or
result in increased costs for participating plans because the plan
assets collected and held by the intermediary entity must be separately
accounted for under current law. 5 The Department is also
proposing that this
[[Page 68375]]
change, if adopted, would be effective for plan years beginning after
Dec. 31, 1998, to coincide with the 1999 plan year implementation of
the new Form 5500.
---------------------------------------------------------------------------
\4\ For example, section 2520.104-21 provides relief to certain
welfare plans from the requirement to file a copy of the summary
plan description and descriptions of material modifications in the
terms of a plan or changes in the information required to be
included in the summary plan description. Section 1503 of The
Taxpayer Relief Act of 1997 (TRA 97), Pub. L. 105-34 (enacted August
5, 1997), amended ERISA by repealing the requirement to file the
aforementioned documents with the Department. A separate notice of
proposed rulemaking will be published by the Department to conform
these regulations to TRA 97.
\5\ The proposed amendment, if adopted, also would be consistent
with the enforcement policy in ERISA Technical Release 92-01 (TR 92-
01) (57 FR 23272 and 58 FR 45359). TR 92-01 announced interim relief
from the trust and certain reporting requirements of ERISA for
certain contributory welfare plans. TR 92-01, however, does not
apply to Sec. 2520.104-21 GIAs or to participant contributions after
they have been segregated from an employer's general assets and
transmitted to an intermediary account. Thus, if the proposed
amendment is adopted as a final rule, participating cafeteria plans
may continue to rely on the enforcement policy contained in TR 92-01
until participant contributions are transmitted to the GIA, but the
GIA would be required to hold plan assets in trust.
---------------------------------------------------------------------------
8. Sections 2520.104-41 and 2520.104-46
Section 2520.104-41 provides a simplified method of annual
reporting for plans with fewer than 100 participants and Sec. 2520.104-
46 waives the IQPA requirement for such small plans. In general, small
plans eligible to file simplified reports are required to file the Form
5500-C every third plan year and the Form 5500-R (an abbreviated
version of the Form 5500-C) for the two intervening plan years. As
indicated previously, the Agencies have proposed to replace the Form
5500 and the Form 5500-C/R with an improved single Form 5500 for use by
both large and small plan filers, with simplified reporting options for
small plans incorporated into the new restructured forms. This proposal
would amend Secs. 2520.104-41 and 2520.104-46 to conform the terms in
the regulations to the new Form 5500 Series.
9. Section 2520.104-44
Section 2520.104-44 contains a limited exemption and alternative
method of compliance for annual reporting by certain unfunded and
insured plans. The Department has received inquiries from the public
about the reporting requirements for pension plans exclusively using a
tax deferred annuity arrangement under Internal Revenue Code section
403(b)(1) and/or a custodial account for regulated investment company
stock under Internal Revenue Code section 403(b)(7). The current Form
5500 Series instructions provide for limited reporting for these types
of pension plans. The Department has previously expressed its view that
such plans are not subject to the IQPA audit requirements as part of
their annual reporting obligations under Title I of ERISA. See the
Department's Information Letter issued to Gary H. Friedman (dated
November 15, 1996). The Department, therefore, is proposing to make
conforming technical amendments to Sec. 2520.104-44 to clarify the
annual reporting obligations of such plans.
10. Section 2520.104b-10
Section 2520.104b-10 sets forth the requirements for the summary
annual report (SAR) and prescribes the formats for such reports. The
proposed amendments to section 2520.104b-10 would make the SAR
requirements conform to the new Form 5500 Series (e.g., by referring to
the modified list of the attached statements and schedules to the Form
5500). The proposed amendments also would address the elimination of
the Form 5500-R. Under current SAR rules, administrators of small plans
are not required to prepare and furnish a SAR for those plan years in
which a Form 5500-R is filed if one of the two following methods of
compliance is met. Under the first method of compliance, plans must
furnish participants (and beneficiaries receiving benefits under a
pension plan) with a copy of the filed Form 5500-R as a substitute for
furnishing the SAR. Under the second method, plans are required to
notify participants and such beneficiaries in writing of their right
upon written request to receive free-of-charge a copy of the Form 5500-
R filed by the plan. Under the second method of compliance,
Sec. 2520.104b-10(b)(2)(ii) permits active participants to be notified
by posting the notice at worksite locations in a manner reasonably
calculated to ensure disclosure of the information. The Form 5500-R
furnished under either method of compliance must be accompanied by a
prescribed notice. Because the Form 5500-R is proposed to be
eliminated, small plans will be required to furnish a SAR every year
rather than every third year. Although the reporting statistics
indicate that approximately 50 percent of small filers file the Form
5500-C every year and, therefore, would not be eligible for the
alternative method of compliance, the Department seeks comments as to
the burdens associated of complying with proposed Sec. 2520.104b-10, if
any, for small plan filers who would no longer be able to file a Form
5500-R. The proposed amendments to Secs. 2520.104b-10(d)(3) and
2520.104b-10(d)(4) also restate the information available to
participants and beneficiaries under the heading ``Your Rights to
Additional Information'' so that it is consistent with the new Form
5500 Series. These proposed changes are expected to improve the process
by which information is disclosed to participants and beneficiaries of
small plans which currently file the Form 5500-R.
The existing regulations contain a cross-reference guide as an
appendix. The purpose of this guide is to correspond the line items of
the SAR to the line items on the Form 5500 and Form 5500-C. The
Department intends to publish as part of the final regulation a revised
appendix to conform it to the final version of the new Form 5500 and
associated schedules.
D. Findings Regarding the New Form 5500 as a Limited Exemption and
Alternative Method of Compliance
Section 104(a)(2)(A) of the Act authorizes the Secretary to
prescribe by regulation simplified reporting for pension plans that
cover fewer than 100 participants. Section 104(a)(3) authorizes the
Secretary to exempt any welfare plan from all or part of the reporting
and disclosure requirements of Title I of ERISA or to provide
simplified reporting and disclosure, if the Secretary finds that such
requirements are inappropriate as applied to such plans. Section 110
permits the Secretary to prescribe for pension plans alternative
methods of complying with any of the reporting and disclosure
requirements if the Secretary finds that: (1) the use of the
alternative method is consistent with the purposes of ERISA and it
provides adequate disclosure to plan participants and beneficiaries and
to the Secretary; (2) application of the statutory reporting and
disclosure requirements would increase costs to the plan or impose
unreasonable administrative burdens with respect to the operation of
the plan; and (3) the application of the statutory reporting and
disclosure requirements would be adverse to the interests of plan
participants in the aggregate.
For purposes of Title I of ERISA, the filing of a completed Form
5500 (including any required statements, schedules, and IQPA report)
generally constitutes compliance with the limited exemption and
alternative method of compliance in 29 CFR 2520.103-1(b). As indicated
in the preamble to the notice of proposed forms revisions, the
Department stated that the findings required under ERISA sections
104(a)(3) and 110 relating to the use of the Form 5500, as revised, as
an alternative method of compliance and limited exemption from the
reporting and disclosure requirements of part 1 of Title I of ERISA
would be separately addressed as part of the rulemaking that would
amend the reporting regulations necessary to implement the new Form
5500 Series.
1. General Findings
As reflected in the revisions to the Form 5500 Series and the
amendments proposed herein, a number of changes are being proposed
which affect the information required to be reported and disclosed on
the Form 5500 Series. The Department, in the proposed amendments, has
attempted to balance the needs of participants, beneficiaries and the
Department to obtain
[[Page 68376]]
information necessary to protect ERISA rights and interests with the
needs of administrators to minimize costs attendant with the reporting
of information to the federal government. In view of these changes, the
Department proposes to make the following findings under sections
104(a)(3) and 110 of the Act with regard to the utilization of the
revised Form 5500 (and revised statements and schedules required to be
attached to the Form 5500) as an alternative method of compliance and
limited exemption pursuant to 29 CFR 2520.103-1(b).
The use of the revised Form 5500 as an alternative method of
compliance is consistent with the purposes of Title I of ERISA and
provides adequate disclosure to participants and beneficiaries and
adequate reporting to the Secretary. While the information required to
be reported on or in connection with the revised Form 5500 deviates, in
some respects, from that delineated in section 103 of the Act, the
information essential to ensuring adequate disclosure and reporting
under Title I of ERISA is required to be included on or as part of the
Form 5500, as revised.
The use of Form 5500 as an alternative method of compliance
relieves plans subject to the annual reporting requirements from
increased costs and unreasonable administrative burdens by providing a
standardized format which facilitates reporting, eliminates duplicative
reporting requirements, and simplifies the content of the annual report
in general. The Form 5500, as revised, is intended to further reduce
the administrative burdens and costs attributable to compliance with
the annual reporting requirements.
Taking into account the above, the Department has determined that
application of the statutory annual reporting and disclosure
requirements without the availability of the Form 5500 would be adverse
to the interests of participants in the aggregate. The revised Form
5500 provides for the reporting and disclosure of basic financial and
other plan information described in section 103 in a uniform,
efficient, and understandable manner, thereby facilitating the
disclosure of such information to plan participants.
Finally, the Department has determined under section 104(a)(3) that
a strict application of the statutory reporting requirements, without
taking into account the proposed revisions to the Form 5500, would be
inappropriate in the context of welfare plans for the reasons discussed
in this preamble and the preamble to the notice announcing the proposed
forms revisions.
2. Special Findings
(a) Schedule A (Insurance Information)
Schedule A must be attached to the annual report if any pension or
welfare benefits under any ERISA covered plan are provided by, or if
the plan holds any investment contracts with, an insurance company or
other similar organization. Although most of the Schedule A data has
been retained substantially unchanged, certain changes were made to the
Schedule A to more closely conform the Schedule A to recent accounting
industry changes on ``current value'' financial reporting of
investment-type contracts with insurance companies,6 and to
collect: (i) better identifying information on the type of insurance
contracts and type of insured benefits being reported and (ii) the
insurer's employer identification number and National Association of
Insurance Commissioners' (NAIC) code. In general, under the current
Form 5500 Series, the financial reporting required for insurance
products is not identical to the reporting for other financial
products.7 In the interest of the efficient administration
of ERISA, the Department has attempted to align the reporting and
disclosure requirements, where possible and to the extent consistent
with the best interests of plan participants, with generally accepted
accounting principles (GAAP). The Schedule A changes proposed by the
Department are intended to be consistent with the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards No.
110 (FAS 110) and No. 126 (FAS 126) and American Institute of Certified
Public Accountants Statement of Position 94-4 (SOP 94-4), which
generally require the disclosure of the fair value of investment
contracts with insurance companies (except for certain investment
contracts held by defined benefit pension plans and ``fully benefit
responsive'' contracts held by defined contribution pension and welfare
plans with assets of $100 million or less). Because it is the
Department's view that the Schedule A reporting requirements are
equally important for small as well as large plans, the proposal would
not provide different Schedule A reporting standards depending on the
size of the plan. The Department also believes that the additional
information being required to identify the type of insurance product
purchased and NAIC code and EIN of the insurance company (or similar
organization) from which the product was sold are helpful to the
Department being able to accomplish its oversight responsibilities, and
will not be burdensome to plans inasmuch as this information should be
readily available.
---------------------------------------------------------------------------
\6\ ERISA Sec. 3(26) defines ``current value'' as fair market
value where available and otherwise fair value as determined in good
faith by a trustee or named fiduciary pursuant to the terms of the
plan and in accordance with the regulations of the Secretary,
assuming an orderly liquidation at the time of such determination.
\7\ See, for example, the instructions for line 31c(16) of the
1997 Form 5500.
---------------------------------------------------------------------------
(b) Schedule C (Service Provider Information)
Schedule C must be attached to the Form 5500 filed by large plan
filers if any person who rendered services to the plan received
directly or indirectly $5,000 or more in compensation from the plan
during the plan year. The major changes to the Schedule C involve
eliminating the requirement to annually identify plan trustees,
limiting the current requirement to explain service provider
terminations to terminations of accountants and enrolled actuaries, and
limiting the number of plan service providers required to be reported
to the forty top paid service providers at or above the $5,000
threshold. The Department notes that trustee and plan administrator
information already must be disclosed in the summary plan description
(SPD), and changes in trustees and plan administrators must be
disclosed in a summary of material modification (SMM). SPDs and SMMs
must be furnished automatically, whereas the Form 5500 is required to
be disclosed only on request. Further, to the extent a service provider
receives $5,000 or more in compensation from the plan, comparing the
list of service providers on Schedule Cs from year to year will allow a
participant or beneficiary to determine whether a particular service
provider (such as an investment manager, trustee, or custodian) was
terminated. Similarly, comparing annual Schedule A filings will provide
information on changes in insurers. With respect to limiting of
Schedule C list of service providers to the forty top paid providers
receiving $5,000 or more in compensation, only approximately 100
employee benefit plans filing the 1994 Form 5500 listed more than 40
service providers on their Schedule Cs. Those 100 filings constituted
less than one percent of the Form 5500 filings received. These Schedule
C changes will not, in the Department's view, result in inadequate
disclosure to participants and beneficiaries in large plans. Because
Schedule C is not required to be filed by small plans, the Schedule C
changes
[[Page 68377]]
described herein would not affect the annual reports of those plans.
(c) Schedule D (Direct Filing Entity/Participating Plan Schedule)
As indicated previously, the new DFE reporting rules were developed
in an effort to improve the reporting requirements for plans
participating in CCTs, PSAs, master trusts, 103-12 IEs and GIAs. With
the exception for small plans of the Schedule D requirement to report
year-end dollar value of interests in CCTs, PSAs, master trusts and
103-12 IEs, substantially all of the information that would be required
to be reported by employee benefit plans under the new DFE reporting
regime is currently required to be reported. Compare the new Form 5500
Series with the 1997 Form 5500 and Form 5500-C/R instructions for line
6e and page 4 instructions for additional information that must be
reported for plans participating in CCTs, PSAs, master trusts, 103-12
IEs, and group insurance arrangements. Similarly, substantially all of
the information that would be required to be reported by DFEs is
currently required to be filed by CCTs, PSAs, MTIAs, 103-12IEs and
GIAs. Compare the new Form 5500 Series with the 1997 Form 5500 and Form
5500-C/R page 6 instructions on filing requirements for CCTs, PSAs,
master trusts and 103-12 IEs, and the Form 5500 line 1 instructions for
GIAs.8 Thus, the Department believes that the major change
in reporting with respect to DFEs is that information must be reported
in a standardized format using the Form 5500 and associated schedules.
The Department does not believe the proposed new DFE rules should
result in material cost increases or administrative burdens for plans.
Further, direct reporting by CCTs, PSAs, 103-12 IEs and GIAs continues
to be optional. To the extent there are cost or burden increases being
passed through to the plan by the entity, plans can evaluate those
annual reporting implications when deciding whether to participate in a
CCT, PSA, 103-12 IE or GIA. The information that is available to be
disclosed to participants and beneficiaries under the current annual
reporting regime would not be reduced under the proposed forms
revision. Finally, as indicated previously, continuation of the current
rules would result in inadequate reporting to the Department, would
mean that the Department would continue to be unable to correlate and
effectively use the data regarding the more than $1 trillion in plan
assets invested by plans in DFEs, and, therefore, would be adverse to
the interests of participants and beneficiaries in the aggregate.
---------------------------------------------------------------------------
\8\ In the case of GIAs, the current rules require use of a Form
5500. For master trusts and 103-12 IEs, the Form 5500 instructions
already require the filer either use the Form 5500 and schedules or
report information in the same format using the same categories as
those specified in the Form 5500. In the case of CCTs and PSAs, the
Department does not believe imposing similar formatting requirements
should involve any significant additional burden. The Department
also believes that there will be minimal additional burden in
requiring CCTs and PSAs that elect to file as a DFE to report income
and expenses on Schedule H (Part II).
---------------------------------------------------------------------------
(d) Schedule of Reportable Transactions and Schedules of Assets Held
For Investment
With regard to exclusion of certain participant directed
transactions under an individual account plan from the schedule of
reportable transactions, and the deletion of the requirement to include
historical cost information in the schedules of assets held for
investment on those transactions, the Department believes, on the basis
of its enforcement experience, that the revised schedules will still
result in adequate reporting to the Department and will not hamper its
ability to identify fiduciary violations. The underlying purpose for
the schedule of reportable transactions is to identify significant
transactions that may reveal fiduciary misconduct. In general,
individualized information on participant directed transactions is not
especially relevant to that purpose. Similarly, historical cost on the
schedules of assets held for investment is intended to provide
individualized information on the investment gain/loss performance of
the specific assets or classes of assets. The plan's aggregate gain or
loss on a class of assets does not provide meaningful information on
the gain or loss to a particular participant's account resulting from
individually directed transactions. For those reasons, the Department
does not believe having this information on the annual report is useful
in targeting its enforcement cases, but including this participant
directed transaction information in these schedules will result in
additional costs and administrative burdens to plans. In light of the
purposes underlying the reportable transaction schedule and the
historical cost requirement, the Department believes that these
schedules will still provide adequate disclosure to plan participants
and beneficiaries.
Other Supplementary Information
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are
likely to have a significant economic impact on a substantial number of
small entities. If an agency determines that a proposed rule is likely
to have a significant economic impact on a substantial number of small
entities, section 603 of the RFA requires that the agency present an
initial regulatory flexibility analysis at the time of the publication
of the notice of proposed rulemaking describing the impact of the rule
on small entities, and seeking public comment on such impact. Small
entities include small businesses, organizations, and governmental
jurisdictions.
For purposes of analysis under the RFA, PWBA proposes to continue
to consider a small entity to be an employee benefit plan with fewer
than 100 participants. The basis of this definition is found in section
104(a)(2) of the Employee Retirement Income Security Act of 1974
(ERISA), which permits the Secretary of Labor to prescribe simplified
annual reports for pension plans which cover less than 100
participants. Under section 104(a)(3), the Secretary may also provide
for simplified annual reporting and disclosure if the statutory
requirements of part 1 of Title I of ERISA would otherwise be
inappropriate for welfare benefit plans. Pursuant to the authority of
ERISA section 104(a)(3), the Department has previously issued at
Secs. 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46 and 2520.104b-
10 certain simplified reporting provisions and limited exemptions from
reporting and disclosure requirements for small plans, including
unfunded or insured welfare plans covering fewer than 100 participants
and which satisfy certain other requirements.
Further, while some large employers may have small plans, in
general, most small plans are maintained by small employers. Thus, PWBA
believes that assessing the impact of this proposed rule on small plans
is an appropriate substitute for evaluating the effect on small
entities. The definition of small entity considered appropriate for
this purpose differs, however, from a definition of small business
which is based on size standards promulgated by the Small Business
Administration (SBA) (13 CFR 121.201) pursuant to the Small Business
Act (15 U.S.C. 631 et seq.). PWBA, therefore, requests comments on the
appropriateness of the size standard used in evaluating the
[[Page 68378]]
impact of this proposed rule on small entities. PWBA has consulted with
the SBA Office of Advocacy concerning use of this participant count
standard for RFA purposes. See 13 CFR Sec. 121.902(b)(4).
On this basis, however, PWBA has preliminarily determined that this
rule will not have a significant economic impact on a substantial
number of small entities. In support of this determination, and in an
effort to provide a sound basis for this conclusion, although not
required, PWBA considers the elements of an initial regulatory
flexibility analysis to be as follows:
(1) The Department is promulgating this proposed rule to amend the
regulations relating to the annual reporting and disclosure
requirements of section 103 of ERISA to conform existing regulations to
revisions to the annual return/report forms (Form 5500 Series).
(2) Section 103 of ERISA requires every employee benefit plan
covered under part 1 of Title I of ERISA to publish and file an annual
report concerning, among other things, the financial conditions and
operations of the plan. Section 109 of ERISA authorizes the Secretary
to prescribe forms for the reporting of information that is required to
be submitted as part of the annual report.
The Secretary may also prescribe alternative methods of complying
with reporting and disclosure requirements if the Secretary finds that:
the use of the alternative method is consistent with the purposes of
ERISA and provides adequate disclosure to participants and
beneficiaries and the Secretary, application of the statutory reporting
and disclosure requirements would increase costs to the plan or impose
unreasonable administrative burdens with respect to the operation of
the plan, and the application of the statutory reporting and disclosure
requirements would be adverse to the interests of plan participants in
the aggregate.
The Department proposes to find that use of the Form 5500 as
revised constitutes an alternative method of compliance which is
consistent with these conditions. Generally, the Department believes
that use of the revised Form 5500 would relieve plans of all sizes from
increased costs and unreasonable burdens by providing a standard format
which facilitates reporting required by the statute, eliminates
duplicative reporting requirements, and streamlines the content of the
annual report.
(3) The Department, in conjunction with the IRS and PBGC, proposed
a number of changes to the existing Form 5500 Series in an effort to
reduce paperwork burdens and costs and enhance the utility of the
annual report forms generally. The regulatory amendments proposed
herein are designed to ease the burden of plans, both large and small,
in complying with the reporting and disclosure requirements of ERISA.
The regulatory amendments proposed do not directly affect the number of
small plans required to comply with the annual reporting requirements
or change existing small plan limited exemptions from reporting
requirements. Thus, for example, under the proposal small plans would
continue to be exempt from reporting service provider information and
supplying the report of an independent qualified public accountant. In
addition, the conforming rules as proposed generally preserve the more
limited reporting for small plans which is presently in effect.
(4) Based on information available from 1993 Form 5500 filings, the
Department estimates that there are approximately 6.7 million small
pension and welfare benefit plans that are covered under Title I of
ERISA. About 6 million of these plans with fewer than 100 participants
are insured or unfunded welfare benefit plans, which are currently
exempt from Form 5500 filing requirements and will continue to be
exempt under the proposed revisions to the Form 5500 Series. The
proposed rules therefore, will have no impact on these small plans.
Thus, approximately 700,000 small plans, or about 9% of all small
plans, are required to file the existing Form 5500 Series, and will be
impacted by the proposed rules conforming existing regulations to the
revised Form 5500 Series.
(5) The revisions to the Form 5500 Series are estimated to impose
no additional filing burden on small plans than that of the current
forms over the existing three-year filing cycle. In fact, a comparison
of the burden associated with the existing reporting requirements with
the revisions to the Form 5500 Series indicates an overall reduction in
the burden for small plans based on the number of data elements
required to be reported for each.
Under current filing requirements, small plans must file a Form
5500-C at least once every three years and file the less detailed Form
5500-R in the two intervening years. While the ratio of Form 5500-R to
Form 5500-C filings varies from year-to-year, on average about 55% of
all annual small plan filings are on the Form 5500-R and 45% are on the
Form 5500-C because many small plans annually file the Form 5500-C.
The burden associated with completion of the Form 5500 Series can
be divided into two steps: reading the instructions and completing the
individual line items. The revised Form 5500 Series requires small
plans to provide more line item information than the Form 5500-R, but
less information than the Form 5500-C. The burden associated with
completion of all required items on the revised form is estimated to be
5% greater than the Form 5500-R and 32% less than the Form 5500-C.
Based on a ratio of the Form 5500-R to Form 5500-C filings of 55% to
45%, the proposed revisions to the Form 5500 Series are estimated to
result in an average reduction of 15% in the burden associated with
completion of the revised form items.
The more efficient format of the revisions to the Form 5500 Series,
with most of the information broken out into separate schedules, should
also reduce the time required to read the instructions because filers
will be able to skip over the instructions for schedules that do not
apply to them. It is, however, expected that all filers will require
additional time in the initial year of filing to thoroughly read the
instructions and to familiarize themselves with the revised Form 5500
Series. It is, therefore, assumed in the initial year of filing the
revised Form 5500 Series that additional time required for instruction
reading will result in an overall burden (including the reduction for
line items) that on average will be 26% greater than the annual burden
for completion of the Form 5500-C/R. It is assumed that most filers
will not require this additional time in subsequent years, and that the
average reduction will be the 15% based on the reduction in the number
of line items.
When the higher burden associated with instruction reading is pro-
rated over a three-year period (corresponding with the existing three-
year cycle of Form 5500-C and Form 5500-R filings) the annual burden
imposed by the proposed revisions to the Form 5500 Series for the
typical filer is estimated to be 2% less than that of the Form 5500-C/
R. When the initial year burden is pro-rated over a 10-year period, the
proposed revision to the Form 5500 Series is estimated to result in an
11% reduction in the annual burden for small plans.
Entry of the information required by the Form 5500-C/R is made from
financial and other records maintained
[[Page 68379]]
by plans. Sound accounting and general business practices would
generally dictate that all or most of these records be maintained even
in the absence of a reporting requirement. To the extent that specific
records are kept only for reporting purposes it is assumed that small
plans currently maintain on an annual basis all records necessary to
complete the Form 5500-C because of the existing requirement that a
Form 5500-C (which requires both beginning and ending year financial
data) must be filed at least once every three years. The reduced
reporting requirements of the proposed revisions to the Form 5500
Series compared to the current Form 5500-C, therefore, should not
increase and may potentially reduce the overall recordkeeping burden
for small plans.
Completion of the Form 5500-C/R requires a mixture of professional
and clerical skills. It is assumed that this mixture will not change as
a result of the revisions to the Form 5500 Series. The cost savings,
therefore, should correspond to the savings in burden hours. For
sponsors using third-party administrators (TPAs) to complete all or
part of the Form 5500 Series, additional costs attributable to
instruction reading and understanding the revisions of the Form 5500
Series are expected to be negligible. However, any savings in this area
for plan sponsors are expected to be offset by additional costs charged
by TPAs to modify automated system software to accommodate the proposed
revisions to the Form 5500 Series. The elimination of the Form 5500-R
may increase burdens for these small filers because under the proposal
they will be required to furnish SARs on an annual basis and without
the accommodations found in the existing regulations at Sec. 2520.104b-
10(b). The Department solicits comments from interested parties on this
aspect of the proposal.
(6) No Federal rules have been identified that duplicate, overlap
or conflict with the proposed rule.
(7) No significant alternatives to the proposed rule which would
minimize the impact on small entities have been identified, although
the review and proposed revision of the Form 5500 Series were
undertaken to reduce paperwork burden for all filers while maintaining
the more limited reporting for small plans. The Department believes it
has minimized the economic impact of the forms revision and conforming
rules on small plans to the extent possible while recognizing plan
participants' and the Department's need for information to protect
participant rights under Title I of ERISA, and needs of other
interested parties for timely statistical information on employee
benefit plans.
The Department invites interested persons to submit comments
regarding its preliminary determination that the proposal will not have
a significant economic impact on a substantial number of small
entities. The Department also requests comments from small entities
regarding what, if any, special problems they might encounter if the
proposal were to be adopted, and what changes, if any, could be made to
minimize those problems. To avoid duplication of comments, comments
submitted in response to the September 3, 1997 Notice of Proposed
Revision of Annual Information Return/Report (62 FR 46556) and the June
24, 1998 request for comments will be treated as comments on this
Notice of Proposed Rulemaking.
Executive Order 12866 Statement
Under Executive Order 12866, the Department must determine whether
the regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Under section 3(f), the order defines a
``significant regulatory action'' as an action that is likely to result
in a rule (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 creates a novel method of
statutory compliance consistent with the President's priorities that
will reduce paperwork and regulatory compliance burdens on businesses,
including small businesses and organizations, and make better use of
scarce federal resources, in accord with the mandates of the Paperwork
Reduction Act and the President's priorities. Therefore, this notice is
``significant'' and subject to OMB review under Executive Order
12866(3)(f)(4).
Under Part 1 of Title I ERISA, administrators of pension and
welfare benefit plans (collectively referred to as employee benefit
plans) are required to file annual returns/reports concerning their
financial condition and operations. ERISA section 104(a)(2)(A)
authorizes the Secretary of Labor to prescribe by regulation simplified
reporting for pension plans that cover fewer than 100 participants.
Section 104(a)(3) authorizes that Secretary to exempt any welfare plan
from all or part of the reporting and disclosure requirements of Title
I or to provide simplified reporting and disclosure if the Secretary
finds that such requirements are inappropriate as applied to such
plans. Section 110 permits the Secretary to prescribe for pension plans
alternative methods of complying with any of the reporting and
disclosure requirements if the Secretary finds that: (1) the use of the
alternative method is consistent with the purposes of ERISA and
provides adequate disclosure to plan participants and beneficiaries and
to the Secretary; (2) application of the statutory reporting and
disclosure requirements would increase costs to the plan or impose
unreasonable administrative burdens with respect to the operation of
the plan; and (3) the application of the statutory reporting and
disclosure requirements would be adverse to the interests of plan
participants in the aggregate.
For purposes of Title I of ERISA, the filing of a completed Form
5500 (including any required statements, schedules, and report of an
independent qualified public accountant) generally constitutes
compliance with the limited exemption and alternative method of
compliance set forth by regulation in Sec. 2520.103-1(b). As stated in
this preamble, the Department is proposing to make the determination
that application of the statutory annual reporting and disclosure
requirements without the availability of the Form 5500 as revised would
be adverse to the interests of participants in the aggregate. The use
of the new Form 5500 as an alternative method of compliance would
relieve plans subject to the annual reporting requirements from
increased costs and unreasonable administrative burdens by providing a
standardized format which facilitates reporting, eliminates duplicative
reporting requirements, and simplifies the content of the annual report
in general.
The Form 5500 Series serves as the primary source of information
concerning the operation, funding, assets and investments of pension
and other employee benefit plans. The Form 5500 is not only an
important disclosure
[[Page 68380]]
document for participants and beneficiaries, but also a compliance and
research tool for the Department and 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 Pension and Welfare Benefits Administration, the Internal
Revenue Service, and the Pension Benefit Guaranty Corporation have
conducted an extensive review of the Form 5500 Series in an effort to
streamline the information required to be reported and the methods by
which the information is filed and processed. A proposed revision of
the Form 5500 Series was published in the Federal Register on September
3, 1997 (62 FR 46556). The proposal was designed to lower the
administrative burdens and costs incurred by the more than 900,000
employee benefit plans that annually file the Form 5500 Series. A
public hearing on the proposed revision was held on November 17, 1997,
and written comments on the proposal were received until the public
record was closed on December 3, 1997. On February 4, 1998, the
Department announced that, in response to public comments, the
implementation of the new Form 5500 would be delayed until the 1999
plan year. A revised Form 5500 was submitted to the Office of
Management and Budget (OMB) for approval under the Paperwork Reduction
Act and a Notice was published in the Federal Register on June 24, 1998
(63 FR 34493) which provided a 30-day opportunity to submit comments to
OMB on the new Form 5500 submission. The new Form 5500 was also made
available on PWBA's internet site (http://www.dol.gov/dol/pwba) as part
of the Agencies' commitment to make information about the new forms
available to plans and their service providers at the earliest
opportunity. Following its Paperwork Reduction Act review, OMB gave
conditional Paperwork Reduction Act approval to the new Form 5500 on
August 26, 1998. As discussed in paragraph A (Background) of this
preamble, the approval is conditioned, in part, on the Agencies
soliciting public comments on the computer scannable version of the new
form after its development and making minor adjustments to the form.
The final computer scannable version of the forms, which must be used
for 1999 plan years, will be published in the Federal Register
following the Agencies' evaluation of public comments. The amendments
proposed in this Notice of Proposed Rulemaking are intended to make
technical changes to the Department's reporting regulations, and
conform them to requirements of the Form 5500 Series, as revised.
Because information reported to the Department is also subject to
ERISA's disclosure provisions, the Department in this proposal has
attempted to balance the needs of participants, beneficiaries and the
Department to obtain information necessary to protect ERISA rights and
interests with the needs of administrators to minimize costs attendant
with the reporting of information to the federal government.
Costs
The cost and burden associated with the annual reporting
requirement for any given plan will vary according to a limited number
of factors, including whether and to what extent underlying records are
maintained electronically or manually, whether and to what extent the
Form 5500 is reproduced electronically or completed manually, and
whether and to what extent these activities are performed in-house by
the plan sponsor or purchased from service providers. However, little
information is available with respect to the actual distribution of
plans within these ranges. Consideration of the potential cost impact
of the proposed revisions to the Form 5500 Series results, therefore,
in estimates which are based on a number of assumptions concerning the
costs of automated systems and system modifications, the numbers and
types of users of automated systems, and the numbers and types of users
of the services of third-party administrators.
The Department believes that the revisions to the Form 5500 will
generally impose the greatest additional cost on plan administrators
whose systems for storing and producing Form 5500 data are most
completely automated, and the least additional cost on those least
automated. For this reason, a distinction is made here between ``full-
service automated systems'' and ``basic automated systems.'' A full-
service automated system is considered to be a sophisticated system
which stores and manipulates the data needed for completion of the
form, and which also summarizes and prints the data in the Form 5500
format. A basic automated system generally stores financial data, flags
the types of transactions required to be reported on the Form 5500, and
facilitates completion of the form, but does not configure output in
Form 5500 format.
Both types of systems are expected to require certain modifications
in their data storage features, due to the proposed changes in the
groupings of financial data on the form. However, while the output of
basic systems may be expected to require some revision to facilitate
efficient completion of the form, reconfiguration of the existing
output of full-service systems to conform with the revised Form 5500
format is considered likely to require substantial system
modifications.
For purposes of this discussion of potential costs, it has been
assumed that the Form 5500 reproduction capability represents one-half
of the cost of the complete system, and that basic automated systems
sell for approximately one-half of the cost of full-service automated
systems. Modification (in contrast to initial purchase) of the output
capability of a full-service system is assumed to equal one-third of
the cost of the original system. On this basis, the full-service system
cost can be adjusted by a factor of .165 to arrive at the cost increase
attributable to modifying output capability. Several other assumptions
underlying the costs estimated here are specifically identified where
applicable.
The Department believes that the primary purchasers of full-service
automated systems are third-party administrators (TPAs) serving
substantial numbers of clients, and banks and trust companies managing
master trust investment accounts (MTIAs). Such full-service systems
have been developed by only a small number of vendors. The known cost
of one such system consists of an initial fee of $11,000 and an
additional annual fee of $2,000. Given the stated assumptions
concerning the costs for the output capability and the modification of
output capability as percentages of original cost, the cost of system
redesign passed along from vendors to TPA purchasers is estimated to
amount to an initial fee of $1,815 plus an increased annual fee of
$333. Assuming a ten-year redesign cycle, and ten-year depreciation of
the initial fee increase, the annual increase would amount to $182 plus
the $333 annual fee, or $515.
This annual increase may be multiplied by the number of TPA
purchasers which are assumed to be of sufficient size to warrant the
purchase and modification of these systems to arrive at a total annual
cost. Fifty-five TPAs with at least 50 client plans were identified for
this purpose by tabulating the number of unique employer identification
numbers for plan administrators among 1993 annual reports in which the
plan administrator
[[Page 68381]]
was different from the plan sponsor. The resulting estimate of the
annual cost of system modifications for TPAs using full-service systems
is $28,325.
Banks and trust companies providing master trust services to plans
are also assumed to purchase or develop in-house automated systems to
both complete Direct Filing Entity (DFE) reports filed with the
Department and to provide plan financial data to plan sponsors filing
Form 5500 reports. Data from 1993 Form 5500 filings indicate a total of
160 such banks and trust companies managing MTIAs for approximately
24,000 plans filing Form 5500 reports completed by the plan sponsor.
Assuming the same $515 annual cost increase for managers of MTIAs,
their modification cost is estimated at $82,400.
Users of basic automated systems are believed to include smaller
TPAs and large plan sponsors that complete Form 5500 in-house. It is
assumed that the TPAs and plan sponsors using these systems would
either purchase redesigned software from vendors or incur direct costs
to modify software developed in-house. Modification costs would likely
vary, but are expected to be roughly equivalent to the cost to the
Department of modifying the internal system which configures balance
sheet and income statement data in Form 5500 format. This cost is
estimated to be equal to 2.7% of the initial cost of the system.
Based on the known cost of a full-service automated system, and the
assumption that basic systems are available for one-half the cost of
full-service systems, the basic system might be purchased for $5,500
plus a $1,000 annual fee. A 2.7% increase in the cost attributable to
changes in the financial schedule would result in a fee increase of
$148.50 plus $27 per year. Depreciation of the initial fee over a ten-
year period would result in an annual cost of about $42.
Because the number of plan sponsors which rely, either directly or
indirectly, on a basic automated system is unknown, certain assumptions
are made for the purpose of estimating a cost of modifying basic
automated systems. It is assumed that two principal types of filers
will either purchase such systems from vendors or pay an equivalent
cost for modifying systems developed in-house: small TPAs completing
Form 5500 in their clients' behalf, and sponsors of self-insured or
partially insured, partially self-insured plans with at least 100
participants which complete the forms in-house. Small plan filers which
complete the forms in-house and large fully-insured filers are excluded
from this estimate because it is believed that these filers will not
rely on automated systems.
The number of plans which have Form 5500 completed by a TPA is
derived from the review of 1993 Form 5500 data where the plan
administrator differs from the plan sponsor. The total count of such
plans in 1993 was 28,900. Subtracting the 18,300 plans previously
considered as clients of large TPAs leaves 10,600 plans serviced by
small TPAs. Assuming an average client base of 20 plans for these
smaller TPAs results in an estimate of approximately 530 TPAs. Given
the assumption of $42 for the annual increase in costs, these TPAs
would incur an estimated cost increase of $22,180 for system
modifications.
The number of 1993 plan filings which did not show a different plan
sponsor and plan administrator, which have at least 100 participants,
and which are not fully-insured was 45,500. Of these, 37,000 plans were
sponsored by sponsors of single plans; 8,500 sponsored multiple plans,
totaling 30,000 plans. It is assumed that sponsors of multiple plans
require systems which handle multiple records, and that systems which
do not require multiple records will be less costly to modify. The
8,500 sponsors are expected to incur a $42 annual cost for modifying
multiple-plan systems, for a total of $357,000. The 37,000 plans which
do not require multiple-record capability are expected to incur one-
half of the annual cost of multiple-record system modification, or $21
per plan, for a total of $777,000.
As summarized below, the annual cost estimated on the basis of the
stated assumptions to be incurred as a result of modification of
automated systems to produce or complete Form 5500 is $1.3 million.
Estimated Number of Form 5500 Series Filings Completed With Assistance of Automated Systems
----------------------------------------------------------------------------------------------------------------
Number of Annual per Total annual Ten-year cost Total ten-year
plans plan costs costs per plan costs
----------------------------------------------------------------------------------------------------------------
Large TPAs (full service
systems)....................... 18,300 $1.55 $28,325 $15.50 $283,250
MTIAs (full service systems).... 24,000 3.43 82,400 34.30 823,200
Small TPAs (basic systems)...... 10,600 2.09 22,180 20.90 221,800
Large Plans Administered In-
House--One Plan................ 37,000 21.00 777,000 210.00 7,770,000
Large Plans Administered In-
House--Multiple Plans.......... 30,000 11.90 357,000 119.00 3,570,000
-------------------------------------------------------------------------------
Total..................... 119,900 10.12 1,266,905 101.20 12,668,250
----------------------------------------------------------------------------------------------------------------
Further, it is estimated that other resources will be required in
the initial year of implementation of the revised forms. As a result of
the change in information required to be reported by plans with fewer
than 100 participants, average time for small plans to complete the
Department's data elements is assumed to increase from 51.4 minutes for
existing Form 5500-C filers and 33.6 minutes for Form 5500-R filers (an
annual average of 41.6 minutes over the existing three-year filing
cycle for plans with fewer than 100 participants which are not
otherwise exempt from filing requirements) to 52.4 minutes for the
revised form. This increase in the initial year is based on the
assumption that filers will require additional time for reviewing
instructions to the revised form. The time required for small plan
filers to complete the Form 5500 is estimated to be 35.2 minutes in
subsequent years.
Additional time will also be required in the year of implementation
of the revised form for DFEs such as common/collective trusts, pooled
separate accounts, master trusts, 103-12 investment entities, and group
insurance arrangements to complete the Form 5500 Series in the
standardized format. Existing rules specify the types of information to
be filed by DFEs or reported to plan sponsors, but do not require the
use of a standard format for reporting purposes. It is estimated that
DFEs will expend approximately 8,429 hours per year in preparing and
filing plan and asset information in the standardized format and
providing certifications to participating plans concerning whether or
not they will file directly with the Department. Corresponding costs
may be passed on
[[Page 68382]]
to plans which participate in a DFE in the form of increased fees.
Benefits
The revision of the Form 5500 Series was undertaken in an effort to
simplify and streamline the annual return/report, and reduce the
reporting burden on filers. The new form is intended to reduce the
total amount of information to be reported by many plans by eliminating
information that is not useful for enforcement, research, or other
statutorily mandated missions. The revisions are also designed to
eliminate redundant items and revise questions that have historically
produced filing errors. The revisions also generally require welfare
plans to complete fewer items than pension plans, and small plans to
complete fewer items than large plans.
The revisions eliminate the Form 5500-C/R, but maintain limited
financial reporting similar to the existing Form 5500-R for small
plans. Plans currently exempt from filing a return/report (such as
certain small unfunded/insured welfare plans and certain SEPs), or
those eligible for limited reporting options (such as certain Code
section 403(b) plans) will continue to be eligible for that annual
reporting relief.
The revisions restructure the Form 5500 along the lines familiar to
individual and corporate taxpayers--a simple one-page main form with
basic information necessary to identify the plan for which the report
is filed, along with a checklist of the schedules being filed which are
applicable to the filer's plan type. The structure should aid filers by
allowing them to assemble and file a return that is customized to their
plan. Instructions to the form have been reorganized with the intention
that they be easier to use due to grouping on the basis of the
schedules to be attached. The revised instructions will allow filers to
go directly to the instructions which apply to them, and avoid those
which do not apply.
Based on the elimination of certain information and reformatting of
the Form 5500 Series, the burden of preparing and distributing the form
is estimated to be reduced by between 12% and 13% per year over the
ten-year life of the form. Assuming an hourly cost ranging from $20 to
$25 per hour for preparation of the form, the burden hour reduction is
expected to result in a reduction in filer costs which ranges from $1.7
million to $2.1 million per year over the life of the form.
The revisions also establish the Form 5500 as the standardized
reporting format for DFEs. The DFE reporting rules were intended to
simplify the annual reporting requirements for participating plans and
eliminate confusion regarding the reporting obligations of plans which
participate in DFEs. Standardization of the information reported by
DFEs is expected to allow the Department to correlate and effectively
use the data for enforcement and research purposes with respect to the
over $1 trillion in plan assets held by DFEs.
The revisions are also designed to support and facilitate the
processing system currently in developmental stages to simplify and
expedite the processing of the Form 5500 Series. This new system is
planned to rely on electronic filing with automatic error detection,
and optical scanning technology and optical character recognition to
computerize the paper forms, resulting in reductions in government
processing costs. Implementation of the single form with multiple
schedules is also expected to reduce the government's costs to process
the forms, due to an overall reduction in the number of pages on which
the information will be submitted.
The Department believes that the current action conforming rules
related to annual reporting obligations for employee benefit plan
administrators to the new Form 5500 Series is consistent with the
principles set forth in the Executive Order in that it will reduce
costs and paperwork burden over the life of the forms while enhancing
the ability to protect benefits with timely and accurate information.
Paperwork Reduction Act Statement
The Agencies, as part of their continuing efforts to reduce
paperwork and respondent burden, invite the general public and Federal
agencies to comment on proposed and/or continuing collections of
information in accordance with the Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data
are provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the impact of collection requirements on respondents is
properly assessed. The Agencies solicited comments on the information
collection request (ICR) included in this proposed regulatory action as
part of the proposed revision of the Form 5500 Series published in the
Federal Register on September 3, 1997 (62 FR 46556). A public hearing
on the proposed revision was held on November 17, 1997, and written
comments on the proposal were received until the public record was
closed on December 3, 1997. The Agencies received public comments
stating that, although acknowledging that the forms revisions will
reduce plan administration costs, estimates of the time required to
collect the information and prepare the forms and related schedules
were low resulting in underestimated burden calculations. The Agencies
are currently exploring approaches to developing a revised burden
estimation methodology in an effort to respond to those concerns. On
February 4, 1998, the Department announced that, in response to public
comments, the implementation of the new Form 5500 would be delayed
until the 1999 plan year. A new and revised Form 5500 was submitted to
the Office of Management and Budget (OMB) for approval under the
Paperwork Reduction Act which was made available on PWBA's internet
site. A Comment Request published in the Federal Register on June 24,
1998, 63 FR 34493, provided the public with a 30-day opportunity to
submit comments to OMB on the new Form 5500 submission. Following OMB's
review, OMB gave conditional Paperwork Reduction Act approval to the
new Form 5500 on August 26, 1998. As discussed in paragraph A
(Background) of this preamble, the approval is conditioned, in part, on
the Agencies soliciting public comments on the computer scannable
version of the new form after its development and making minor
adjustments to the form. The final computer scannable version of the
forms, which will be required to be used for 1999 plan years, will be
published in the Federal Register following the Agencies' evaluation of
public comments. In order to avoid unnecessary duplication of public
comments, the supplementary PRA 95 information published in the
September 3, 1997 Notice of Proposed Forms Revisions and the June 24,
1998 Comment Request is incorporated herein by this reference in its
entirety, and comments submitted in response to these Federal Register
publications will be treated as comments on this Notice of Proposed
Rulemaking. A copy of the ICR may be obtained by contacting the office
listed under the heading ``Addressee For PRA 95 Comments.''
The Department has submitted a copy of the proposed information
collection to the Office of Management and Budget (OMB) in accordance
with 44 U.S.C. Sec. 3507(d) of the PRA 95 for its review of its
information collections. The Department is particularly interested in
comments which:
[[Page 68383]]
Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
Comments should be sent to the Office of Information and Regulatory
Affairs, OMB, Room 10235, New Executive Office Building, Washington,
D.C. 20503; Attention: Desk Officer for the Pension and Welfare
Benefits Administration. Although comments may be submitted through
February 8, 1999, OMB requests that comments be received within 30 days
of publication of the Notice of Proposed Rulemaking to ensure their
consideration.
Addressee for PRA 95 Comments: Written comments regarding only PRA
95 and the ICR should be sent to Gerald B. Lindrew, U.S. Department of
Labor, PWBA/OPR, Room N-5647, 200 Constitution Avenue, N.W.,
Washington, DC 20210, telephone 202-219-4784 (this is not a toll-free
number). Written comments must be submitted on or before February 8,
1999, to be assured of consideration.
I. PRA 95 Background: The Department is proposing to amend its
annual reporting regulations to conform them to the Agencies' revision
of the Form 5500 Series in a effort to streamline and simplify this
annual report.
II. PRA 95 Current Actions: The amendments contained in this
document are necessary to conform the Department's annual reporting
regulations to the new Form 5500 Series for which OMB gave conditional
Paperwork Reduction Act approval on August 26, 1998. As described in
paragraph A of this preamble, the approval is conditioned, in part, on
the Agencies soliciting public comments on the computer scannable
version of the new form after its development and making minor
adjustments to the form. See the Notice of Proposed Forms Revisions
published in the Federal Register on September 3, 1997 (62 FR 46556),
the Comment Request published in the Federal Register on June 24, 1998
(63 FR 34493) and PWBA's internet site for the new Form 5500 that was
submitted to OMB for approval under the Paperwork Reduction Act.
As indicated in paragraphs C.3 and C.4 of this preamble, the
proposed amendments would modify the reporting rules for plans
investing in CCTs and PSAs, and add a new information collection item
with a small additional burden to existing requirements for CCTs and
PSAs. Under existing rules, CCTs and PSAs must provide certain
information to each participating plan's administrator including (i) a
copy of the annual statement of assets and liabilities for its fiscal
year that ends with or within the plan year of such plan and (ii) the
value of the plan's units of participation. This information must be
certified as accurate and complete and must be provided by the CCT and
PSA within 120 days after the close of the plan year for each
participating plan. A participating plan is required to include with
their annual report a copy of the CCT's or PSA's statement of assets
and liabilities unless such CCT or PSA files it directly with the
Department and certain other conditions are met. In such a case, the
CCT or PSA must certify to the plan administrator that a copy of its
statement of assets and liabilities has been filed with the Department.
A PSA's and CCT's statement of assets and liabilities is not required
to be reported in a uniform format or manner. In addition, under the
existing rules a participating plan must report the current value of
its interest in a CCT or PSA at the beginning and end of its plan year
regardless of whether the CCT or PSA files directly with the
Department.
Under the proposal, CCTs and PSAs which elect to file directly with
the Department, like other DFEs, must use a standardized form. In the
case of a CCT or PSA that intends to file as a DFE, the proposed
amendments would require that such CCT or PSA notify its participating
plans of its intention to do so. In the case of a CCT or PSA that does
not file as a DFE, the proposed amendments would require that such CCT
or PSA notify its participating plans of this fact and furnish the
information needed about its assets (i.e., break out their interest in
the CCT or PSA into general asset categories such as stocks, debt, real
estate, etc.) so the participating plan can satisfy its own annual
reporting obligations. These notifications must be made within the same
time period for transmitting information already required under the
existing rules (i.e., 120 days after the close of the plan year for
each participating plan).
The impact of these proposed changes with respect to CCTs and PSAs
and plans which participate in these entities has been estimated and
included in the total estimated burden for this ICR under PRA 95. The
total additional burden imposed by standardization of reporting and
modification of the certification requirement for CCTs and PSAs is
estimated at 2,725 hours per year. This includes only a nominal
adjustment for the change in the certification requirement. The
Department believes that the certification will be based on a decision
made once per year for each CCT or PSA. CCTs or PSAs that file as a DFE
are under current rules required to certify essentially the same
substantive information as would be required under the new DFE rules.
The requirement to certify that the entity is filing as a DFE within
120 days after the end of the participating plans year-ends should be a
brief statement that should not impose any measurable burden in
addition to that resulting from the current requirements. In the case
of CCTs and PSAs that do not file as a DFE, the entities under current
rules already must certify various substantive information to their
participating plans within 120 days after the plans' year-ends. Adding
to the certification a brief statement that the entity is not filing as
a DFE should not impose any measurable burden in addition to that
resulting from the current requirements. In this regard, the Department
anticipates that the requirement to certify information sufficient to
enable the participating plans' to report beginning and end of year
values for their interests in the underlying assets of such CCTs or
PSAs should not be a burden inasmuch as plans participating in CCTs and
PSAs already are required to report the current value of their units of
participation in CCTs and PSAs as of the beginning and end of the plan
year. The proposed rulemaking would also explicitly require an
information collection item in Secs. 2520.103-1(f), 2520.103-2(c),
2520.103-9(d) and 2520.103-12(f) for entities filing electronically by
requiring that such entities maintain an original copy of the filing
with all required signatures as part of the entity's records. The
Department believes that no additional burden associated with such
record maintenance will arise inasmuch as plans and direct filers
routinely maintain copies of all such filings to satisfy other
statutory obligations.
[[Page 68384]]
Finally, the proposed amendments to Sec. 2520.104b-10 may add a burden
that is associated with the elimination of the Form 5500-R filing.
Specifically, such plans will be required to provide SARs on an annual
basis and may not use the alternative method of compliance currently
provided in Sec. 2520.104b-10(b).
Type of Review: Revision of a currently approved collection.
Agency: Pension and Welfare Benefits Administration.
OMB Number: Currently approved under OMB No.1210-0016; A new number
will be assigned to the revised Form 5500 and schedules which will be
published on the form and schedules used by DOL, IRS and PBGC.
Title: Form 5500 Series.
Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
Form Number: DOL/IRS/PBGC Form 5500 and Schedules.
Total Respondents: 801,934.
Total Responses: 801,934.
Frequency of Response: Annually.
Estimated Time per Response, Estimated Burden Hours, Total Annual
Burden: PWBA and IRS burden estimates are based on different estimation
methodologies resulting in total burden estimate ranges from 1.71
million burden hours (using the PWBA methodology) to 8.46 million
burden hours (using the IRS methodology) for preparing the Form 5500
Series report and sending it to the government. See the Notice of
Proposed Forms Revisions published in the Federal Register on September
3, 1997 (62 FR 46556) for detailed information on the burden estimates.
Small Business Regulatory Enforcement Fairness Act
This notice of proposed rulemaking, when finalized, will be subject
to the provisions of the Small Business Regulatory Enforcement Fairness
Act of 1996 (5 U.S.C. 801 et. seq.) and will be transmitted to Congress
and the Comptroller General for review.
Unfunded Mandates Reform Act
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), as well as Executive Order 12875, this notice of proposed
rulemaking, if finalized, would not include any Federal mandate that
may result in expenditures by State, local or tribal governments, and
would not impose an annual burden exceeding $100 million on the private
sector.
Statutory Authority
This regulation is proposed pursuant to the authority in sections
101, 103, 104, 109, 110, 111, 504 and 505 of ERISA and under Secretary
of Labor's Order No. 1-87, 52 FR 13139, April 21, 1987.
List of Subjects in 29 CFR Part 2520
Accountants, Disclosure requirements, Employee benefit plans,
Employee Retirement Income Security Act, Pension plans, Pension and
welfare plans, Reporting and recordkeeping requirements, and Welfare
benefit plans.
For the reasons set out in the preamble, Part 2520 of Chapter XXV
of Title 29 of the Code of Federal Regulations is proposed to be
amended as follows:
PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE
1. The authority citation for Part 2520 continues to read as
follows:
Authority: Secs. 101, 102, 103, 104, 105, 109, 110, 111(b)(2),
111(c), and 505, Pub. L. 93-406, 88 Stat. 840-52 and 894 (29 U.S.C.
1021-1025, 1029-31, and 1135); Secretary of Labor's Order No. 27-74,
13-76, 1-87, and Labor Management Services Administration Order 2-6.
Sections 2520.102-3, 2520.104b-1 and 2520.104b-3 also are issued
under sec. 101(a), (c) and (g)(4) of Pub. L. 104-191, 110 Stat. 1936,
1939, 1951 and 1955 and, sec. 603 of Pub. L. 104-204, 110 Stat. 2935
(29 U.S.C. 1185 and 1191c).
2. Section 2520.103-1 is amended by revising paragraphs (b)
introductory text, (b)(1), the first sentence of (b)(2)(i), paragraphs,
(b)(4), (c), (d) and the first sentence of paragraph (e) as follows:
Sec. 2520.103-1 Contents of the annual report.
* * * * *
(b) Contents of the annual report for plans with 100 or more
participants electing the limited exemption or alternative method of
compliance. Except as provided in paragraph (d) of this section and in
Secs. 2520.103-2 and 2520.104-44, the annual report of an employee
benefit plan covering 100 or more participants at the beginning of the
plan year which elects the limited exemption or alternative method of
compliance described in paragraph (a)(2) of this section shall include:
(1) A Form 5500 ``Annual Return/Report of Employee Benefit Plan''
and any statements or schedules required to be attached to the form,
completed in accordance with the instructions for the form, including
Schedule A (Insurance Information), Schedule B (Actuarial Information),
Schedule C (Service Provider Information), Schedule D (Direct Filing
Entity/Participating Plan Information), Schedule G (Financial
Transactions Schedule), Schedule H (Financial Information), Schedule R
(Retirement Plan Information), and the other financial schedules
described in Sec. 2520.103-10. See the instructions for this form.
(2) * * *
(i) A statement of assets and liabilities at current value
presented in comparative form for the beginning and end of the year. *
* *
* * * * *
(4) In the case of a plan, some or all of the assets of which are
held in a pooled separate account maintained by an insurance company,
or a common or collective trust maintained by a bank or similar
institution, a copy of the annual statement of assets and liabilities
of such account or trust for the fiscal year of the account or trust
which ends with or within the plan year for which the annual report is
made as required to be furnished to the administrator by such account
or trust under Sec. 2520.103-5(c). Although the statement of assets and
liabilities referred to in Sec. 2520.103-5(c) shall be considered part
of the plan's annual report, such statement of assets and liabilities
need not be filed with the plan's annual report. See Secs. 2520.103-3
and 2520.103-4 for the reporting requirements for plans some or all of
the assets of which are held in a pooled separate account maintained by
an insurance company, or a common or collective trust maintained by a
bank or similar institution.
* * * * *
(c) Contents of the annual report for plans with fewer than 100
participants. Except as provided in paragraph (d) of this section and
in Secs. 2520.104-43 and 2520.104a-6, the annual report of an employee
benefit plan which covers fewer than 100 participants at the beginning
of the plan year shall include a Form 5500 ``Annual Return/Report of
Employee Benefit Plan'' and any statements or schedules required to be
attached to the form, completed in accordance with the instructions for
the form, including Schedule A (Insurance Information), Schedule B
(Actuarial Information), Schedule D (Direct Filing Entity/Participating
Plan Information), Schedule I (Financial Information--Small Plan), and
Schedule R (Retirement Plan Information).
(d) Special rule. If a plan has between 80 and 120 participants
(inclusive) as of the beginning of the plan year, the plan
administrator may elect to file the same category of annual report
(i.e., the annual report for plans with 100 or more participants under
paragraph (b) of this section or the annual report for
[[Page 68385]]
plans with fewer than 100 participants under paragraph (c) of this
section) that it filed for the previous plan year.
(e) Plans which participate in a master trust. The plan
administrator of a plan which participates in a master trust shall file
an annual report on Form 5500 in accordance with the instructions for
the form relating to master trusts. * * *
3. Section 2520.103-1 is further amended by adding a new paragraph
(f) as follows:
Sec. 2520.103-1 [Amended]
* * * * *
(f) Electronic filing. The Form 5500 ``Annual Return/Report of
Employee Benefit Plan'' may be filed electronically or through other
media in accordance with the instructions accompanying the form,
provided the plan administrator maintains an original copy, with all
required signatures, as part of the plan's records.
4. Section 2520.103-2 is amended by revising paragraph (b)(1), the
first sentence of (b)(2)(i) and paragraph (b)(4) as follows:
Sec. 2520.103-2 Contents of the annual report for a group insurance
arrangement.
* * * * *
(b) * * *
(1) A Form 5500 ``Annual Return/Report of Employee Benefit Plan''
and any statements or schedules required to be attached to the form,
completed in accordance with the instructions for the form, including
Schedule A (Insurance Information), Schedule C (Service Provider
Information), Schedule D (Direct Filing Entity/Participating Plan
Information), Schedule G (Financial Transactions Schedule), Schedule H
(Financial Information), and the other financial schedules described in
Sec. 2520.103-10.
(2) * * *
(i) A statement of all trust assets and liabilities at current
value presented in comparative form for the beginning and end of the
year. * * *
* * * * *
(b)(4) In the case of a Form 5500 annual report filed under this
section for a group insurance arrangement some or all of the assets of
which are held in a pooled separate account maintained by an insurance
carrier, or a common or collective trust maintained by a bank, trust
company or similar institution, a copy of the annual statement of
assets and liabilities of such account or trust for the fiscal year of
the account or trust which ends with or within the plan year for which
the annual report is made as required to be furnished by such account
or trust under Sec. 2520.103-5(c). Although the statement of assets and
liabilities referred to in Sec. 2520.103-5(c) shall be considered part
of the group insurance arrangement's annual report, such statement of
assets and liabilities need not be filed with its annual report. See
Secs. 2520.103-3 and 2520.103-4 for the reporting requirements for
plans some or all of the assets of which are held in a pooled separate
account maintained by an insurance company, or a common or collective
trust maintained by a bank or similar institution, and see
Sec. 2520.104-43(b)(2) for when the terms ``group insurance
arrangement'' and ``trust'' shall be, respectively, used in place of
the terms ``plan'' and ``plan administrator.''
* * * * *
5. Section 2520.103-2 is further amended by adding a new paragraph
(c) as follows:
Sec. 2520.103-2 [Amended]
* * * * *
(c) Electronic filing. The Form 5500 ``Annual Return/Report of
Employee Benefit Plan'' may be filed electronically or through other
media in accordance with the instructions accompanying the form,
provided the trust maintains an original copy, with all required
signatures, as part of the trust's records.
6. Section 2520.103-3 is amended by revising paragraphs (a) and (c)
as follows:
Sec. 2520.103-3 Exemption from certain annual reporting requirements
for assets held in a common or collective trust.
(a) General. Under the authority of sections 103(b)(3)(G),
103(b)(4), 104(a)(2)(B), 104(a)(3), and 110 of the Act, a plan whose
assets are held in whole or in part in a common or collective trust
maintained by a bank, trust company, or similar institution which meets
the requirements of paragraph (b) of this section shall include as part
of the annual report to be filed under Secs. 2520.104a-5 or 2520.104a-6
the information described in paragraph (c) of this section. Such plan
is not required to include in its annual report information concerning
the individual transactions of the common or collective trust. This
exemption has no application to assets not held in such trusts.
* * * * *
(c) Contents. (1) A plan which meets the requirements of paragraph
(b) of this section, and which invests in a common or collective trust
that files a Form 5500 report in accordance with Sec. 2520.103-9, shall
include in its annual report: information required by the instructions
to Schedule H (Financial Information) about the current value of and
net investment gain or loss relating to the units of participation in
the common or collective trust held by the plan; identifying
information about the common or collective trust including its name,
employer identification number, and any other information required by
the instructions to the Schedule D (Direct Filing Entity/Participating
Plan Information); and such other information as is required in the
separate statements and schedules of the annual report about the value
of the plan's units of participation in the common or collective trust
and transactions involving the acquisition and disposition by the plan
of units of participation in the common or collective trust.
(2) A plan which meets the requirements of paragraph (b) of this
section, and which invests in a common or collective trust that does
not file a Form 5500 report in accordance with Sec. 2520.103-9, shall
include in its annual report: information required by the instructions
to Schedule H (Financial Information) about the current value of the
plan's allocable portion of the underlying assets and liabilities of
the common or collective trust and the net investment gain or loss
relating to the units of participation in the common or collective
trust held by the plan; identifying information about the common or
collective trust including its name, employer identification number,
and any other information required by the instructions to the Schedule
D (Direct Filing Entity/Participating Plan Information); and such other
information as is required in the separate statements and schedules of
the annual report about the value of the plan's units of participation
in the common or collective trust and transactions involving the
acquisition and disposition by the plan of units of participation in
the common or collective trust.
7. Section 2520.103-4 is amended by revising paragraphs (a) and (c)
as follows:
Sec. 2520.103-4 Exemption from certain annual reporting requirements
for assets held in an insurance company pooled separate account.
(a) General. Under the authority of sections 103(b)(3)(G),
103(b)(4), 104(a)(2)(B), 104(a)(3), and 110 of the Act, a plan whose
assets are held in whole or in part in a pooled separate account of an
insurance carrier which meets the requirements of paragraph (b) of this
section shall include as part of the annual report to be filed under
Sec. 2520.104a-5 or Sec. 2520.104a-6 the information described in
paragraph (c)
[[Page 68386]]
of this section. Such plan is not required to include in its annual
report information concerning the individual transactions of the pooled
separate account. This exemption has no application to assets not held
in such a pooled separate account.
* * * * *
(c) Contents. (1) A plan which meets the requirements of paragraph
(b) of this section, and which invests in a pooled separate account
that files a Form 5500 report in accordance with Sec. 2520.103-9, shall
include in its annual report: information required by the instructions
to Schedule H (Financial Information) about the current value of, and
net investment gain or loss relating to, the units of participation in
the pooled separate account held by the plan; identifying information
about the pooled separate account including its name, employer
identification number, and any other information required by the
instructions to the Schedule D (Direct Filing Entity/Participating Plan
Information); and such other information as is required in the separate
statements and schedules of the annual report about the value of the
plan's units of participation in the pooled separate accounts and
transactions involving the acquisition and disposition by the plan of
units of participation in the pooled separate account.
(2) A plan which meets the requirements of paragraph (b) of this
section, and which invests in a pooled separate account that does not
file a Form 5500 report in accordance with Sec. 2520.103-9, shall
include in its annual report: information required by the instructions
to Schedule H (Financial Information) about the current value of the
plan's allocable portion of the underlying assets and liabilities of
the pooled separate account and the net investment gain or loss
relating to the units of participation in the pooled separate account
held by the plan; identifying information about the pooled separate
account including its name, employer identification number, and any
other information required by the instructions to the Schedule D
(Direct Filing Entity/Participating Plan Information); and such other
information as is required in the separate statements and schedules of
the annual report about the value of the plan's units of participation
in the pooled separate account and transactions involving the
acquisition and disposition by the plan of units of participation in
the pooled separate account.
8. Section 2520.103-5 is amended by redesignating paragraph
(c)(1)(iii) as paragraph (c)(1)(iv), redesignating paragraph
(c)(2)(iii) as (c)(2)(iv), redesignating paragraph (c)(2)(ii) as
paragraph (c)(2)(iii), revising paragraphs (c)(1)(ii) and (c)(2)(i) and
adding new paragraphs (c)(1)(iii), and (c)(2)(ii) as follows:
Sec. 2520.103-5 Transmittal and certification of information to plan
administrator for annual reporting purposes.
* * * * *
(c) * * *
(1) * * *
(ii) Holds assets of a plan in a pooled separate account and files
the Form 5500 report pursuant to Sec. 2520.103-9 for a plan year--
(A) A copy of the annual statement of assets and liabilities of the
separate account for the fiscal year of such account ending with or
within the plan year for which the participating plan's annual report
is made,
(B) A statement of the value of the plan's units of participation
in the separate account,
(C) The EIN of the separate account, entity number required for
purposes of completing the Form 5500, and any other identifying number
assigned by the insurance carrier to the separate account,
(D) A statement that a filing pursuant to Sec. 2520.103-9(c) will
be made for the separate account (for its fiscal year ending with or
within the participating plan's plan year) on or before the date upon
which such plan's annual report is required to be filed in accordance
with Secs. 2520.104a-5 or 2520.104a-6, and
(E) Upon request of the plan administrator, any other information
that can be obtained from the ordinary business records of the
insurance carrier and that is needed by the plan administrator to
comply with the requirements of section 104(a)(1)(A) of the Act and
Sec. 2520.104a-5 or Sec. 2520.104a-6.
(iii) Holds assets of a plan in a pooled separate account and does
not file the Form 5500 report pursuant to Sec. 2520.103-9, for a plan
year--
(A) A copy of the annual statement of assets and liabilities of the
separate account for the fiscal year of such account that ends with or
within the plan year for which the annual report is made,
(B) A statement of the value of the plan's units of participation
in the separate account,
(C) The EIN of the separate account and any other identifying
number assigned by the insurance carrier to the separate account,
(D) A statement that a filing pursuant to Sec. 2520.103-9(c) will
not be made for the separate account for its fiscal year ending with or
within the participating plan's plan year, and
(E) Upon request of the plan administrator, any other information
that can be obtained from the ordinary business records of the
insurance carrier and that is needed by the plan administrator to
comply with the requirements of section 104(a)(1)(A) of the Act and
Sec. 2520.104a-5 or Sec. 2520.104a-6.
* * * * *
(2) * * *
(i) In a common or collective trust that files the Form 5500 report
pursuant to Sec. 2520.103-9, for a plan year--
(A) A copy of the annual statement of assets and liabilities of the
common or collective trust for the fiscal year of such trust ending
with or within the plan year for which the participating plan's annual
report is made,
(B) A statement of the value of the plan's units of participation
in the common or collective trust,
(C) The EIN of the common or collective trust, entity number
assigned for purposes of completing the Form 5500, any other
identifying number assigned by the bank, trust company, or other
institution to the common or collective trust,
(D) A statement that a filing pursuant to Sec. 2520.103-9(c) will
be made for the common or collective trust (for its fiscal year ending
with or within the participating plan's plan year) on or before the
date upon which the annual report for such plan is required to be filed
in accordance with Secs. 2520.104a-5 or 2520.104a-6, and
(E) Upon request of the plan administrator, any other information
that can be obtained from the ordinary business records of the bank,
trust company or similar institution and that is needed by the plan
administrator to comply with the requirements of section 104(a)(1)(A)
of the Act and Secs. 2520.104a-5 or 2520.104a-6.
(ii) In a common or collective trust that does not file the Form
5500 ``Annual Return/Report of Employee Benefit Plan'', pursuant to
Sec. 2520.103-9, for a plan year--
(A) A copy of the annual statement of assets and liabilities of the
common or collective trust for the fiscal year of such account that
ends with or within the plan year for which the annual report is made,
(B) A statement of the value of the plan's units of participation
in the common or collective trust,
(C) The EIN of the common or collective trust, and any other
[[Page 68387]]
identifying number assigned by bank, trust company or similar
institution to the common or collective trust,
(D) A statement that a filing pursuant to Sec. 2520.103-9(c) will
not be made for the common or collective trust for its fiscal year
ending with or within the participating plan's plan year, and
(E) Upon request of the plan administrator, any other information
that can be obtained from the ordinary business records of the bank,
trust company or similar institution and that is needed by the plan
administrator to comply with the requirements of section 104(a)(1)(A)
of the Act and Secs. 2520.104a-5 or 2520.104a-6.
* * * * *
9. Section 2520.103-6 is amended by revising paragraphs (a) and
(b)(1)(ii), and adding paragraph (f) as follows:
Sec. 2520.103-6 Definition of reportable transaction for Annual
Return/Report.
(a) General. For purposes of preparing the schedule of reportable
transactions described in Sec. 2520.103-10(b)(6), and subject to the
exceptions provided in Secs. 2520.103-3, 2520.103-4 and 2520.103-12,
with respect to individual transactions by a common or collective
trust, pooled separate account, or a 103-12 investment entity, a
reportable transaction includes any transaction or series of
transactions described in paragraph (c) of this section.
(b) * * *
(1) * * *
(ii) With respect to schedules of reportable transactions for the
initial plan year of a plan, the term ``current value'' shall mean the
current value, as defined in section 3(26) of the Act, of plan assets
at the end of a plan's initial plan year.
* * * * *
(f) Special rule for certain participant-directed transactions.
Participant or beneficiary directed transactions under an individual
account plan shall not be taken into account under paragraph (c)(1) of
this section for purposes of preparing the schedule of reportable
transactions described in this section. For purposes of this section
only, a transaction will be considered directed by a participant or
beneficiary only to the extent that such individual, in fact,
affirmatively authorized the investment of the asset allocated to his
or her account.
10. Section 2520.103-9 is revised as follows:
Sec. 2520.103-9 Direct filing for bank or insurance carrier trusts and
accounts.
(a) General. Under the authority of sections 103(b)(4), 104(a)(3),
110 and 505 of the Act, an employee benefit plan, some or all of the
assets of which are held in a common or collective trust or a pooled
separate account described in section 103(b)(3)(G) of the Act and
Secs. 2520.103-3 and 2520.103-4, is relieved from including in its
annual report information about the current value of the plan's
allocable portion of assets and liabilities of the common or collective
trust or pooled separate account and information concerning the
individual transactions of the common or collective trust or pooled
separate account, provided that the plan meets the requirements of
paragraph (b) of this section, and, provided further, that the bank or
insurance carrier which holds the plan's assets meets the requirements
of paragraph (c) of this section.
(b) Application. A plan whose assets are held in a common or
collective trust or a pooled separate account described in section
103(b)(3)(G) of the Act and Secs. 2520.103-3 and 2520.103-4, provided
the plan administrator, on or before the end of the plan year, provides
the bank or insurance carrier which maintains the common or collective
trust or pooled separate account with the plan number, and name and EIN
of the plan sponsor as it will be indicated on the plan's annual
report.
(c) Separate filing by common or collective trusts and pooled
separate accounts. The bank or insurance carrier which maintains the
common or collective trust or pooled separate account in which assets
of the plan are held shall file, in accordance with the instructions
for the form, a completed Form 5500 ``Annual Return/Report of Employee
Benefit Plan'' and any statements or schedules required to be attached
to the form for the common or collective trust or pooled separate
account, including Schedule D (Direct Filing Entity/Participating Plan
Information) and Schedule H (Financial Information). See the
instructions for this form. The information reported shall be for the
fiscal year of such trust or account ending with or within the plan
year for which the annual report of the plan is made.
(d) Method of filing. The Form 5500 ``Annual Return/Report of
Employee Benefit Plan'' may be filed electronically or through other
media in accordance with the instructions accompanying the form,
provided the common or collective trust or pooled separate account
maintains an original copy, with all required signatures, as part of
its records.
11. Section 2520.103-10 is revised to read as follows:
Sec. 2520.103-10 Annual report financial schedules.
(a) General. The administrator of a plan filing an annual report
pursuant to Sec. 2520.103-1(a)(2) or the report for a group insurance
arrangement pursuant to Sec. 2520.103-2 shall, as provided in the
instructions to the Form 5500 ``Annual Return/Report of Employee
Benefit Plan,'' include as part of the annual report the separate
financial schedules described in paragraph (b) of this section.
(b) Schedules. (1) Assets held for investment. (i) A schedule of
all assets held for investment purposes at the end of the plan year
(see Sec. 2520.103-11) with assets aggregated and identified by:
(A) Identity of issue, borrower, issuer or similar party;
(B) Description of investment including maturity date, rate of
interest, collateral, par or maturity value;
(C) Cost; and
(D) Current value, and, in the case of a loan, the payment schedule
(e.g., fully amortized, partly amortized with a final lump sum
payment).
(ii) In the case of assets or investment interests of two or more
plans maintained in one trust, all entries on the schedule of assets
held for investment purposes that relate to the trust shall be
completed by including the plan's allocable portion of the trust.
(2) Assets acquired and disposed within the plan year. (i) A
schedule of all assets acquired and disposed of within the plan year
(see Sec. 2520.103-11) with assets aggregated and identified by:
(A) Identity of issue, borrower, issuer or similar party;
(B) Descriptions of investment including maturity date, rate of
interest, collateral, par or maturity value;
(C) Cost of acquisitions; and
(D) Proceeds of dispositions.
(ii) In the case of assets or investment interests of two or more
plans are maintained in one trust, all entries on the schedule of
assets held for investment purposes that relate to the trust shall be
completed by including the plan's allocable portion of the trust.
(3) Party in interest transactions. A schedule of each transaction
involving a person known to be a party in interest except do not
include:
(i) A transaction to which a statutory exemption under part 4 of
title I applies;
(ii) A transaction to which an administrative exemption under
section 408(a) of the Act applies; or
(iii) A transaction to which the exemptions of section 4975(c) or
4975(d) of the Internal Revenue Code (Title 26 of the United States
Code), applies.
(4) Obligations in default. A schedule of all loans or fixed income
obligations
[[Page 68388]]
which were in default as of the end of the plan year or were classified
during the year as uncollectible.
(5) Leases in default. A schedule of all leases which were in
default or were classified during the year as uncollectible.
(6) Reportable transactions. A schedule of all reportable
transactions as defined in Sec. 2520.103-6.
(c) Format requirements for certain schedules. (1) There is no
specific format requirement for the schedules described in paragraphs
(b)(1), (b)(2) or (b)(6) of this section provided such schedules are
filed with the required information using the same size paper as the
Form 5500.
(2) Except as provided in paragraph (c)(1) of this section, such
paragraph shall not apply to the Form 5500 and the statements and
schedules required to be filed with such form.
12. Section 2520.103-11 is amended by revising paragraph (a) and
adding paragraphs (d) as follows:
Sec. 2520.103-11 Assets held for investment purposes.
(a) General. For purposes of preparing the schedule of assets held
for investment purposes described in Sec. 2520.103-10(b)(1) and (2),
assets held for investment purposes include those assets described in
paragraph (b) of this section.
* * * * *
(d) Special rule for certain participant-directed transactions.
Cost information may be omitted from the schedule of assets held for
investment, for assets described in paragraphs (b)(1)(i) and (b)(1)(ii)
of this section, only with respect to participant or beneficiary
directed transactions under an individual account plan. For purposes of
this section only, a transaction will be considered directed by a
participant or beneficiary only to the extent that such individual, in
fact, affirmatively authorized the investment of the asset allocated to
his or her account.
13. Section 2520.103-12 is amended by revising the last sentence of
paragraph (a), revising paragraph (b), and also adding a new paragraph
(f) as follows:
Sec. 2520.103-12 Limited exemption and alternative method of
compliance for annual reporting of investments in certain entities.
(a) * * * The information described in paragraph (b), however,
shall be considered as part of the annual report for purposes of the
requirements of section 104(a)(1) of the Act and Secs. 2520.104a-5 and
2520.104a-6.
(b) The entity described in paragraph (c) of this section shall
file, in accordance with the instructions for the form:
(1) A Form 5500 ``Annual Return/Report of Employee Benefit Plan''
and any statements or schedules required to be attached to the form for
such entity, completed in accordance with the instructions for the
form, including Schedule A (Insurance information), Schedule C (Service
Provider Information), Schedule D (Direct Filing Entity/Participating
Plan Information), Schedule G (Financial Transactions Schedule),
Schedule H (Financial Information), and the financial schedules
described in Sec. 2520.103-10(b)(1) and (b)(2). See the instructions
for this form. The information reported shall be for the fiscal year of
such entity ending with or within the plan year for which the annual
report of the plan is made.
(2) A report of an independent qualified public accountant,
regarding the financial statements and schedules described in paragraph
(b)(1) of this section which meets the requirements of Sec. 2520.103-
1(b).
(c) * * *
* * * * *
(f) Method of filing. The Form 5500 ``Annual Return/Report of
Employee Benefit Plan'' may be filed electronically or through other
media in accordance with the instructions accompanying the form
provided the entity described in paragraph (c) of this section
maintains an original copy, with all required signatures, as part of
its records.
14. Section 2520.104-21 is amended by revising paragraphs (b)(3)
and (d) as follows.
Sec. 2520.104-21 Limited exemption for certain group insurance
arrangements.
* * * * *
(b) * * *
(2) * * *
(3) Uses a trust (or other entity such as a trade association) as
the holder of the insurance contracts and uses a trust as the conduit
for payment of premiums to the insurance company.
* * * * *
(d) Examples. (1) A welfare plan has 25 participants at the
beginning of the plan year. It is part of a group insurance arrangement
of a trade association and provides benefits to employees of two or
more unaffiliated employers, but not in connection with a multiemployer
plan as defined in the Act. Plan benefits are fully insured pursuant to
insurance contracts purchased with premium payments derived half from
employee contributions (which the employer forwards within three months
of receipt) and half from the general assets of each participating
employer. Refunds to the plan are paid to participating employees
within three months of receipt as provided in the plan and as described
to each participant upon entering the plan. A trust acts as a conduit
for payments, receiving premium payments from participating employers
and paying the insurance company. The plan appoints the trade
association as its plan administrator. The association, as plan
administrator, provides summary plan descriptions to participants and
beneficiaries, enlisting the help of participating employers in
carrying out this distribution, and also holds the insurance contracts.
The plan administrator also makes copies of certain plan documents
available to the plan's principal office and such other places as
necessary to give participants reasonable access to them. The plan
administrator files with the Secretary an annual report covering
activities of the plan, as required by the Act and such regulations as
the Secretary may issue. The exemption provided by this section applies
because the conditions of paragraph (b) have been satisfied.
(2) Assume the same facts as paragraph (d)(1) of this section
except that the premium payments for the insurance company are paid
from the trust through an independent insurance brokerage firm. The
trade association is the holder of the insurance contract. The plan
appoints an officer of the participating employer as the plan
administrator. The officer, as plan administrator, performs the same
reporting and disclosure functions as the administrator in paragraph
(d)(1) of this section, enlisting the help of the association in
providing summary plan descriptions and necessary information. The
exemption provided by this section applies.
(3) The facts are the same as paragraph (d)(1), except the welfare
plan has 125 participants at the beginning of the plan year. The
exemption provided by this section does not apply because the plan had
100 or more participants at the beginning of the plan year. See,
however, Sec. 2520.104-43.
(4) The facts are the same as paragraph (d)(2), except the welfare
plan has 125 participants. The exemption provided by this section does
not apply because the plan had 100 or more participants at the
beginning of the plan year. See, however, Sec. 2520.104-43.
15. Section 2520.104-41 is amended by revising paragraphs (b) and
(c) as follows:
Sec. 2520.104-41 Simplified annual reporting requirements for plans
with fewer than 100 participants.
* * * * *
[[Page 68389]]
(b) Application. The administrator of an employee pension or
welfare benefit plan which covers fewer than 100 participants at the
beginning of the plan year and the administrator of an employee pension
or welfare benefit plan described in Sec. 2520.103-1(d) may file the
simplified annual report described in paragraph (c) of this section in
lieu of the annual report required to be filed pursuant to section
104(a)(1)(A) of the Act and Sec. 2520.104a-5.
(c) Contents. The administrator of an employee pension or welfare
benefit plan described in paragraph (b) of this section shall file, in
accordance with the instructions for the form, a completed Form 5500
``Annual Return/Report of Employee Benefit Plan'' and any statements or
schedules required to be attached to the form, including Schedule A
(Insurance information), Schedule B (Actuarial Information), Schedule D
(Direct Filing Entity/Participating Plan Information), Schedule I
(Financial Information--Small Plan), and Schedule R (Retirement Plan
Information). See the instructions for this form.
16. Section 2520.104-43 is amended by revising paragraphs
(b)(1)(ii) and (b)(2) as follows:
Sec. 2520.104-43 Exemption from annual reporting requirement for
certain group insurance arrangements.
* * * * *
(b) * * *
(1) * * *
(ii) an annual report containing the items set forth in
Sec. 2520.103-2 has been filed with the Secretary of Labor in
accordance with Secs. 2520.104a-6 by the trust or other entity which is
the holder of the group insurance contracts by which plan benefits are
provided.
(2) For purposes of this section, the terms ``group insurance
arrangement'' and ``trust'' shall be used in place of the terms
``plan'' or ``plan administrator,'' as applicable, in Secs. 2520.103-3,
2520.103-4, 2520.103-6, 2520.103-8, 2520.103-9 and 2520.103-10.
* * * * *
17. Section 2520.104-44 is amended by revising the second sentence
of paragraph (a)(2), removing the word ``and'' at the end of paragraph
(b)(1)(iii), substituting a semi-colon for the period at the end of
paragraph (b)(2), adding paragraph (b)(3), and revising paragraph
(c)(1) as follows:
Sec. 2520.104-44 Limited exemption and alternative method of
compliance for annual reporting by unfunded plans and by certain
insured plans.
(a) * * *
(2) * * * An employee pension benefit plan which meets the
requirements of paragraph (b)(2) or (b)(3) of this section is not
required to comply with the annual reporting requirements described in
paragraph (c) of this section.
(b) * * *
(3) A pension plan using a tax deferred annuity arrangement under
section 403(b)(1) of the Internal Revenue Code (Title 26 of the United
States Code) and/or a custodial account for regulated investment
company stock established under Code section 403(b)(7) as the sole
funding vehicle for providing pension benefits.
(c) * * *
(1) Completing certain items of the annual report as prescribed by
the instructions to the Form 5500 ``Annual Return/Report of Employee
Benefit Plan'' and accompanying schedules;
* * * * *
18. Section 2520.104-46 is amended by revising paragraph (d)(1) as
follows:
Sec. 2520.104-46 Waiver of examination and report of an independent
qualified public accountant for employee benefit plans with fewer than
100 participants.
* * * * *
(d) Limitations. (1) The waiver described in this section does not
affect the obligation of the plan described in paragraph (b)(1) or
(b)(2) of this section to file the Form 5500 ``Annual Return/Report of
Employee Benefit Plan'' and all applicable financial schedules and
statements as prescribed by the instructions to the form. See
Sec. 2520.104-41.
* * * * *
19. Section 2520.104b-10 is amended as follows.
a. In the first sentence of paragraph (a), the phrase ``paragraphs
(b) and (g)'' is revised to read ``paragraph (g)''.
b. Remove and reserve paragraph (b).
20. Paragraph (c) introductory text and the first sentence of
paragraph (f) of section 2520.104b-10 are revised as follows:
Sec. 2520.104b-10 Summary Annual Report.
* * * * *
(c) When to furnish. Except as otherwise provided in this paragraph
(c), the summary annual report required by paragraph (a) of this
section shall be furnished within nine months after the close of the
plan year.
* * * * *
(f) Furnishing of additional documents to participants and
beneficiaries. A plan administrator shall promptly comply with any
request by a participant or beneficiary for additional documents made
in accordance with the procedures or rights described in paragraph (d)
of this section.
* * * * *
21. Section 2520.104b-10 is further amended as follows.
a. The following sentence from paragraph (d)(3) under the heading
``Basic Financial Statement'' is removed:
[For plans filing form 5500K, omit separate entries for employer
contributions and employee contributions and insert instead
``contributions by the employer and employees of ($ )''].
b. In paragraph (d)(3), the list under the heading ``Your Rights to
Additional Information'' (after the introductory text but before the
language ``To obtain a copy of the full annual report * * *'') is
revised to read as follows:
* * * * *
1. an accountant's report;
2. financial information and information on payments to service
providers;
3. assets held for investment;
4. fiduciary information, including non-exempt transactions between
the plan and parties-in-interest (that is, persons who have certain
relationships with the plan);
5. loans or other obligations in default or classified as
uncollectible;
6. leases in default;
7. transactions in excess of 5 percent of the plan assets;
8. insurance information including sales commissions paid by
insurance carriers;
9. information regarding any common or collective trusts, pooled
separate accounts, master trusts or 103-12 investment entities in which
the plan participates, and
10. actuarial information regarding the funding of the plan.
* * * * *
c. In paragraph (d)(4), the list under the heading ``Your Rights to
Additional Information'' (after the introductory text but before the
language ``To obtain a copy of the full annual report * * *'') is
revised as follows:
* * * * *
1. an accountant's report;
2. financial information and information on payments to service
providers;
3. assets held for investment;
4. fiduciary information, including non-exempt transactions between
the plan and parties-in-interest (that is, persons who have certain
relationships with the plan);
5. loans or other obligations in default or classified as
uncollectible;
6. leases in default;
7. transactions in excess of 5 percent of the plan assets;
[[Page 68390]]
8. insurance information including sales commissions paid by
insurance carriers; and
9. information regarding any common or collective trusts, pooled
separate accounts, master trusts or 103-12 investment entities in which
the plan participates.
* * * * *
d. The last sentence of both paragraphs (d)(3) and (d)(4) under the
heading ``Your Rights to Additional Information'' are revised as
follows:
``Requests to the Department should be addressed to: Public
Disclosure Room, Room N5638, Pension and Welfare Benefits
Administration, U.S. Department of Labor, 200 Constitution Avenue,
N.W., Washington, D.C. 20210.''
e. The last sentence of the undesignated paragraph following
paragraph (e)(2) is removed.
Signed at Washington, DC, this 4th day of December, 1998.
Meredith Miller,
Deputy Assistant Secretary for Policy Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 98-32659 Filed 12-9-98; 8:45 am]
BILLING CODE 4510-29-P
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.