[Federal Register Volume 72, Number 221 (Friday, November 16, 2007)]
[Rules and Regulations]
[Pages 64710-64730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-21765]
[[Page 64709]]
-----------------------------------------------------------------------
Part II
Department of Labor
Employee Benefits Security Administration
29 CFR Part 2520
Department of the Treasury
Internal Revenue Service
Pension Benefit Guaranty Corporation
Annual Reporting and Disclosure; Revision of Annual Information Return/
Reports; Final Rule and Notice
Federal Register / Vol. 72, No. 221 / Friday, November 16, 2007 /
Rules and Regulations
[[Page 64710]]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2520
RIN 1210-AB06
Annual Reporting and Disclosure
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document contains amendments to Department of Labor
regulations relating to annual reporting and disclosure requirements
under Part 1 of Subtitle B of Title I of the Employee Retirement Income
Security Act of 1974, as amended (ERISA). The amendments contained in
this document are necessary to conform the annual reporting and
disclosure regulations to revisions to the Form 5500Annual Return/
Report of Employee Benefit Plan, including a new Form 5500-SF (Short
Form or Short Form 5500), filed for employee pension and welfare
benefit plans under ERISA and the Internal Revenue Code of 1986, as
amended (Code). The changes to the Form 5500 forms and implementing
regulatory amendments are intended to facilitate the transition to an
electronic filing system, reduce and streamline annual reporting
burdens, especially for small businesses, and update the annual
reporting forms to reflect current issues, agency priorities and new
requirements under the Pension Protection Act of 2006. Some of the
forms revisions apply on a transitional basis for the 2008 reporting
year before all of the form revisions are fully implemented as part of
the switch under the ERISA Filing Acceptance System (EFAST) to a wholly
electronic filing system for the 2009 reporting year. The current
effective date of the electronic filing requirement under 29 CFR
2520.104a-2 also is being postponed in this document to apply to plan
years beginning on or after January 1, 2009. The regulatory amendments
will affect the financial and other information required to be reported
and disclosed by employee benefit plans filing the Form 5500 Annual
Return/Report of Employee Benefit Plan, including the Form 5500-SF,
under Title I of ERISA.
DATES: This rule is effective January 15, 2008.
FOR FURTHER INFORMATION CONTACT: Elizabeth A. Goodman or Michael I.
Baird, Office of Regulations and Interpretations, Employee Benefits
Security Administration, U.S. Department of Labor, (202) 693-8523 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
A. Background
Under Titles I and IV of the Employee Retirement Income Security
Act of 1974, as amended (ERISA), and the Internal Revenue Code, as
amended (Code), pension and other employee benefit plans generally are
required to file annual returns/reports concerning, among other things,
the financial condition and operations of the plan. Filing the Form
5500, ``Annual Return/Report of Employee Benefit Plan,'' together with
any required attachments and schedules (Form 5500 Annual Return/Report)
through the ERISA Filing Acceptance System (EFAST) generally satisfies
these annual reporting requirements. The Form 5500 Annual Return/Report
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 Annual Return/Report is a
compliance and research tool for the Department of Labor (Department),
Internal Revenue Service (IRS), and the Pension Benefit Guaranty
Corporation (PBGC) (collectively, the Agencies) 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.
On July 21, 2006, the Agencies published a notice of proposed forms
revisions (July 2006 Proposal) with changes to the Form 5500 Annual
Return/Report for the 2008 reporting year. 71 FR 41615. The proposed
form changes were intended to: facilitate the transition to a wholly
electronic filing system for the 5500 Forms, including removal of IRS-
only schedules; reduce and streamline annual reporting burdens,
especially for small businesses, with the establishment of a new Short
Form 5500; and update the annual reporting forms to reflect current
issues and agency priorities, including enhanced reporting of plan fees
and expenses. The Department also published a final rule requiring
electronic filing of the Form 5500 Annual Return/Report for plan years
beginning January 1, 2008 (Electronic Filing Rule). 71 FR 41359 (July
21, 2006). On December 11, 2006, the Agencies published a Notice of
Supplemental Proposed Forms Revisions (Supplemental Notice). The
Supplemental Notice was necessary to make changes to the Form 5500
Annual Return/Report required by the Pension Protection Act of 2006,
Pub. L. 109-280, 120 Stat. 780 (2006), enacted on August 17, 2006
(PPA). 71 FR 71562.
The Department received 38 comment letters on the July 2006
Proposal from representatives of employers, plans, and plan service
providers.\1\ It received seven comments on the Supplemental Notice.
Copies of the comments are posted on the Department's Web site at
http://www.dol.gov/ebsa/regs.
---------------------------------------------------------------------------
\1\ The Department also received a comment letter from the
United States Department of Commerce, Economic and Statistics
Administration, Bureau of Economic Analysis (BEA), indicating that
the BEA relies on the information collected in the Form 5500 to
prepare certain statistics.
---------------------------------------------------------------------------
The preamble to this Notice outlines the final amendments being
adopted to the Department's annual reporting regulations to reflect the
changes being adopted to the Form 5500 Annual Return/Report, the Form
5500-SF ``Short Form Annual Return/Report of Small Employee Benefits
Plan'' (Form 5500-SF or Short Form 5500), and the required attachments
and schedules (collectively, the 5500 Forms) published simultaneously.
A comprehensive discussion of the changes to the 5500 Forms and
instructions is in a separate notice of adoption of final revisions to
the annual report/return forms (Forms Revision Notice) that is being
published in today's Federal Register. To avoid unnecessary
duplication, that discussion is incorporated herein by reference and
only a general summary of the form and instruction changes is included
in this preamble as background for the required cost/benefit and
regulatory impact analyses.
B. Discussion of the Revisions to 29 CFR Part 2520
The public comments generally did not directly address the proposed
regulations themselves. Rather, the comments were addressed to the
scope and specifics of the proposed forms and instruction changes. As
described more fully in the Form Revision Notice, the public comments
generally approved of the Agencies' streamlining of the annual
reporting requirements through the adoption of the new Form 5500-SF and
eliminating the IRS-only schedules from the Form 5500 Annual Return/
Report. The comments also generally supported the objectives of
updating the annual return/report filing requirements to reflect
current issues and enhancing transparency and accountability, although
some commenters expressed concerns about the benefits, feasibility, and
cost of complying with some of the proposed changes, particularly the
[[Page 64711]]
proposed changes to fee and expense reporting and the extension of the
normal annual reporting requirements to Code section 403(b) plans. Some
commenters also suggested postponing implementation of the proposed
changes to allow filers and service providers more time to implement
administrative procedures and alter information systems in order to
comply with the new annual reporting requirements. The comments
included suggestions for various technical adjustments of the forms and
instructions to clarify and explain the new annual reporting
requirements.
The following sections of this preamble describe the final
regulations being adopted by the Department to implement the form and
instruction changes, including a postponement of the current effective
date of the Electronic Filing Rule to make it applicable one year
later--for plan and reporting years beginning on or after January 1,
2009.
1. Section 2520.103-1
The Department's annual reporting regulations, including 29 CFR
2520.103-1, generally are promulgated under the provisions of ERISA
that authorize the creation of limited exemptions and simplified
reporting and disclosure for welfare plans under ERISA section
104(a)(3), simplified annual reports under ERISA section 104(a)(2)(A)
for pension plans that cover fewer than 100 participants, and
alternative methods of compliance for all pension plans under ERISA
section 110(a). See also ERISA section 505. To accommodate the form and
instruction changes set forth in the Forms Revision Notice, regulatory
amendments to 29 CFR 2520.103-1 are being made to update the references
in the regulation to the annual return/report as revised.
(a) Short Form 5500 (Eligible Small Plan Filers)
A new two-page Form 5500-SF is being adopted to streamline the
reporting requirements for certain small pension and welfare plans
(generally, plans with fewer than 100 participants) that meet certain
conditions regarding their investments being held or issued by
regulated financial institutions and that have a readily determinable
fair market value as described in the final regulation at section
2520.103-1(c)(2)(ii)(C). The Form 5500-SF is also being adopted to
provide a simplified report for plans with fewer than 25 participants
as required by section 1103(b) of the PPA.\2\ A detailed description of
the Form 5500-SF, and a facsimile of the form and instructions are in
the Forms Revision Notice being published in today's Federal Register.
Substantially all of the information required to be reported by
employee benefit plans on the Short Form 5500 currently is included in
the more comprehensive information required to be reported as part of
the Form 5500 simplified report currently available to small plans. The
addition of the Short Form 5500 does not eliminate the existing
simplified report available for small plans but, rather, adds the Short
Form 5500 as another simplified reporting option for eligible small
plans.
---------------------------------------------------------------------------
\2\ The PPA's requirement to provide simplified reporting for
plans with fewer than 25 participants is effective for plan years
beginning after December 31, 2006. The Short Form 5500 will not be
available for use, however, until the move to the fully electronic
filing system for plan years beginning after December 31, 2008. For
the interim two years, as discussed in more detail in the Forms
Revision Notice, the Agencies are offering to plans with fewer than
25 participants that would meet the eligibility requirements for the
Short Form 5500 a simplified reporting option within the context of
the existing annual report forms.
---------------------------------------------------------------------------
As more fully described in the Forms Revision Notice, the IRS has
advised the Department that, although there are no mandatory electronic
filing requirements for the 5500 Forms under the Code or the
regulations issued thereunder, the electronic filing of the 5500 Forms,
in accordance with the instructions and such other guidance as the
Secretary of the Treasury may provide, will be treated as satisfying
the annual filing and reporting requirements under Code sections
6058(a) and 6059(a). In addition, to ease the burdens on plans that are
not subject to Title I of ERISA that file the Form 5500-EZ to satisfy
the annual reporting and filing obligations imposed by the Code, the
IRS has advised that it will permit certain Form 5500-EZ filers to
satisfy the requirement to file the Form 5500-EZ with the IRS by filing
the Short Form 5500 electronically through the EFAST processing system.
Eligible Form 5500-EZ filers thus will have electronic filing and paper
filing options. The electronic filing option will allow eligible Form
5500-EZ filers to complete and electronically file with EFAST selected
information on the Short Form 5500. Those Form 5500-EZ filers will also
be able to choose instead to file a Form 5500-EZ on paper with the
IRS.\3\
---------------------------------------------------------------------------
\3\ Under the voluntary electronic filing option, Form 5500-EZ
filers filing an amended return for a plan year will have to file
the amended return electronically using the Form 5500-SF if they
initially filed electronically for the plan year and will have to
file with the IRS using the paper Form 5500-EZ if they filed for the
plan year with the IRS on a paper Form 5500-EZ.
---------------------------------------------------------------------------
(b) Removal of IRS-Only Schedules from the 5500 Forms Annual Return/
Report
For plan years beginning after December 31, 2008, the 5500 Forms
will no longer include any of the schedules that are required only for
the IRS. This change was made to help effectuate the adoption of a
wholly electronic filing requirement for the 5500 Forms. Accordingly,
the Schedule E (ESOP Annual Information) and the Schedule SSA (Annual
Registration Statement Identifying Separated Participants With Deferred
Vested Benefits) will no longer be required to be filed as part of the
5500 Forms.\4\ Three questions on employee stock ownership plan (ESOP)
information formerly reported on the Schedule E will now be on the
Schedule R (Retirement Plan Information). The IRS also has advised the
Department that it intends that plan administrators, employers, and
certain other entities that are subject to additional filing and
reporting requirements under the Code will have to continue to satisfy
any applicable requirements in accordance with IRS revenue procedures,
regulations, publications, forms, and instructions.
---------------------------------------------------------------------------
\4\ Schedule P (Annual Return of Fiduciary of Employee Benefit
Trust) was removed from Form 5500 filings beginning with the 2006
plan year (2005 plan year for Form 5500-EZ) in anticipation of the
move to electronic filing. See, Announcement 2007-63, 2007-30 I.R.B
65. In addition, Schedule T (Qualified Pension Plan Coverage
Information) was removed from Form 5500 filings beginning with the
2005 plan year. The IRS notes that this change was not intended to
effect the applicable required or optional nondiscrimination testing
(including the testing options described in Revenue Procedure 93-
42), 1993-2 C.B. 540.
---------------------------------------------------------------------------
(c) Schedule A (Insurance Information)
Schedule A must be attached to the Form 5500 Annual Return/Report
for an ERISA-covered plan if any pension or welfare benefits under the
plan are provided by, or if the plan holds any investment contracts
with, an insurance company, insurance service or other similar
organization. As with the proposal, the Schedule A data elements are
largely unchanged from the current form. The Department adopted in the
final Schedule A the proposed line item to give administrators a
specific space on the Schedule A to report a failure by an insurance
carrier to provide necessary information. Certain other technical
changes and clarifications were made to the Schedule A and its
instructions to improve Schedule A as a vehicle for disclosure of
insurance fees and commissions.
[[Page 64712]]
(d) Schedule SB (Single-Employer Defined Benefit Plan Actuarial
Information) and Schedule MB (Multiemployer Defined Benefit Plan and
Certain Money Purchase Plan Actuarial Information) (Formerly Schedule
B)
Actuarial schedules are required for defined benefit pension plans
subject to the minimum funding standards (see Code section 412 and Part
3 of Title I of ERISA). Schedules SB and MB will be required to be
filed as a non-standard attachment for the 2008 plan year to meet the
requirements of the PPA and, for the 2009 plan year and later, will be
filed in the same manner as the other schedules under the electronic
filing system.
The Schedule SB must be filed for single-employer defined benefit
pension plans (including multiple-employer defined benefit pension
plans).\5\ The Schedule SB and accompanying attachments will capture
identifying information about the plan and plan sponsor, the type of
plan, and prior year plan size. It includes basic information about
plan assets, number of participants, funding target information, and a
statement by an enrolled actuary. It consists of basic actuarial
worksheets designed to allow the Agencies to evaluate the plan's
compliance with the funding requirements as amended by sections 101,
102, 111, and 112 of the PPA, and to ensure that the reporting
requirements under ERISA, as amended by section 503 of the PPA, are
included on the schedule. The material is divided into sections
consisting of ``Basic information,'' ``Beginning of year carryover and
prefunding balances,'' ``Funding percentages,'' ``Contributions and
liquidity shortfalls,'' ``Assumptions used to determine funding target
and target normal cost,'' ``Miscellaneous items,'' ``Reconciliation of
unpaid minimum required contributions for prior years,'' and ``Minimum
required contribution for current year.'' Airlines that have frozen
pension plans electing the alternate funding schedule and plans for
which the effective date of the new PPA funding rules is delayed (PBGC
settlement plans, certain defense contractors, certain rural electrical
cooperatives, etc.) will not be required to fill out all of these
sections. Instead, additional information related to the applicable
funding rules for such plans will be provided as an attachment.
---------------------------------------------------------------------------
\5\ Unlike multiemployer plans within the meaning of ERISA
sections 3(37) and 4001(a)(3) to which more than one employer is
required to contribute, which must be maintained pursuant to one or
more collective bargaining agreements between one or more employee
organizations and more than one employer, and which must satisfy
other requirements prescribed in regulations issued by the
Department at 29 CFR 2510.3-37, multiple-employer plans are plans
that cover the employees of two or more employers but are treated as
single-employer plans for various purposes under ERISA.
---------------------------------------------------------------------------
Schedule MB must be filed for all multiemployer defined benefit
plans and money purchase plans (including target benefit plans) that
are currently amortizing waivers. Schedule MB is similar to the
existing Schedule B. New items that have been added include: (1)
Accrued liability determined using the unit credit cost method; (2)
information about whether the plan is in endangered, seriously
endangered, or critical status, and, if so, whether the plan is
complying with the applicable requirements for its funding improvement
or rehabilitation plan; and (3) information required by PPA section
503.
(e) Schedule C (Service Provider Information)
Schedule C generally must be attached to the Form 5500 Annual
Return/Report filed by large plan filers to report persons who rendered
services to the plan or in connection with transactions with the plan
received, directly or indirectly, $5,000 or more in compensation during
the plan year, and to report terminations of plan accountants or
enrolled actuaries. Consistent with recommendations of the ERISA
Advisory Council Working Groups and the Government Accountability
Office (GAO), EBSA has concluded that more information should be
disclosed on the Form 5500 Annual Return/Report regarding plan fees and
expenses. See ERISA Advisory Council Report of the Working Group on
Plan Fees and Reporting on Form 5500 (November 10, 2004) (available on
the Internet at: http://www.dol.gov/ebsa/publications); Private
Pensions: Government Actions Could Improve the Timeliness and Content
of Form 5500 Pension Information, GAO-05-491 (available on the Internet
at: http://www.gao.gov).
Schedule C reporting continues to be limited to large plan filers
and the $5,000 reporting threshold has been retained. As in the
proposal, the Schedule C consists of three parts. Part I of the
Schedule C requires, subject to an alternative reporting option
described below, the identification of each person who received,
directly or indirectly, $5,000 or more in total compensation (i.e.,
money or anything else of value) in connection with services rendered
to the plan or their position with the plan during the plan year. To
provide more informative disclosures about the types of fees being paid
to or received by plan service providers, the final Schedule C requires
direct compensation paid by the plan to be reported on a separate line
item from indirect compensation received from sources other than the
plan or plan sponsor. In addition, in light of the fact that particular
service providers may receive indirect compensation of various types
from various sources, the final forms revisions expand the codes
currently required on the Schedule C to better identify the types of
services provided and to also require codes for types of fees received
by the service provider.
As noted above, the final form revisions includes an alternative
reporting option for service providers whose only compensation in
relation to the plan is limited to ``eligible indirect compensation'' (
certain specified types of common investment related fees) provided
that written disclosure(s) are furnished to the plan administrator,
including in electronic form, that disclose the existence of the
indirect compensation; the services provided for the indirect
compensation or the purpose for payment of the indirect compensation;
the amount (or estimate) of the compensation or a description of the
formula used to calculate or determine the compensation; and the
identity of the party or parties paying and receiving the compensation.
Where a particular service provider received only ``eligible indirect
compensation'' for which the required disclosures were provided,
instead of providing information on the service provider, the Schedule
C may report instead identifying information on the person or persons
who provided the plan with the required written disclosures.
With respect to service providers required to be listed on the
Schedule C who received such eligible types of indirect compensation
for which the written disclosures were not provided or any other
indirect compensation, the Schedule C requires more detailed
information on the indirect compensation, including, in the case of
certain key service providers, information regarding the payor if the
service provider received during the plan year indirect compensation
from a single source of $1,000 or more.
Although filers generally have the option of reporting a formula
used to calculate indirect compensation received instead of an actual
dollar amount or estimate, where a formula is used to describe indirect
compensation received by one of the key service providers, the amount
of indirect compensation is presumed to meet the reporting thresholds
for purposes of the Schedule C reporting requirements.
[[Page 64713]]
As noted above, the final Schedule C includes a new Part II for
plan administrators to identify each service provider that failed or
refused to provide the information necessary to complete Part I of the
Schedule C.
The third part of the Schedule C (Part III) is the current Part II
of the Schedule C used for reporting termination information on plan
accountants and enrolled actuaries.
(f) Schedule R (Retirement Plan Information)
As noted above, in light of the removal of the Schedule E (ESOP
Annual Information), selected questions from the Schedule E are being
incorporated into the Schedule R in order to continue to collect
certain information regarding ESOPs as part of the Form 5500 Annual
Return/Report.
As in the proposal, Schedule R has been modified to include
additional questions required by section 503 of PPA and to collect
information the PBGC needs to enable it to properly monitor the plans
it insures. The new Part V collects PPA-required information on
multiemployer defined benefit plans and additional information related
to major contributing employers. Asset allocation questions for large
defined benefit plans (1,000 or more participants) are included in Part
VI. Such plans must provide a breakdown of plan assets by type of
investment (stock, investment-grade debt, high-yield debt, real estate,
and other). Information on the average duration of combined investment-
grade and high-yield debt is also required. For this purpose, duration
may be determined using any generally accepted methodology. Although
the ESOP-related questions will not be on the Schedule R until the
shift to the wholly electronic filing system effective for the 2009
plan year, the PPA-related questions and the asset allocation questions
for the PBGC will be required as a non-standard attachment to the
Schedule R for the 2008 plan year.
(g) Technical and Conforming Changes for Forms and Instructions
Various other technical and conforming changes are being adopted as
part of the final changes to the 5500 Forms. Several of the more
significant changes include: (1) Revision of the instructions for the
Form 5500 Annual Return/Report and development of instructions for the
Short Form 5500 to reflect the new structure of the returns/reports and
electronic filing requirements; (2) addition of questions regarding
compliance with the Department's blackout notice regulation in 29 CFR
2510.101-3; (3) addition of a compliance question on whether the plan
failed to pay benefits when due under the plan; (4) expansion of the
use of codes to report plan feature information on pension and welfare
benefit plans; (5) elimination of the optional entry of the form
preparer's name and employer identification number (EIN); (6) requiring
small plans to report administrative expenses separately from other
expenses on the Schedule I; (7) addition of a question on whether any
minimum funding amount reported for a pension plan will be met by the
funding deadline; and (8) adoption of a standard format for use in
connection with an independent qualified public accountant (IQPA)
rendering an opinion on the supplemental schedule information on Line
4a of Schedule H and I relating to delinquent participant
contributions.
(h) PPA-Required Simplified Reporting for Plans With Fewer Than 25
Participants
As noted in the Forms Revision Notice, section 1103(b) of the PPA
requires a simplified report for plans with fewer than 25 participants
to be available for 2007 plan year filings, i.e., filings for plan
years beginning after December 31, 2006. To satisfy this requirement,
the Agencies proposed giving plans covering fewer than 25 participants
that would meet the conditions for being eligible to file the Short
Form 5500--treating those conditions as if they applied for 2007 plan
year filings--the option of filing an abbreviated version of the
current Form 5500 Annual Return/Report for ``small plan'' filers. The
abbreviated version, to a large extent, is an attempt to replicate,
within the context of the existing Form 5500 Annual Return/Report
structure, the information that would be required to be reported on the
Short Form 5500 by allowing certain schedules to be excluded from the
filing and requiring only certain line items to be completed on any
required schedules. Although the Department received a comment
suggesting that the Agencies satisfy the PPA requirement by instituting
the Form 5500-SF for 2007 plan year filings, the Department concluded
that approach would not be feasible or appropriate given the costs that
would have been required to modify the current EFAST system so that it
could process the Form 5500-SF. Rather, with the additional deferral in
the implementation of the electronic filing requirement, the proposed
simplified reporting option using the existing 5500 Forms for eligible
plans with fewer than 25 participants will be available for both the
2007 and 2008 plan year filings.
Thus, for the 2007 and 2008 plan years, plans with fewer than 25
participants that meet the eligibility requirements for the Short Form
5500, treating those conditions as if they applied for 2007 and 2008
plan year filings, will be permitted to satisfy the annual reporting
requirement by filing on the appropriate year form and schedules: (1)
The Form 5500; (2) a Schedule A for any insurance contracts for which a
Schedule A is required under current rules, completing only lines A, B,
C, D and the insurance fee and commission information in Part I; (3)
Schedule B for the 2007 plan year, and, for the 2008 plan year,
Schedule MB for multiemployer defined pension benefit plans and certain
money purchase plans, and Schedule SB for single employer defined
benefit pension plans; (4) Schedule I; (5) Schedule R, completing only
lines A, B, C, D, and Part II; and (6) Schedule SSA. Additional
detailed guidance regarding this simplified reporting option is
included in the instructions to the 2007 Form 5500 and the instructions
to the 2008 Form 5500.
The Department understands that some eligible small plan filers may
want to wait until the implementation of the Short Form 5500 for the
2009 plan year in order to avoid having to make changes to their annual
reporting systems and procedures for 2007 and 2008 plan year filings
and then adjust them again to start filing the Short Form for the 2009
plan year. The above simplified reporting alternative, accordingly, is
available for plans that voluntarily take advantage of its
availability. Plans with fewer than 25 participants can instead
continue to file in accordance with the normal small plan rules for the
2007 and 2008 plan year.
(i) PPA-Required Actuarial Schedules and Multiemployer Plan Reporting
The remaining PPA-required changes in the 5500 Forms are the new
actuarial information schedules (Schedules SB and MB), most of the
questions on Part V of the Schedule R--Additional Information for
Multiemployer Defined Benefit Pension Plans, line 18 of the Schedule R
(certain liabilities to participants and beneficiaries under two or
more pension plans), and line 7 of the Form 5500 (number of employers
obligated to contribute to multiemployer defined benefit plans).\6\ To
comply with
[[Page 64714]]
the PPA, these reporting changes for defined benefit and multiemployer
pension plans are being implemented on a transitional basis under the
current EFAST system for 2008 plan year annual reports. Plans required
to file an actuarial schedule will check the Schedule B box on the 5500
Forms to indicate that they are filing Schedule SB or MB (for plan
years beginning with the 2008 plan year) as an attachment to their
filing. Similarly, as to the new Part V and line 18 on the Schedule R,
and the Form 5500 question for multiemployer plans on the total number
of contributing employers, as well as the new financial questions
needed by the PBGC, filers will be directed in the instructions to
include answers to those questions as an attachment to the Schedule
R.\7\
---------------------------------------------------------------------------
\6\ For 2008, only multiemployer defined benefit pension plans
will be required to answer the new question 7 on the 2009 Form 5500
(as a nonstandard attachment), as mandated by the PPA, but in 2009
and following years, all multiemployer plans will be required to
answer the question as part of the electronic filing of the Form
5500, as proposed in the July 2006 Proposal.
\7\ Because the 2007 forms will not include the new PPA required
questions, a caution was added to the 2007 Form 5500 instructions to
alert short plan year filers required to complete the Schedule SB,
Schedule MB or the new Schedule R questions that they will have to
wait until the 2008 Forms and instructions are publicly available
for use for filing.
---------------------------------------------------------------------------
2. Section 2520.104a-2 Electronic Filing of Annual Reports
The proposed revisions to the Form 5500 Annual Return/Report, which
include both those set forth in the Agencies' July 2006 Proposal and
those in the Supplemental Notice to address changes required by the
PPA, were part of the Agencies' move to a fully electronic filing and
processing system to replace the existing largely paper-based EFAST
system. As part of that initiative, the Department published the
Electronic Filing Rule, establishing an electronic filing requirement
for the Form 5500 Annual Return/Report and the Form 5500-SF for plan
years beginning on or after January 1, 2008. 71 FR 41359. In adopting
the final Electronic Filing Rule, the Department responded to public
comments seeking a postponement in the move to a wholly electronic
filing system by agreeing to a deferral of the electronic filing
mandate for one year from the 2007 plan year to the 2008 plan year. The
Department agreed to the deferral in order to ensure an orderly and
cost-effective migration to an electronic filing system by both the
Department and annual report filers. Under that deferral, the vast
majority of filers would have had until at least July 2009 to make any
necessary adjustments to accommodate the electronic filing of their
annual report because annual reports generally are not required to be
filed until the end of the 7th month following the end of the plan
year. Deferring the implementation date also provided service
providers, software developers, and the Department additional time to
work through electronic processing issues.
A significant percentage of the commenters on the form revision
proposals, including several large industry groups representing plan
sponsors and service providers, asked for a further postponement in the
effective date of the forms changes, and as a consequence, the
electronic filing requirement. The commenters emphasized that the PPA,
including its new reporting and disclosure obligations, would require
many plans and service providers to update existing information
management and recordkeeping systems. They also pointed out the certain
of the changes in the July 2006 proposal, especially the enhanced fee
disclosure requirements in Schedule C and the increased reporting by
Code section 403(b) plans (described below), would also require changes
in the way plans collect and keep plan information. They argued that it
would be particularly burdensome to require plans to transition to the
new Form 5500 annual reporting obligations, including the move to the
wholly electronic filing system, at the same time as they were working
to comply with new PPA requirements. Also, complications with the
procurement process and delays in completing the 2007 fiscal year
appropriations impacted the timing of the EFAST2 contract award.
The Department continues to believe it is important for plans,
service providers, and the Agencies to have an orderly and cost-
effective migration to the EFAST2 electronic filing system. The
Department, in conjunction with the other Agencies, has decided to
defer for an additional one year the implementation of annual reporting
forms changes not mandated by the PPA. In determining to publish this
deferral in final form, the Department considered section 553 of the
Administrative Procedure Act (APA), which requires that an agency
provide for notice and comments prior to promulgating substantive rules
does not apply when an agency, for good cause, unless it determines
that such procedures are impractical, unnecessary or contrary to the
public interest. 5 U.S.C. 553(b)(A) and (B). The Department has
determined that in order to effectuate an orderly migration to the
EFAST2 system, a deferral of the final rule for one additional year is
warranted without further notice and comment.
First, the deferral is necessitated by delays in the contracting
process beyond the Department's control, including the timing of the
fiscal year 2007 budget appropriations, which prevented a contract
award in time to build the new system to process 2008 plan year filings
as contemplated in the original rulemaking. The Agencies now have,
however, received the budgetary authorization necessary to complete the
procurement process, have received bids, and are actively pursuing the
process. As noted in the Department's FY 2008 Detailed Budget
Documentation, available on the Internet at http://www.dol.gov, the
Department is on track for implementing EFAST2 system on January 1,
2010, to process filings for the 2009 plan year.
Second, when implemented, the elimination of paper filings in favor
of electronic filing will result not only in significant improvements
in the timeliness and accuracy of information available to workers,
regulators and the public about employee benefit plans and result in
operational improvements and cost savings, a direct goal of the
President's E-government initiative, but it will also be used to
fulfill information collection and disclosure requirements of the PPA,
many of which apply for the 2008 plan year. Thus, additional delays
would negatively impact orderly and cost-effective integration of the
new PPA requirements and the new EFAST2 system, in light of the PPA's
deadlines.
Third, publishing the deferral of the effective date on an interim
basis with an opportunity for comment not only could potentially
interfere with the contracting and budget process, but also could also
harm plans by leading them to delay preparing for the move to the new
system, when it is not practical to implement the new system either
earlier or later.
Accordingly, under the final regulation, the electronic filing
requirement and all of the forms changes, except for those mandated by
the PPA discussed in this Notice and the Forms Revision Notice, will
become effective for all annual report filings made under Part 1 of
Title I of ERISA for plan years (reporting years for non-plan filings)
beginning on or after January 1, 2009. To effectuate the deferral of
the electronic filing requirement, this final rule includes an
amendment to the Electronic Filing Rule published in the Federal
Register on July 21, 2006. Specifically, this final rule amends the
Department's regulation at 29 CFR 2520.104a-2 to
[[Page 64715]]
provide that the electronic filing requirement is applicable for plan
years beginning on or after January 1, 2009.
Under this final rule, the vast majority of filers will now have
until at least July 2010 to complete any necessary adjustments to
accommodate the non-PPA required changes to the form and those required
for electronic filing of their annual report because annual reports
generally are not required to be filed until the end of the 7th month
following the end of the plan year.
3. Section 2520.104-44
Section 2520.104-44 and the current Form 5500 Annual Return/Report
instructions provide for limited reporting for pension plans that
exclusively use a tax deferred annuity arrangement under Code section
403(b)(1), custodial accounts for regulated investment company stock
under Code section 403(b)(7), or a combination of both. The exemption
in section 2520.104-4(b)(3) is being eliminated, with the result that
Code section 403(b) pension plans subject to Title I will now be
treated the same under the regulations as any other Title I pension
plan for purposes of the annual reporting requirements under Title I of
ERISA.
4. Section 2520.104-46
In accordance with the Department's authority under section
104(a)(2)(A) and 104(a)(3) of ERISA, the Department has adopted, at 29
CFR 2520.104-41, simplified annual reporting requirements for pension
and welfare benefit plans with fewer than 100 participants. In
addition, the Department, at 29 CFR 2520.104-46, has prescribed for
such small plans a waiver from the requirements of ERISA section
103(a)(3)(A) to engage an IQPA and to include the opinion of the IQPA
as part of the plan's annual report. The waiver of the IQPA
requirements for pension plans was conditioned, among other
requirements, on enhanced disclosure in the Summary Annual Report (SAR)
provided to participants and beneficiaries. In that regard, the
Department prepared a model notice that plans could use to satisfy the
enhanced SAR disclosure conditions. That model notice has been
available at the EBSA's Web site at http://www.dol.gov/ebsa. In order
to provide plan administrators with additional access to the model
notice and to facilitate compliance with the audit waiver eligibility
conditions, the Department has added the model notice as an appendix to
section 2520.104-46.\8\
---------------------------------------------------------------------------
\8\ The PPA requires defined benefit plans to provide an Annual
Funding Notice for plan years beginning after January 1, 2008. Under
the PPA, plans that provide an Annual Funding Notice will no longer
have to provide an SAR. The Department has a separate regulatory
initiative regarding the PPA-required Annual Funding Notice. The
Department anticipates that rulemaking will provide that the
enhanced disclosure required to be eligible for the waiver of the
requirement for an audit by an independent qualified public
accountant be included in the Annual Funding Notice for small
pension plans providing that notice instead of an SAR.
---------------------------------------------------------------------------
5. Section 2520.104b-10
Section 104(b)(3) of ERISA provides in part that, each year,
administrators must furnish to participants and beneficiaries receiving
benefits under a plan SAR materials that fairly summarize the plan's
annual report. Section 2520.104b-10 sets forth the requirements for the
SAR used to satisfy that requirement and prescribes formats for such
reports. The regulatory amendments described in this Notice do not
include any change to the SAR content requirements. In order to
facilitate compliance with the SAR requirement for Short Form 5500
filers, however, the Department is updating its cross-reference guide
to correspond the line items of the SAR to the relevant line items on
the Form 5500 and Short Form 5500. The cross-reference guide, as
before, would continue to be an appendix to section 2520.104b-10.
C. Findings on the Revised 5500 Forms as a Limited Exemption and
Alternative Method of Compliance
Section 104(a)(2)(A) of the Act authorizes the Secretary of Labor
(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 Title I of ERISA,
provides adequate disclosure to plan participants and beneficiaries,
and provides adequate reporting 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 Annual Return/Report,
including the filing by eligible plans of the Short Form 5500, in
accordance with the instructions and related regulations, generally
would constitute compliance with the simplified report, limited
exemption and/or alternative method of compliance in 29 CFR 2520.103-1.
The findings required under ERISA sections 104(a)(3) and 110 relating
to the use of the revised 5500 Forms as alternative methods of
compliance, simplified report, and/or limited exemption from the
reporting and disclosure requirements of Part 1 of Subtitle B of Title
I of ERISA are set forth below. In revising the 5500 Forms and making
the amendments in this rulemaking, the Department has attempted to
balance the needs of participants and 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. The Department
makes the following findings under sections 104(a)(3) and 110 of the
Act with regard to the use of the revised 5500 Forms as a simplified
report, alternative method of compliance, and/or limited exemption
pursuant to 29 CFR 2520.103-1(b).
The use of the revised 5500 Forms 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 that would be required to be reported on or in connection
with the revised 5500 Forms deviates, as before, in some respects, from
that delineated in section 103 of the Act, the information needed for
adequate disclosure and reporting under Title I is required to be
included on or as part of the 5500 Forms.
The use of the 5500 Forms will relieve plans subject to the annual
reporting requirements from increased costs and unreasonable
administrative burdens by providing a standardized format that
facilitates reporting, eliminates duplicative reporting requirements,
and simplifies the content of the annual report in general. The 5500
Forms are intended to reduce further the administrative burdens and
costs attributable to compliance with the annual reporting
requirements.
[[Page 64716]]
Taking into account the above, the Department has determined that
application of the statutory annual reporting and disclosure
requirements without the availability of the revised 5500 Forms and the
new Schedules SB and MB, would be adverse to the interests of
participants in the aggregate. The revised 5500 Forms provide for the
reporting and disclosure of basic financial and other plan information
described in section 103 of ERISA in a uniform, efficient, and
understandable manner, thereby facilitating the disclosure of such
information to plan participants and beneficiaries.
Finally, the Department has determined under section 104(a)(3) of
ERISA that a strict application of the statutory reporting
requirements, without taking into account the revisions to the 5500
Forms would be inappropriate in the context of welfare plans for the
same reasons discussed above (i.e., the streamlined forms reduce filing
burdens without impairing enforcement, research, and policy needs,
while at the same time providing adequate disclosure to participants
and beneficiaries).
D. Regulatory Impact Analysis
Executive Order 12866 Statement
Under Executive Order 12866, the Department must determine whether
a regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and review by the Office of
Management and Budget (OMB). Section 3(f) of Executive Order 12866
defines a ``significant regulatory action'' as an action that is likely
to result in a rule's (1) having an annual effect on the economy of
$100 million or more, or adversely and materially affecting a sector of
the economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or tribal governments or communities
(also referred to as ``economically significant''); (2) creating
serious inconsistency or otherwise interfering with an action taken or
planned by another agency; (3) materially altering the budgetary
impacts of entitlement grants, user fees, or loan programs or the
rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order.
Pursuant to the terms of the Executive Order, it has been
determined that this regulatory action is likely to have an annual
effect on the economy of approximately $100 million. Therefore, this
action is being treated as ``economically significant'' and subject to
OMB review under section 3(f)(1) of Executive Order 12866. The
Department accordingly has undertaken to assess the costs and benefits
of this regulatory action in satisfaction of the applicable
requirements of the Executive Order and provides herein a summary
discussion of its assessment.
The amendments contained in this final rule conform the annual
reporting and disclosure regulations promulgated under Title I of ERISA
to final revisions to the 5500 Forms and instructions being issued
simultaneously with this final rule. Inasmuch as the amendments
contained in this final rule implement the forms revisions contained in
the Forms Revision Notice being published simultaneously with this
final rule, the Department's assessment pursuant to the Executive Order
combines the regulatory amendments and the form revisions, treating
these changes as a coordinated regulatory action. The Department's
assessment, described below, takes into account the public comments
received in response to the July 2006 Proposal and the Supplemental
Notice, which are discussed in detail in the preamble of the Forms
Revision Notice. That discussion, to which reference is made throughout
this assessment, is hereby incorporated into this assessment by
reference.
In accordance with OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), Table 1 below depicts
an accounting statement showing the Department's assessment of the net
annual cost reduction associated with the provisions of the final rule
and forms revisions. Over the next ten years, the Department
anticipates an average annual reduction in costs of $94 million when
using a 3% discount rate as suggested by OMB Circular A-4.\9\ As
described more fully below, the Department believes that the impact of
these changes will affect individual employee benefit plans
disparately, depending on their individual circumstances. While most
employee benefit plans are likely to experience a decrease in costs,
some plans may see an increase in costs due to these rules. Further
information about the relative increase or decrease in costs likely for
particular plan types is described below.
---------------------------------------------------------------------------
\9\ A 7% units discount rate increases the estimate of the
average annual reduction to $97 million. Both annualized estimates
are based on aggregate cost savings of $25.6 million in 2007, $30.2
million in 2008, and $97.4 million, starting in 2009 (all in 2009
Dollars).
Table 1.--Accounting Statement: Estimated Cost Reduction From the Current Reporting Requirements to the 2009
Reporting Requirements
[In millions]
----------------------------------------------------------------------------------------------------------------
Estimates Units
---------------------------------------------------------------------------------
Category Discount
Primary Low High Year rate Period covered
estimate estimate estimate dollar (percent)
----------------------------------------------------------------------------------------------------------------
Benefits:
Annualized Monetized...... 94.3 0.0 0.0 2009 7 2007 and later.
($millions/year).......... 97.1 0.0 0.0 2009 3 2007 and later.
Annualized Quantified..... 0.0 0.0 0.0 ......... 7
Qualitative............... 0.0 0.0 0.0 ......... 3
Costs:
Annualized Monetized...... 14.8 0.0 0.0 2009 7 2007 and later.
($millions/year).......... 15.4 0.0 0.0 2009 3 2007 and later.
Annualized Quantified..... 0.0 0.0 0.0 ......... 7
Qualitative............... 0.0 0.0 0.0 ......... 3
----------------------------------------------------------------------------------------------------------------
[[Page 64717]]
Need for Regulatory Action
As described in the preambles to the July 2006 Proposal and the
Supplemental Notice, the Department is promulgating these amendments of
the annual reporting regulations, the revision of the Form 5500 Annual
Return/Report and its instructions, and the creation of the Short Form
5500 and its instructions, with the goal of reducing the overall burden
of the statutory reporting requirements and the forms without
sacrificing the quality of the information collected. This action also
furthers three specific Departmental initiatives, described earlier in
this preamble: (1) Creating a fully electronic filing system for
processing the annual reports filed by employee benefit plans; (2)
responding to reports from the GAO and the ERISA Advisory Council
suggesting the need for substantive changes in the information gathered
through the 5500 Forms, specifically with respect to fees and expenses
of employee benefit plans; and (3) effectuating new reporting and
disclosure requirements contained in the PPA.
The principal reforms contained in this final action include the
adoption of the Short Form 5500, the revision of reporting requirements
for Code section 403(b) plans, the creation of separate Schedules SB
and MB to replace the Schedule B to report actuarial information, the
elimination of IRS-only schedules, and the expansion of fee reporting
in Schedule C. Because of the importance of these annual return/reports
as a source of information for participants and beneficiaries, as an
enforcement and research tool for the Department, and as 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 final regulatory action increases the amount
and improves the quality of information that plans must disclose.
Because of the voluntary nature of the employee benefit system,
however, the Department, in shaping this regulatory action, has
carefully balanced the need for increased and improved disclosure and
plan administrators' and sponsors' interest in minimizing reporting
costs.
Specifically, the burden associated with completion of the Form
5500 Annual Return/Report can be divided into two steps: reading the
instructions and completing the individual line items. The current
structure of the Form 5500 Annual Return/Report, even without the
introduction of the Short Form 5500, in contrast to what filers would
need to do to comply with the statute in the absence of the Form 5500
Annual Return/Report, allows filers to answer only relevant line items
and quickly find the instructions relevant to the line items that they
are required to complete. In the absence of the Form 5500, filers would
be required to read and evaluate the statutory requirements and make
judgments, without carefully targeted instructions, as to how to comply
with the statutory reporting requirements. The Short Form 5500 requires
not only less line item information than the Form 5500 itself, but
eliminates the need to read instructions that are not associated with
small plan filers. In addition, the elimination of IRS-only schedules
also streamlines reporting under the new system.
The filing burden under these regulations thus is not only less
than under the existing Form 5500 Annual Return/Report without
revisions, but is less than that under the statute. Moreover, while
requiring less information than does the statute, the information
required, especially the new enhanced fee disclosure information, is
carefully targeted to provide the Agencies, participants and
beneficiaries, and others using the Form 5500 Annual Return/Report for
research purposes, more informative data.
Retaining the existing efficient format of the annual return/
report, with most of the information broken out into separate
schedules, along with the introduction of the Short Form 5500 for small
plans invested in assets with a readily determinable market value
should reduce, relative to reporting in the absence of the Form 5500
Annual Return/Report, as revised, the time required to read the
instructions because filers will now be more able to skip over the
instructions for schedules that do not apply to them. It is, however,
expected that filers for whom major changes apply (i.e. Short Form
eligible filers, Schedule SB, MB, and C filers, and Code section 403(b)
plan administrators) will require additional time in the initial year
of filing to thoroughly read the instructions and to familiarize
themselves with the revised Form 5500 Annual Return/Report. It is
assumed, however, that most filers will not require this additional
time in subsequent years. Entry of the information required by the Form
5500 Annual Return/Report, including the Short Form 5500, is made from
financial and other records maintained 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.
As a result, these final changes are anticipated to result in an
aggregate reduction of reporting costs for filers as compared with the
reporting costs before promulgation of these changes. As explained
below, the Department's assessment results in a conclusion that the
benefits to be derived from this regulatory action justify the costs
that the action imposes on the public.
Regulatory Alternatives
Executive Order 12866 directs federal agencies promulgating
regulations to evaluate regulatory alternatives. The Department and the
other Agencies have done so in the process of developing this final
action.\10\ The preambles to the July 2006 Proposal and the
Supplemental Notice describe the regulatory alternatives that were
considered in making those proposals, including the possibilities of
different eligibility criteria for the Short Form 5500; different
approaches for satisfying the PPA requirements for additional actuarial
and asset information reporting; and different types of reporting
requirements for Code section 403(b) plans. In moving from the
proposals to final action, the Department also considered alternatives
set forth in public comments, weighing their costs and benefits against
the initial proposed actions. The final decisions regarding the
regulatory amendments and forms revisions are set forth and explained
elsewhere in this document and in the Forms Revision Notice issued
simultaneously with this document and are assessed further below. The
following summarizes major alternatives considered but not adopted in
finalizing these proposals.
---------------------------------------------------------------------------
\10\ As explained elsewhere in this preamble and in the preamble
to the Forms Revision Notice, the IRS and the PBGC act jointly with
the Department in promulgating the 5500 Forms. The assessment under
E.O. 12866 described in this preamble, therefore, makes reference to
the three Agencies' decisions in finalizing the forms changes, as
well as the Department's decisions in finalizing the amendments to
the reporting regulations under Title I of ERISA.
---------------------------------------------------------------------------
Eligibility for Short Form 5500 for certain plans with fewer than
25 participants. In considering public comments in response to both the
July 2006 Proposal and the Supplemental Notice, several alternatives to
the proposal regarding eligibility to file the Short Form 5500 were
considered but not adopted. Specifically, alternatives considered
included: (1) relaxing the proposed eligibility requirement, applicable
to all small plans (with fewer than 100 participants), that 100 percent
of the plan's assets be invested in
[[Page 64718]]
secured, easy to value assets and (2) permitting all plans with fewer
than 25 participants to file the Short Form 5500, regardless of whether
the plan's investments were so invested.
As described more fully in the preamble to the Forms Revision
Notice, the benefits to be gained through the ability to exercise
oversight of small plans that invest in other types of assets justifies
not diminishing the current burden for plans with fewer than 25
participants by having them continue to file the same information
currently required on those assets. Permitting plans with employer
securities or other assets that are difficult to value to file the
limited information in the Short Form 5500 would be inconsistent with
important policy objectives, which are underscored by the PPA's
emphasis on increasing plan transparency, more accurately measuring
plan assets, increasing participant control over the disposition of
employer securities in defined contribution plans, and expanding the
annual reporting requirements for multiemployer plans. Valuation of
difficult-to-value assets, such as employer securities, may provide an
opportunity for abuse or mismanagement that is not lessened by a plan's
smaller size. The additional oversight possible through increased
reporting responsibilities justifies the additional burden on such
plans.
In any event, as described in the Forms Revision Notice, the
Department estimates that 95 percent of single-employer non-403(b)
plans will qualify to file the Short Form 5500, about 75 percent of
which will be plans with fewer than 25 participants. Expanding Short
Form filing eligibility to the remaining plans with fewer than 25
participants would only affect about 25,000 additional plans. Further,
restricting Short Form 5500 eligibility based on the nature of a plan's
asset investments will not deprive those non-eligible small plans of
simplified annual filing methods. Those small plans will still be
entitled to use the other simplified reporting available to them under
the Form 5500 Annual Return/Report. Taking these other simplified
options into account, we estimate that this option would only have
saved filing plans approximately $4.8 million per year, starting in
2009.\11\ We have concluded that this is a reasonable cost to meet the
important policy goal of ensuring proper disclosure for small
multiemployer plans and for plans with difficult-to-value assets.
---------------------------------------------------------------------------
\11\ Due to the staggered implementation of the form changes,
the savings in 2007 and 2008 are estimated to be about $250,000
annually.
---------------------------------------------------------------------------
Scope of Code section 403(b) plan reporting. The Department
considered, but rejects, alternatives, suggested by commenters, to its
proposal regarding expanded reporting requirements for Code section
403(b) plans that would have retained the current limited reporting
requirements for such plans or modified the proposal to permit such
plans their current exemption from annual audit and accountant's
opinion requirements. The Department rejects these alternatives because
they would significantly reduce or eliminate the benefit that will flow
from expanded reporting by Code section 403(b) plans, which the
Department believes will result in significant improvements in the
administration of Code section 403(b) plans covered by Title I of
ERISA, reducing the rate of violations currently being found in
investigations of Code section 403(b) plans and increasing benefit
security for such plans' participants and beneficiaries.
Scope of Schedule C reporting obligations. The Department
considered and rejects several alternative approaches to the reporting
of direct and indirect compensation on the Schedule C prior to
developing the final decisions embodied in this action. Specifically,
the Department considered and rejects alternatives that would have
limited reporting of indirect compensation, including requiring
reporting of only indirect compensation received by providers with
direct service relationships with the plan; adding a ``de minimis''
exception for reporting cash compensation under a certain dollar
amount; and reinstating the ``top 40'' provider limitation. The
Department assessed the potential cost savings of these and other
alternatives that would have reduced the amount and detail of
information on indirect compensation required to be reported against
the benefits to be gained through increased transparency regarding
compensation paid to plan service providers by third parties. The
Department believes that the increased transparency that will flow from
the indirect compensation reporting required by this final rule will
assist plan fiduciaries in assessing the value and appropriateness of
their service provider relationships, making more efficient
transactions possible and preventing abuses that might arise through
receipt of indirect compensation. The Department's modification of its
proposals on Schedule C disclosures, described in detail in the Forms
Revision Notice, represents a compromise that balances the need for
additional disclosure in this area against the cost to the regulated
entities that additional disclosure would likely impose.
Benefits and Costs
The Department believes that the benefits to be derived from this
final regulatory action, including the final amendments to the
reporting regulations and the final adoption of forms revisions,
justify their costs. The Department further believes that these
revisions to the existing reporting requirements will both reduce
aggregate reporting costs and enhance protection of ERISA rights. The
Department conducted a thorough assessment of the costs and benefits of
these changes as originally proposed. The major proposed changes from
the July 2006 Proposal that are promulgated in this final rule
essentially as proposed include: (1) Adoption of the Short Form 5500;
(2) removal of the IRS-only schedules; and (3) adoption of fuller
reporting requirements for Code section 403(b) plans.
Changes proposed in the Supplemental Notice that are being
finalized herein without substantial change include: (1) adoption of
separate Schedules MB and SB to replace Schedule B; and (2) adoption of
the Short Form 5500 as one method of compliance to effectuate the PPA's
directive to establish simplified reporting for plans with fewer than
25 participants.
The discussion below under Benefits and Costs presents the
Department's assessment of this final action as a whole and provides
discussion of the major aspects of the final action that contributed to
the assessment. The discussion also makes note of some of the
modifications to the proposed changes that are incorporated into the
final action and describes the extent to which those modifications have
affected the Department's assessment of this action's costs and
benefits.
Benefits. As previously described in the July 2006 Proposal and in
the Supplemental Notice, the regulatory amendments and revised versions
of the 5500 Forms announced today will provide a standardized,
streamlined alternative means of compliance with applicable statutory
reporting requirements and will also provide appropriate simplified
annual reports and exemptions under section 104(a)(2) and (3) of ERISA.
The revised Form 5500, the Short Form 5500, and their schedules will
ease plan administrators' compliance with reporting requirements and
greatly enhance the utility and accessibility of information reported
to
[[Page 64719]]
the government, participants and beneficiaries, and others. Together
with the Department's planned program for assisting filers in the
preparation and electronic submission of filings, the revised 5500
Forms will give plan administrators clear guidance and a supportive,
routine mechanism for satisfying their reporting obligations. The
revised 5500 Forms also are designed so that the Department can
efficiently capture the information electronically and assemble it into
an electronic database so that the information can be processed and
analyzed in many beneficial ways. These include monitoring compliance
with ERISA's reporting and other requirements; targeting and carrying
out prompt and effective enforcement actions; informing participants
and beneficiaries of the characteristics, operations, and financial
status of their benefit plans; producing statistics on the employee
benefit system, monitoring trends therein, and informing the public;
and assembling information and conducting research that advances
knowledge and fosters the formulation of sound public policies toward
employee benefits.
Removal of the IRS-only schedules. As explained in the Forms
Revision Notice published simultaneously with this final rule, the
elimination of the IRS-only schedules (Schedule E and Schedule SSA)
beginning with returns/reports for the 2009 plan year facilitates the
change to mandatory electronic filing, which is expected to yield
substantial benefits. Title I information that was previously collected
in the eliminated schedules will be collected in other parts of the
5500 Forms. The Department understands that the IRS is currently
considering whether to continue to collect some of the omitted IRS-only
information via other Treasury or IRS vehicles. The impact of the
removal of these schedules, therefore, is anticipated to reduce
reporting costs, as estimated below, while preserving ERISA
protections.
Establishment of a Short Form 5500 for certain small plans. The
Short Form 5500 will substantially reduce reporting costs (as estimated
below) for eligible filers, while continuing the collection of
sufficient information to preserve ERISA protections, and satisfying
the enforcement, research, and regulatory needs of the Agencies, as
well as the disclosure needs of participants and beneficiaries. The
small single-employer plans targeted for eligibility (those that invest
solely in secure assets that are held or issued by regulated financial
institutions and have a fair market value that is easily determined)
are less at risk of harm through abuse or mismanagement and can benefit
through the reduced filing costs. The eligibility conditions for filing
the Short Form 5500, including the requirements relating to security
and valuation of the plan's investments, ensure both adequate
disclosure to participants and beneficiaries in plans using the Short
Form 5500 and adequate annual reporting to the Agencies. Small plans
that are not eligible to file the Short Form 5500 remain eligible to
file simplified reports under currently available methods of filing,
such as filing Schedule I instead of Schedule H and eligibility for the
waiver from filing the report of an independent qualified public
accountant by virtue of enhanced bonding.
Elimination of the special reporting rules for Code section 403(b)
plans. As noted below, this revision is expected to increase reporting
costs for affected plans. The Department believes, however, that these
added costs are justified by the need to better protect the
participants and beneficiaries of these plans. As discussed in the
preamble to the Notice of Adoption of Forms Revisions, increased
reporting by Code section 403(b) plans is anticipated to provide
substantial benefits through better administration of those plans and
increased oversight by the Agencies and the public. Amending the annual
reporting requirements to place Code section 403(b) plans on par with
other ERISA-covered pension plans will achieve these results. The
Department anticipates that most small Code section 403(b) plans will
be eligible to use the Short Form 5500, and thus will only have to meet
that limited filing obligation. The result of this change is therefore
only a modest increase in the annual reporting burden on small Code
section 403(b) plan filers.
Schedule C fee and compensation reporting. In developing the final
Schedule C fee and compensation reporting requirements, the Department
modified certain aspects of the proposal as it concerned additional
reporting of indirect compensation and fees paid to plan service
providers on Schedule C to reach a balance between the cost to plans
and providers of gathering the required information and the need for
increased transparency regarding such fees and their potential effect
on plans. The final form, as did the proposal, keeps the existing
$5,000 threshold for reporting direct and indirect compensation, but
now has separate line items for reporting direct and indirect
compensation to reduce the possibility of duplicative reporting. In
addition, the final forms revision adds to the Schedule C an
alternative disclosure option. Where the plan administrator has
received required disclosures of eligible indirect compensation, the
plan administrator now has the option of reporting the person providing
the required disclosures as an alternative to having the amount of the
eligible indirect compensation reported on the Schedule C itself. These
modifications reduce reporting burden for indirect compensation,
especially the potential burdens associated with indirect compensation
that is difficult to track on a plan-by-plan basis (e.g., ``float'' and
``soft dollars''). As discussed above, the Department has also
clarified that health and welfare plans exempt under 29 CFR 2520.104-44
are not required to file the Schedule C. The Department believes that
the final forms revisions for Schedule C, which will improve disclosure
of both direct and indirect compensation without overburdening the
efficient delivery of necessary services to plans, will provide
substantial benefits to plans and their participants and beneficiaries.
Plan administrators, the Department, and the public will be better able
to monitor the compensation arrangements of plan service providers,
better able to understand the impact of fees on plan assets, and better
able to evaluate the value of purchased services. In addition, it is
expected that plan administrators should be better able to negotiate
fair prices for necessary plan services.
Creation of separate actuarial schedules for single-employer
defined benefit plans and multiemployer defined benefit and certain
money purchase plans (Schedules SB and MB) to reflect PPA changes in
funding and annual reporting requirements. Certain changes to Schedule
B were proposed in the July 2006 Proposal. After passage of the PPA,
these proposals for Schedule B were revised in the Supplemental Notice
to effectuate the additional reporting requirements of the PPA, with
the Schedule B being divided into two separate schedules, one for
multiemployer defined benefit plans and certain money purchase plans
(the Schedule MB) and another for single-employer defined benefit plans
(the Schedule SB). As noted below, the adoption of this change is
expected to decrease reporting costs for single-employer plans and
slightly increase reporting costs for multiemployer plans. The
Department concludes, however, that the small cost increases for
multiemployer plans are justified by the need to better monitor plan
funding. This information is needed by
[[Page 64720]]
participants, beneficiaries, and the Agencies, particularly the PBGC,
to improve their ability to assess the financial condition of the plan.
Additional data elements reported on Schedule R. Consistent with
the PPA, the new Schedule R will require increased reporting by
multiemployer defined benefit pension plans regarding contributing
employers, multiemployer plan mergers, withdrawing employers and their
withdrawal liabilities, and participants for whom no employer makes
contributions. Large single-employer and multiemployer defined benefit
plans with 1,000 or more participants will also have to report on their
plans' asset allocations, and the duration of debt portfolios. These
latter data elements are requested by the PBGC and are not part of the
PPA requirements. As noted below, these revisions will increase
reporting costs for affected plans. The PPA requires multiemployer
defined benefit plans to report this additional information, which is
needed by participants, beneficiaries, and the Agencies, particularly
the PBGC, to assess the financial risk posed to the plan by a financial
collapse or withdrawal of one or more contributing employers.\12\ The
need for and benefit of these PPA required disclosures are essential to
making accurate assessments of the potential risks to which these plans
are exposed.
---------------------------------------------------------------------------
\12\ The addition of some of the new data elements was included
in the July 2006 Proposal based on the apparent deterioration of the
financial condition of multiemployer plans and the PBGC's belief in
the need to monitor better companies that are major contributors to
those plans.
---------------------------------------------------------------------------
Electronic filing and Web site display of certain Form 5500
information. The requirement to post information electronically will
give participants and beneficiaries an additional method of monitoring
the financial status of their pension plans. They will be able to
access important information instantaneously and without any additional
costs involved, as plans must be capable of electronic public
disclosure beginning with the 2009 reporting year.
Costs. Although the costs to plans of satisfying their annual
reporting obligations will be lower under these regulations than they
would be under regulations previously in force, they will still be
substantial. As shown in Table 2 below, the aggregate cost of such
reporting under the regulations and forms previously in force is
estimated to be $425.34 million annually, shared across the 780,000
filers subject to the filing requirement. The Department estimates that
the regulations and forms revisions announced today will impose an
annual cost burden on the 780,000 filers of only $327.98 million.\13\
---------------------------------------------------------------------------
\13\ The cost and burden hour estimates for the baseline as well
as for the new reporting requirements are much lower than the
estimates reported in the July 2006 Proposal and the Supplemental
Notice. In the estimates reported in this document, the Department
is able to take advantage of updated data, some changes to the model
and comments with respect to the burden estimates. More detail about
the cost estimates can be found in the section ``Assumptions,
Methodology, and Uncertainty.''
Table 2.--Summary of Annual Costs: Requirements Previously in Effect vs. New Requirements
----------------------------------------------------------------------------------------------------------------
Total costs in dollars (in Total costs in hours (in
millions) millions)
----------------------------------------------------------------------------------------------------------------
Reporting Requirements Prior to this Action......... $425.34 5.32
Change in Costs due to this Action (as of 2009 Plan -97.36 -1.24
Year Filings)......................................
Reporting Requirements in effect for Plan Year 2009 327.98 4.08
Filings............................................
----------------------------------------------------------------------------------------------------------------
Note: Number of affected plans: 780,000.
Because this final action makes substantial changes to the
requirements previously in effect, filers will experience some one-time
transition costs. The Department examined similar transition cost
issues in connection with the last major revision to the Form 5500
Annual Return/Report, which was for plan years beginning in 1999. See
65 FR 5026 (Feb. 2, 2000). Based on information provided by plan
service providers and Form 5500 Annual Return/Report software
developers at that time, the Department concluded that such costs are
generally loaded into the prices paid by plans for affected services
and products, spread both across plans and across the expected life of
the service and product changes. The Department's estimates provided
here are therefore intended to reflect such spreading and loading of
these transition costs. That is, the gradual defrayal of the transition
costs is included in the annual cost estimates here.
The Department has analyzed the cost impact of the individual
revisions. In doing so, the Department took account of the fact that
various types of plans would be affected by more than one revision and
that the sequence of multiple revisions would create an interaction in
the cumulative burden on those plans. For example, both large and small
Code section 403(b) plans are affected by the elimination of the
limited reporting rules for section 403(b) plans, but small Code
section 403(b) plans are also affected by the introduction of the Short
Form 5500. The Department quantified the individual revisions as
described below.
Removal of the IRS-only schedules. Elimination of the IRS-only
schedules beginning with filings for the 2009 plan year will reduce
costs on the whole, even though some of the information previously
collected in those schedules will continue to be collected by the
Department elsewhere in the forms and schedules. The net effect of
these changes will be to reduce the total burden for 198,000 affected
filers by 530,000 hours. Applying an hourly labor rate of $86 for
service providers and $59 for plan sponsors, the Department estimates
that this revision will lower the aggregate annual reporting cost by an
estimated $39.34 million.\14\
---------------------------------------------------------------------------
\14\ The appropriateness of the labor rates used in the
calculations, as well as on other assumptions, is discussed in the
Technical Appendix.
---------------------------------------------------------------------------
Establishment of a Short Form 5500 for certain small plans. An
estimated 594,000 of the 629,000 total small plan filers will be
eligible to use the Short Form 5500. Of these filers, 9,000 plans are
estimated to be small Code section 403(b) plans that will also be
subject to increased filing requirements. Their annual reporting burden
is estimated to increase, as a result, by about $1.44 million. For the
remainder of the Short Form 5500 eligible plans (585,000 plans), the
annual reporting burden is reduced by $72.33 million. This leads to an
estimated aggregate saving due to the Short Form 5500 of $70.90 million
(877,000 hours) annually.
Elimination of the special reporting rules for Code section 403(b)
plans. While approximately 16,000 Code section 403(b) plans will be
subject to increased reporting requirements, about 9,000 small Code
section 403(b) plans
[[Page 64721]]
will be eligible to use the new Short Form 5500 and will also be
eligible for waiver of the audit requirement. The impact of the changes
on the small Code section 403(b) plans is quantified above. Seven
thousand large Code section 403(b) plans will be required to file a
Form 5500 Annual Return/Report similar to those filed by Code section
401(k) plans and will be subject to the audit requirement. Annual
reporting costs for large Code section 403(b) plans will increase by an
estimated $7.7 million (100,000 hours).
Establishment of Schedules SB and MB to replace Schedule B.
Schedule B will be replaced by two separate schedules: A Schedule SB
for single employer (including multiple-employer) defined benefit plans
and a Schedule MB for multiemployer defined benefit plans and certain
money purchase plans. Overall costs will be reduced by having two
separate schedules, each of which is tailored more precisely to a
separate targeted group of filers. The 42,000 filers of Schedule SB
will therefore see a total annual burden reduction of almost 52,000
hours. Applying an hourly labor rate of $86 for service providers and
$59 for plan sponsors, the Department estimates that this will lower
the annual reporting cost by an estimated $4.36 million for Schedule SB
filers. The 2,300 Schedule MB filers will see a total burden increase
of 600 hours because these filers will be required to complete new
items. Applying an hourly labor rate of $86 for service providers and
$59 for plan sponsors, the Department estimates that this will increase
the annual reporting cost by an estimated $47,000. On the whole,
replacing Schedule B with new Schedules SB and MB will decrease the
aggregate total annual burden by 51,000 hours, or by an estimated $4.31
million.
Revision of Schedule C (Service Provider Information). Schedule C
revisions are intended to clarify the reporting requirements and
improve the information plan officials receive regarding amounts being
received by plan service providers. The expanded reporting requirements
are expected to increase the reporting burden for Schedule C filers by
about $2.44 million. This increase is partly offset by a reduction in
burden of $475,000, resulting from the Department's clarification that
welfare plans that meet the conditions of 29 CFR 2520.104-44 are not
required to file Schedule C. Jointly, these changes are anticipated to
add annual reporting costs of $1.97 million (25,000 hours) for 48,000
affected plans.
Additional Data Elements on Schedule R. Changes to Schedule R,
which include moving three questions on ESOPs from Schedule E to
Schedule R, with an offset for deleting one question, are expected to
add $828,000 in costs (11,000 hours) for 91,000 affected filers.\15\ On
average, the reporting burden of affected plans is estimated to
increase by less than 7 minutes per plan. While some of the affected
plans may experience only minimal burden increases, others
(particularly very large multiemployer defined benefit plans) will
experience an estimated increase in burden of up to three hours.
---------------------------------------------------------------------------
\15\ The introduction of the Short Form 5500 eliminated the
requirement of filing the Schedule R for almost 300,000 small plans
previously filing Schedule R (about 94 % of all small plans filing
Schedule R). This reduction in burden was included in the decrease
of reporting burden due to the introduction of the Short Form 5500.
The moving of questions from Schedule E to Schedule R (ESOP
questions) is counted as a reduction of burden in connection with
the removal of the IRS-only schedules and as an increase in burden
for Schedule R filers.
---------------------------------------------------------------------------
Adoption of various technical revisions and other miscellaneous
revisions to the Form 5500 Annual Return/Report to improve and clarify
existing reporting requirements. Several additional questions regarding
insurers that fail to supply information, plan failures to pay benefits
due, schedules of delinquent participant contributions, blackout
compliance, mutual fund dividends, fees paid to administrative service
providers, and the number of contributing employers, as well as
additional pension plan characteristic codes, were added to the Form
5500 and Schedules A, H, and I. Together these changes are estimated to
add $6.68 million (85,000 hours) to annual reporting costs and affect
approximately 187,000 plans.
Electronic Filing and Website Display of Form 5500 Information.
These requirements are not anticipated to add any additional costs, as
plans are already required to be capable of electronic filing and
disclosure beginning with the 2009 reporting year under the electronic
filing rule. See 71 FR 41359 (July 21, 2006). The costs and benefits of
electronic filing have previously been assessed in connection with
promulgation of that rule.
Table 3 contains a summary of the changes in costs, expressed both
in dollars and in hours, allocated to the changes outlined above and
the number of employee benefit plans affected.
Table 3.--Summary of Changes to the Reporting Requirements: Dollars, Hours, and Affected Plans
----------------------------------------------------------------------------------------------------------------
Change in costs
Revisions effective for 2009 plan year filings in dollars (in Change in costs Number of
millions) in hours affected plans
----------------------------------------------------------------------------------------------------------------
Removal of IRS-Only Schedules.......................... -$39.34 -530,000 198,000
Short Form (small non-Code Sect. 403(b) Plans)......... -72.33 -895,000 585,000
Short Form (small Code Section 403(b) Plans)........... 1.44 18,000 9,000
Large Code section 403(b) Plans........................ 7.70 100,000 7,000
Schedule MB............................................ 0.047 600 2,000
Schedule SB............................................ -4.36 -52,000 42,000
Schedule C............................................. 1.97 25,000 48,000
Schedule R............................................. 0.828 11,000 91,000
Technical and Miscellaneous Revisions.................. 6.68 85,000 187,000
--------------------------------------------------------
Total.............................................. -97.36 -1,237,400 780,000
----------------------------------------------------------------------------------------------------------------
Note: Some displayed numbers do not sum up to the totals due to rounding.
The final action does not otherwise alter reporting costs. Plans
currently exempt from annual reporting requirements (such as certain
small unfunded or fully insured welfare plans and certain simplified
employee pensions) will remain exempt. Also, except for Code section
403(b) plans, plans eligible for limited reporting
[[Page 64722]]
options (such as certain IRA-based pension plans) will continue to be
eligible. The revised Form 5500 Annual Return/Report will retain the
structure that is familiar to individual and corporate taxpayers--a
simple main form with basic identifying information necessary, along
with a checklist of the schedules being filed. The structure is
designed to aid filers by allowing them to assemble and file a return
customized to their plan.
Form 5500 Annual Return/Report Changes Effective for the 2007 and 2008
Plan Year Filings
The sections above describe reporting changes that will become
effective for the 2009 plan year filings. As discussed in the preamble
of the Forms Revision Notice, the Agencies are making some changes to
the reporting requirements for the 2007 and 2008 plan year filings as
mandated by the PPA, along with adding a few new Schedule R items for
the 2008 plan year filings.\16\ Plans with fewer than 25 participants
that would meet the conditions for being eligible to file the Short
Form 5500 will have the option in their 2007 and 2008 plan year filing
of filing an abbreviated version of the Form 5500 Annual Return/Report
for ``small plan'' filers. In addition, defined benefit pension plans
and certain money purchase plans will file, for the 2008 plan year, the
new actuarial information schedules (Schedules SB and MB, as
appropriate) instead of Schedule B. In addition, certain filers will be
required to answer most of the new questions on Schedule R (Questions
13 to 19 of the 2009 Schedule R).\17\
---------------------------------------------------------------------------
\16\ As mandated by the PPA, the simplified filing option for
small plans with fewer than 25 participants will become effective
for 2007 plan year return/reports. No other changes to the Forms and
Schedules are being made for that filing year, except for a few
updates to the Schedule B instructions.
\17\ Filers will be required to provide the answers to these new
questions as an attachment.
---------------------------------------------------------------------------
The Department has calculated the burden for the 2008 plan year
return/reports as described generally above with respect to the 2009
plan year filings, but appropriately modified for the difference in
filing requirements. The Department estimates that the reduction in
burden resulting from the simplified filing requirements for the 2007
and 2008 plan year filings will be about half the burden reduction that
will result from the introduction of the 2009 Short Form 5500, for two
reasons. First, for the 2009 plan year filings, eligible filers will
fill out only the Short Form 5500 and Schedules SB or MB, as
applicable. While the simplified filing requirements for plan years
2007 and 2008 generally will be similar data items as are on the Short
Form 5500, the items to be completed are spread over several schedules,
requiring filers to review all of the instructions to those
schedules.\18\ Second, use of the simplified filing alternative for the
2007 and 2008 plan years is optional. The Department has assumed that
not all small plan filers will take advantage of this option, given
that it will be available only for the 2007 and 2008 plan years.
---------------------------------------------------------------------------
\18\ As described further in the instructions, those small plans
required to file the Schedules SSA or E will still have to file the
schedules as part of their Form 5500 Annual Return/Report filings in
2007 and 2008.
---------------------------------------------------------------------------
For the 2007 filing year no other form changes that impacted the
burden analysis are being made. The Department estimates a burden
reduction due to the simplified filings for plans with less than 25
participants of about $38.00 million (471,000 hours). Assuming an
additional 30 minute transition burden for reviewing the simplified
filing requirements, the estimate for the burden reduction is reduced
to $25.62 million (317,000 hours).
Without taking any transition burdens into account, the Department
has estimated that the revisions for the 2008 plan year will reduce the
filing burden by about $41.54 million (511,000 hours). Assuming an
additional 30 minute transition burden for reviewing the simplified
filing requirements, 150 minutes for Schedule SB, 90 minutes for
Schedule MB, and 60 minutes for Schedule R, the Department estimates
that for the 2008 plan year the reporting burden will fall by $30.23
million from the $425.34 million that is estimated under prior rules
and forms, to an aggregate burden of $395.11 million.\19\
---------------------------------------------------------------------------
\19\ Hours are estimated to fall from the 5.32 million estimated
under prior rules and forms, to about 4.94 million hours, a
reduction of about 374,000 hours.
---------------------------------------------------------------------------
Assumptions, Methodology, and Uncertainty
The cost and burden associated with the annual reporting
requirement for any given plan will depend upon the specific
information that must be provided, given the plan's characteristics,
practices, operations, and other factors. For example, a small, single-
employer defined contribution pension plan filing the new Short Form
5500 should incur far lower costs than a large, multiemployer defined
benefit pension plan that holds multiple insurance contracts, engages
in numerous reportable transactions, and pays fees in excess of $5,000
to a number of service providers. The Department separately considered
the cost to different types of plans in arriving at its aggregate cost
estimates. The Department's basis for these estimates is described
below.
Assumptions Underlying this Analysis. The Department's analysis
assumes that all benefits and costs will be realized in the first year
of the reporting cycle to which the changes apply and within each year
thereafter. This assumption is premised on the requirement that each
plan annually will complete a filing. The Department has used a
``status quo'' baseline for this analysis, assuming that the world
absent the regulations will resemble the present.\20\
---------------------------------------------------------------------------
\20\ Further detail can be found in the Technical Appendix.
---------------------------------------------------------------------------
Methodology. Mathematica Policy Research, Inc. (MPR), developed the
underlying cost data, which has been used by the Agencies in estimating
burden related to the Form 5500 Annual Return/Report during recent
years. See 65 FR 21068, 21077-78 (Apr. 19, 2000); Borden, William S.,
``Estimates of the Burden for Filing Form 5500: The Change in Burden
from the 1997 to the 1999 Forms,'' Mathematica Policy Research,
submitted to U.S. Dept. of Labor May 25, 1999.\21\ The cost information
was derived from surveys of filers and their service providers, as
modified due to comments, which were used to measure the unit cost
burden of providing various types of information. Aggregate estimates
were produced by interacting these unit cost measures with historical
counts of Form 5500 Annual Return/Report filers who provided the
respective types of information.\22\
---------------------------------------------------------------------------
\21\ The Mathematica report can be accessed at the Department's
Web site at http://www.dol.gov/ebsa.
\22\ The Department did not attempt to project the number of
filers into the future.
---------------------------------------------------------------------------
Actuarial Research Corporation (ARC) assembled a new model for
estimating burden, based on the Form 5500 Burden Model that MPR most
recently used for estimating burdens in October 2004. ARC assembled a
simplified model, drawing on implied burdens associated with subsets of
filer groups represented in the MPR model. The ARC model is described
in broad terms below. Further details about the model are explained in
the Technical Appendix which can be accessed at the Department's Web
site at http://www.dol.gov/ebsa.
To estimate aggregate burdens, types of plans with similar
reporting requirements were grouped together in various groups and
subgroups. As shown in Table 4, calculations of aggregate cost were
prepared for each of
[[Page 64723]]
the various subgroups both under requirements in effect prior to this
action and under the forms as revised. Table 4 also shows the number of
plans within each subgroup affected by the revisions. The Total line in
Table 4 shows that the aggregate cost under prior and new regulations,
respectively, add up to $425.34 million and $327.98 million. The
universe of filers was divided into three basic plan types: defined
benefit pension plans, defined contribution pension plans, and welfare
plans. Each of these major plan types was further subdivided into
multiemployer and single-employer plans. Defined contribution Code
section 403(b) plans were treated separately from other defined
contribution plans. Since the filing requirements differ substantially
for small and large plans, the plan types were also divided by plan
size. For large plans (100 or more participants), the defined benefit
plans were further divided between very large (1,000 or more
participants) and other large plans (at least 100 participants, but
fewer than 1,000 participants). Small plans were divided similarly,
except that they were divided into Short Form 5500 eligible and Short
Form 5500 ineligible plans, as applicable. For each of these sets of
respondents, burden hours per respondent were estimated for the Form
5500 Annual Return/Report itself and for up to seven schedules.
Table 4.--Number of Affected Filers and Costs Under Prior and New Requirements
----------------------------------------------------------------------------------------------------------------
Aggregate cost Aggregate cost
Number under prior under new
Type of plan affected requirements requirements
(in millions) (in millions)
----------------------------------------------------------------------------------------------------------------
5500 Large Plans (>=100 participants)........................... 152,000 $177.16 $175.99
DB, ME, 100-1,000 participants.............................. 600 1.40 1.33
DB, ME, > 1,000 participants................................ 900 1.99 2.13
DB, SE, 100-1,000 participants.............................. 7,000 15.38 13.10
DB, SE, > 1,000 participants................................ 3,400 7.08 7.21
DC, ME, non-403(b).......................................... 1,700 2.56 2.45
DC, ME, Code section 403(b)................................. 80 0.0035 0.10
DC, SE, non-403(b).......................................... 57,000 75.09 65.14
DC, SE, Code section 403(b)................................. 7,200 0.30 8.38
Welfare, ME................................................. 4,100 5.64 5.94
Welfare, SE................................................. 69,000 67.71 70.21
5500 Small Short Form Eligible.................................. 594,000 234.25 139.03
DB, SE...................................................... 34,000 35.71 24.33
DC, SE, non-403(b).......................................... 544,000 195.65 111.64
DC, SE, Code section 403(b)................................. 8,800 0.37 1.81
Welfare, SE................................................. 6,000 2.52 1.25
5500 Small Short Form Ineligible................................ 35,000 13.92 12.96
DB, ME...................................................... 200 0.16 0.18
DB, SE...................................................... 1,800 1.91 1.76
DC, ME, non-403(b).......................................... 3,200 1.09 1.02
DC, ME, Code section 403(b)................................. 100 0.0042 0.0045
DC, SE, non-403(b).......................................... 29,000 10.45 9.68
Welfare/ME.................................................. 400 0.17 0.18
Welfare/SE.................................................. 300 0.13 0.14
Total................................................... 780,000 425.34 327.98
----------------------------------------------------------------------------------------------------------------
Note: Some displayed numbers do not sum up to the totals due to rounding.
DB--defined benefit plans.
DC--defined contribution plans.
SE--single-employer plans.
ME--multiemployer plans.
Large plans--100 participants or more.
Small plans--fewer than 100 participants.
We also separately estimated the costs for the form and for each
schedule. When items on a Form 5500 Annual Return/Report schedule are
required by more than one Agency, the estimated burden associated with
that schedule is allocated among the Agencies. This allocation is based
on whether only a single item on a schedule is required by more than
one agency or whether several or all of the items are required by more
than one agency. The burden associated with reading the instructions
for each item also is tallied and allocated accordingly.
The reporting burden for each type of plan is estimated in light of
the circumstances that are known to apply or that are generally
expected to apply to such plans, including plan size, funding method,
usual investment structures, and the specific items and schedules such
plans ordinarily complete. For example, the annual report for a large
fully insured welfare plan typically would consist of only a few
questions on the Form 5500, Schedule A (Insurance Information), and
Schedule G, where applicable. The requirement that this plan provide
very limited information on the Form 5500 Annual Return/Report is
reflected in the estimates of reporting burden time. By contrast, a
large defined benefit pension plan that is intended to be tax-qualified
and that uses a trust fund and invests in insurance contracts would be
required to submit an annual report completing almost all the line
items of the Form 5500, plus Schedule A (Insurance Information),
Schedule B (Actuarial Information), Schedule C (Service Provider
Information), Schedule D (DFE/Participating Plan Information), possibly
the Schedule G (Financial Transaction Schedules), Schedule H (Financial
Information), and Schedule R
[[Page 64724]]
(Retirement Plan Information), and would be required to submit an
IQPA's report and opinion. In this way, the Agencies intend
meaningfully to estimate the relative burdens placed on different
categories of filers.
Burden estimates were adjusted for the proposed revisions to each
schedule, including items added or deleted in each schedule and items
moved from one schedule to another. The burden for the new Short Form
5500 was derived summing the burden estimates for the comparable line
items contained in the current Form 5500 Annual Return/Report.
The Department has not attributed a recordkeeping burden to the
5500 Forms in this analysis or in the Paperwork Reduction Act analysis
because it believes that plan administrators' practice of keeping
financial records necessary to complete the 5500 Forms arises from
usual and customary management practices that would be used by any
financial entity and does not result from ERISA or Code annual
reporting and filing requirements.
The aggregate baseline burden, as calculated by the ARC model, is
the sum of the burden per form and schedule as filed prior to this
action multiplied by the estimated aggregate number of forms and
schedules filed.\23\ The model then estimated the burden impact of
changes in the number of filings (particularly those associated with
the introduction of the Short Form 5500 for most small filers) and of
changes made to the form and the various schedules. The model uses data
from the Form 5500 Annual Return/Report for plan year 2003, which is
the most recent year for which complete data is available.
---------------------------------------------------------------------------
\23\ To the extent that plans may currently file schedules that
are not required, such filings were disregarded in calculating the
baseline reporting burden and the final burden.
---------------------------------------------------------------------------
The model estimated that the proposed revisions will lead to
aggregate costs of $327.98 million, which represents a cost reduction
of $97.36 million from the baseline. While overall costs will be
reduced, some large plans may experience cost increases, while small
plans will likely experience cost reductions. The total burden
estimates, as well as the burden broken out by type of plan, can be
found in Table 4, above.
Uncertainty within Estimates. Because the Department has access to
the historical Form 5500 Annual Return/Report filing information, the
Department has good data for the number of filers that file the various
schedules and the types of plans those filers represent. However, there
is some uncertainty regarding the expected number of filers in the
future and the unit cost estimates. The Department believes that it
does not have sufficient information that would allow making good
projections of the number of pension plans in the future. Also, the
Department has no direct measure for the unit costs and uses a proxy
adapted from the existing MPR model, which was developed in the late
1990s. In addition, some uncertainty is inherent in any revision to the
existing form, and the level of uncertainty increases with the novelty
of the revision in question. For example, there is a lesser degree of
uncertainty regarding the impact of revisions that delete existing
items or move existing items from one schedule to another, while there
is greater uncertainty regarding wholly new items of information, such
as those involving indirect compensation.
Most of the key assumptions of the model like the wage rates, hour
burden estimates, and the number of filers are entering the model in a
direct and transparent way. If, for example, the wage rate increases by
10%, the reduction in costs also increases by 10%.\24\ Therefore, the
Department did not perform additional sensitivity tests. The Department
could not quantify uncertainty because formal estimates of errors are
not available. However, the Department believes that the actual burden
could very well be 10% higher or lower than the estimates, based on the
Department's experience in this program and past trends in filings.
---------------------------------------------------------------------------
\24\ If the hourly labor costs for service providers increases
from $86 to $95 and for plan sponsors from $59 to $65 (10%
increase), then the reduction in costs increases from about $97
million to $107 million (10% increase).
---------------------------------------------------------------------------
Peer Review
In December 2004, OMB issued a Final Information Quality Bulletin
for Peer Review, 70 FR 2664 (January 14, 2005) (Peer Review Bulletin),
establishing that important scientific information shall be peer
reviewed before it is disseminated by the Federal government. The Peer
Review Bulletin applies to original data and formal analytic models
used by agencies in regulatory impact analyses. The Department
determined that the data and methods employed in its regulatory
analysis constituted ``influential scientific information'' as defined
in the Peer Review Bulletin. Accordingly, a peer review was conducted
under Section II of the Bulletin. The peer review report concluded that
the methodology and data generally were sound and produced plausible
estimates, which supported the Department's conclusion that the
proposed form changes should reduce the aggregate burden relative to
the previous forms. The analysis here for the final regulations and
forms revisions uses the same methodology as did the proposal, and the
Department, accordingly, is relying on the Peer Review prepared for the
Proposal. The Peer Review Report can be accessed at the Department's
Web site at http://www.dol.gov/ebsa.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 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 that are likely
to have a significant economic impact on a substantial number of small
entities. In accordance with section 603 of the RFA, the EBSA presented
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. After reviewing and considering the public comments submitted
in response to the proposal and the changes that are incorporated into
the final regulation, the Department has prepared a final regulatory
flexibility analysis, which is presented in this document as part of
the broader economic analysis. The objectives of these amended
regulations and the associated forms revisions are to streamline
reporting and reduce aggregate reporting costs, particularly for small
plans, while preserving and enhancing protection of ERISA rights. These
purposes are detailed above in this preamble and in the Forms Revision
Notice published simultaneously with these regulations.
For purposes of analysis under the RFA, EBSA continues 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 ERISA, which permits the Secretary to prescribe simplified
annual reports for pension plans that cover fewer than 100
participants. Under ERISA section 104(a)(3), the Secretary may also
provide for exemptions or for simplified reporting and disclosure for
welfare benefit plans. Pursuant to the authority of ERISA section
104(a), the Department has previously issued at 29 CFR 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
[[Page 64725]]
and disclosure requirements for small plans, including unfunded or
insured welfare plans, that cover fewer than 100 participants and
satisfy certain other requirements.
Further, while some large employers may have small plans, in
general small employers maintain most small plans. Thus, EBSA believes
that assessing the impact of these requirements 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 that 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.). Prior to the proposal, EBSA consulted with the SBA Office of
Advocacy concerning use of this participant count standard for RFA
purposes, see 13 CFR 121.902(b)(4), and EBSA received no comments
suggesting use of a different size standard. The following subsections
address specific requirements of the RFA.
Need for the rule and its objectives. The Department is amending
the regulations relating to the annual reporting and disclosure
requirements of section 103 of ERISA and revising the 5500 Forms that
are included in the Forms Revision Notice being published
simultaneously with these regulations. The Department continually
strives to tailor reporting requirements to minimize reporting costs,
while ensuring that the information necessary to secure ERISA rights is
adequately available. The optimal design for reporting requirements to
satisfy these objectives changes over time. Benefit plan designs and
practices evolve over time in response to market trends, including
trends in labor markets, financial markets, health care and insurance
markets, and markets for various services used by plans. Partly as a
result, the nature and mix of compliance issues and risks to ERISA
rights change over time. Changes to ERISA, the Code, and to associated
regulations also change the parameters of ERISA rights and the methods
needed to protect those rights; in particular, this amendment and the
forms revisions are necessary, in part, to implement provisions of the
PPA. In addition, the technologies available to manage and transmit
information continually advance. It is incumbent on the Department to
revise its reporting requirements from time to time to keep pace with
such changes. The Department is adopting these regulations and
associated forms revisions to readjust its reporting requirements to
take into account certain recent changes in markets, the law (including
the PPA), and technology, many of which are referred to above in this
preamble and/or in the Forms Revision Notice published simultaneously
with these regulations.
Agency assessment of significant issues raised by public comments
and changes to rule in response to such comments. Commenters were
mostly supportive of the adoption of a Short Form 5500. Some commenters
objected to excluding certain small plans from eligibility for filing
the Short Form 5500, that is, those small plans holding employer
securities and other difficult-to-value assets. As discussed elsewhere
in this preamble, excluding this small subset of small plans is
justified by the nature of these assets, and it would be inappropriate
for the Agencies to compromise important Congressional and regulatory
policies, leaving participants covered by these small plans with
insufficient protection of their retirement savings. The Agencies have
taken other steps to reduce the burden on the excluded small plans as
much as possible, however, including continuing to allow these plans to
qualify for other simplified reporting options. In addition, because
the Short Form 5500 will not be available until the 2009 plan year, the
Agencies are planning to issue separate guidance for plans with fewer
than 25 participants that would permit filing of an abbreviated version
of the Form 5500 for the 2007 and 2008 plan years.
While expanding reporting obligations for Code section 403(b)
plans, the Agencies have attempted to minimize the burden on small Code
section 403(b) plans by not excluding small Code section 403(b) plans
from any simplified reporting option for which such plans are otherwise
eligible. In other words, small Code section 403(b) plans will be
eligible to avail themselves of simplified reporting options to the
same extent as any other similarly situated plan.
As discussed elsewhere in this preamble, the Agencies are rejecting
commenters' suggestion to subject small plans to Schedule C disclosure
requirements that do not currently apply to small plans. The Agencies
conclude that the comment record in support of the suggestion was
insufficient to outweigh the added burden that would be placed on small
plans.
The Agencies also are making clarifying changes to instructions for
the Short Form 5500, in response to comments, to provide a clearer
description of the plans exempt from filing, including small welfare
plans, but is refraining from adding similar clarifications to the
instructions for individual schedules in order to avoid adding
unnecessary review burden for filers.
Description and estimate of number of small entities to which rule
will apply. This final action does not alter the number of small plans
required to comply with the annual reporting requirements, although it
implements a new Short Form 5500, which is designed specifically to
further streamline the limited reporting requirements presently
applicable to small plans. The Department estimates that almost six
million small, private-sector employee pension and welfare benefit
plans are covered under Title I of ERISA. A large majority of these,
however, are fully insured or unfunded welfare benefit plans, which
currently are exempt from annual reporting requirements and will
continue to be exempt under this final action. Approximately 629,000
small plans, including small pension plans and small funded welfare
plans, currently are required to file annual reports and will continue
to be so required under this action. Of these, an estimated 594,000
will be eligible to use the new Short Form 5500. Use of the Short Form
5500 is expected to reduce these plans' reporting costs, while
preserving or enhancing the protection of their participants' ERISA
rights.
Among small plans, perhaps the most affected by this action will be
the approximately 9,000 small Code section 403(b) plans. As explained
above, such plans are currently subject only to limited annual
reporting requirements. This action will increase these plans'
reporting costs, although the cost to these plans will be comparable to
that currently borne by similar small plans that are not operated under
Code section 403(b). As discussed above, the Department believes the
added cost to Code section 403(b) plans is justified by the need to
strengthen protections under ERISA for those plans' affected
participants and beneficiaries. The numbers and types of small plans
affected by these regulations and the magnitude and nature of the
regulations' effects are further elaborated below.
Description of projected reporting, recordkeeping, and other
compliance requirements of the rule, including an estimate of the
classes of small entities that will be subject to the requirements and
the types of professional skills necessary for preparation of the
report or record. The reporting requirements applicable to small plans
are detailed above and in the associated Forms
[[Page 64726]]
Revision Notice. For a large majority of the 629,000 small plans
subject to annual reporting requirements, or an estimated 563,000
plans, submission of the Short Form 5500 alone will fully satisfy their
annual reporting requirements. All of these plans are eligible for the
waiver of audit requirements, and none are defined benefit pension
plans. For such plans, therefore, satisfaction of the applicable annual
reporting requirements is not expected to require the services of an
IQPA or auditor, but will require the use of a mix of clerical and
professional administrative skills. For an additional 30,000 small
defined benefit pension plans and about 500 money purchase plans that
will be eligible to use the streamlined Short Form 5500, satisfaction
of the reporting requirements will require additional services of an
actuary and submission of the Schedule SB or Schedule MB, as
applicable. The remaining 35,000 small plans will not be eligible to
use the Short Form 5500 and will continue to be required to file the
Form 5500 Annual Return/Report. Of these, fewer than 2,000 are defined
benefit plans that must use an actuary and file Schedule MB or Schedule
SB. All will require a mix of clerical and professional administrative
skills to satisfy their reporting requirements.
Satisfaction of annual reporting requirements under these
regulations is not expected to require any additional recordkeeping
that would not otherwise be part of normal business practices.
Table 5 below compares the Department's estimates of small plans'
reporting costs under the requirements in effect prior to this action
with those under the new requirements for various classes of affected
plans. As shown, costs under the new requirements will be lower on
aggregate and for most classes of plans. These estimates take account
of the quantity and mix of clerical and professional skills required to
satisfy the reporting requirements for various classes of plans.
Table 5.--Small Plan Reporting Costs Under Prior and New Requirements
----------------------------------------------------------------------------------------------------------------
Aggregate cost Aggregate cost
under prior under new
Class of small plan Number affected requirements requirements
(in millions) (in millions)
----------------------------------------------------------------------------------------------------------------
Defined Benefit Pension, Short Form eligible.. 34,000.......................... $35.71 $24.33
Defined Benefit Pension, Short Form ineligible 2,000........................... 2.07 1.93
Code Section 403(b)........................... 9,000........................... 0.38 1.81
Other Defined Contribution, Short Form 544,000......................... 195.65 111.64
eligible.
Other Defined Contribution Pension, Short Form 32,000.......................... 11.54 10.70
ineligible.
Funded Welfare................................ 7,000........................... 2.83 1.58
Other Welfare................................. None of approximately 6 million. .............. ..............
Total for All Affected Small Plans........ 629,000......................... 248.17 151.99
----------------------------------------------------------------------------------------------------------------
Note: Some displayed numbers do not sum up to the totals due to rounding.
The Department notes that the estimated reporting costs amount to
about $240 on average for each of the 629,000 small plans subject to
annual reporting requirements, or just $27 if averaged across all of
the approximately 5.7 million small plans covered by Title I of ERISA.
This compares with roughly $1,200 on average for each of the 152,000
affected large filers.
The Department is unaware of any relevant federal rules for small
plans that duplicate, overlap, or conflict with these regulations.
Description of steps the agency has taken to minimize impact on
small entities. In developing and finalizing these regulations and the
associated forms revisions, the Department considered a number of
alternative provisions directed at small plans, many of which are
discussed elsewhere in this preamble and in the Forms Revision Notice.
For example, as discussed in the Forms Revision Notice, the ERISA
Advisory Council suggested that the Department consider exempting
welfare plans from reporting requirements, or, alternatively,
subjecting all welfare plans to new, separately designed reporting
requirements. The Department opted instead to retain both the
requirement that small funded welfare plans submit annual reports and
the exception from annual reporting requirements for other small
welfare plans. Annual reporting by the relatively small number of small
funded welfare plans is necessary, in the Department's view, to protect
ERISA rights in connection with the assets that such plans hold. A
requirement that the remaining approximately six million small welfare
plans report annually is not justified insofar as these plans have no
assets that need protection and insofar as the vast majority of the
plans are fully insured and therefore separately protected by state
oversight of the insurance contracts they hold and the insurers that
issue them. The Department also considered both narrower and broader
eligibility criteria for use of the Short Form 5500, settling on
criteria that limit eligibility to plans holding relatively safe and
protected assets, which nonetheless includes a large majority of small
plans. The Department also considered the inclusion of more or fewer of
the items of information formerly collected from small plans in the
Form 5500 Annual Return/Report, retaining only those items it believes
to be necessary and adequate to the protection of small plan
participants' ERISA rights.
Paperwork Reduction Act Statement
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (PRA) (44 U.S.C. 3506(c)(2)), the July 2006 Proposal solicited
comments on the information collections included in the proposed
amendments to the Department's regulations relating to annual reporting
and disclosure requirements under Part 1 of Subtitle B of Title I of
ERISA and in the proposed revision of the Form 5500 Annual Return/
Report pursuant to Part 1 of Subtitle B of Title I and Title IV of
ERISA and the Internal Revenue Code. The Department also submitted an
information collection request (ICR) to OMB in accordance with 44
U.S.C. 3507(d), contemporaneously with publication of the July 2006
Proposal, for OMB's review of the Department's information collections
previously approved under OMB Control No. 1210-0110.\25\ Public comment
on the
[[Page 64727]]
information collections contained in the Supplemental Notice was also
solicited in connection with the publication of that Notice in
December, 2006.
---------------------------------------------------------------------------
\25\ On August 29, 2006, OMB issued a notice indicating that it
would continue its approval of the information collections approved
under Control No. 1210-0110 as currently in effect, but would not
approve the Department's request for approval of revisions to the
ICR until after consideration of public comment on the July Proposal
and promulgation of a final rule, describing any changes.
---------------------------------------------------------------------------
In connection with publication of this final rule, the Department
has submitted an information collection request (ICR) to OMB for its
review of the changes in burden estimates for the information
collections currently approved under OMB Control No. 1210-0110 that are
the result of this final regulatory action and the Forms Revision
Notice published simultaneously with this rule. In order to avoid
unnecessary duplication of public comments, the PRA information
published in the associated Forms Revision Notice is incorporated
herein by this reference in its entirety. The public is advised that an
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid OMB control number. The Department intends to publish a notice
announcing OMB's decision upon review of the Department's ICR.
A copy of the ICR can be obtained by contacting the Office of
Policy and Research, Employee Benefits Security Administration, U.S.
Department of Labor, Room N-5718, 200 Constitution Avenue, NW.,
Washington, DC 20210, Telephone: (202) 693-8410; Fax: (202) 219-4745 or
at http://www.RegInfo.gov. These are not toll-free numbers.
Congressional Review Act
The final rules being issued here are subject to the Congressional
Review Act provisions of the Small Business Regulatory Enforcement
Fairness Act of 1996 (5 U.S.C. 801 et seq.) and will be transmitted to
the 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, these rules do not include
any Federal mandate that may result in expenditures by state, local, or
tribal governments in the aggregate of more than $100 million, adjusted
for inflation, or increased expenditures by the private sector of more
than $100 million, adjusted for inflation.
Federalism Statement
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism and requires adherence to specific criteria by
federal agencies in the process of their formulation and implementation
of policies that have substantial direct effects on the States, the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government. These rules do not have federalism implications because
they would have no substantial direct effect on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government. Section 514 of ERISA provides, with certain exceptions
specifically enumerated, that the provisions of Titles I and IV of
ERISA supersede any and all laws of the States as they relate to any
employee benefit plan covered under ERISA. The requirements implemented
in these rules do not alter the fundamental provisions of the statute
with respect to employee benefit plans, and as such would have no
implications for the States or the relationship or distribution of
power between the national government and the States.
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.
0
In view of the foregoing, the Department amends 29 CFR part 2520 as set
forth below:
PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE
0
1. The authority citation for part 2520 is revised to read as follows:
Authority: 29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134, and
1135; and Secretary of Labor's Order 1-2003, 68 FR 5374 (Feb. 3,
2003). Sec. 2520.101-2 also issued under 29 U.S.C. 1132, 1181-1183,
1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.102-3,
2520.104b-1, and 2520.104b-3 also issued under 29 U.S.C. 1003, 1181-
1183, 1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.104b-1
and 2520.107 also issued under 26 U.S.C. 401 note, 111 Stat. 788.
0
2. In Sec. 2520.103-1, revise paragraphs (a)(2), (b)(1) and (c) to
read as follows:
Sec. 2520.103-1 Contents of the annual report.
(a) * * *
(2) Under the authority of subsections 104(a)(2), 104(a)(3) and 110
of the Act, and section 1103(b) of the Pension Protection Act of 2006,
a simplified report, limited exemption or alternative method of
compliance is prescribed for employee welfare and pension benefit
plans, as applicable. A plan filing a simplified report or electing the
limited exemption or alternative method of compliance shall file an
annual report containing the information prescribed in paragraph (b) or
paragraph (c) of this section, as applicable, and shall furnish a
summary annual report as prescribed in Sec. 2520.104b-10.
(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 SB (Single-Employer
Defined Benefit Plan Actuarial Information), Schedule MB (Multiemployer
Defined Benefit Plan and Certain Money Purchase Plan Actuarial
Information), Schedule C (Service Provider Information), Schedule D
(DFE/Participating Plan Information), Schedule G (Financial Transaction
Schedules), Schedule H (Financial Information), Schedule R (Retirement
Plan Information), and other financial schedules described in Sec.
2520.103-10. See the instructions for this form.
* * * * *
(c) Contents of the annual report for plans with fewer than 100
participants. (1) Except as provided in paragraph (c)(2) of this
section and in paragraph (d) of this section, and in Sec. Sec.
2520.104-43 and 2520.104a-6, the annual report of an employee benefit
plan that 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 SB (Single
Employer Defined Benefit Plan Actuarial Information), Schedule MB
(Multiemployer Defined Benefit Plan and Certain Money Purchase Plan
Actuarial Information), Schedule D (DFE/Participating Plan
Information), Schedule I (Financial Information--Small Plan), and
Schedule R (Retirement Plan Information). See the instructions for this
form.
(2)(i) The annual report of an employee benefit plan that covers
fewer than 100 participants at the beginning of the plan year and that
meets the conditions in paragraph (c)(2)(ii) of this section with
respect to a plan year may, as an alternative to the requirements of
paragraph (c)(1) of this section, meet its
[[Page 64728]]
annual reporting requirements by filing the Form 5500-SF ``Short Form
Annual Return/Report of Small Employee Benefit Plan'' and any
statements or schedules required to be attached to the form, including
Schedule SB (Single Employer Defined Benefit Plan Actuarial
Information) and Schedule MB (Multiemployer Defined Benefit Plan and
Certain Money Purchase Plan Actuarial Information), completed in
accordance with the instructions for the form. See the instructions for
this form.
(ii) A plan meets the conditions in this paragraph (c)(2)(ii) with
respect to the year if the plan:
(A) Does not hold any employer securities at any time during the
year;
(B) Satisfies the audit waiver conditions in Sec. Sec. 2520.104-
46(b)(1)(i)(A)(1), (b)(1)(i)(B) and (b)(1)(i)(C);
(C) Had at all times during the plan year 100 percent of the plan's
assets held for investment purposes invested in assets that have a
readily determinable fair market value. For purposes of this section,
the following shall be treated as assets that have a readily
determinable fair market value: Shares issued by an investment company
registered under the Investment Company Act of 1940; investment and
annuity contracts issued by any insurance company, qualified to do
business under the laws of a State, that provides valuation information
at least annually to the plan administrator; bank investment contracts
issued by a bank or similar financial institution, as defined in Sec.
2550.408b-4(c) of this chapter, that provides valuation information at
least annually to the plan administrator; securities (except employer
securities) traded on a public exchange; government securities issued
by the United States or by a State; cash or cash equivalents held by a
bank or similar financial institution, as defined in Sec. 2550.408b-
4(c) of this chapter, by an insurance company, qualified to do business
under the law of a State, by an organization registered as a broker-
dealer under the Securities Exchange Act of 1934, or by any other
organization authorized to act as a trustee for individual retirement
accounts under section 408 of the Internal Revenue Code; and any loan
meeting the requirements of section 408(b)(1) of the Act and the
regulations issued thereunder; and
(D) Is not a multiemployer plan.
* * * * *
0
3. Amend Sec. 2520.104-44 by revising (b)(1)(iii) and (b)(2), and
removing (b)(3) to read as follows:
Sec. 2520.104-44 Limited exemption and alternative method of
compliance for annual reporting by unfunded plans and by certain
insured plans.
* * * * *
(b) * * *
(1) * * *
(iii) Partly in the manner specified in paragraph (b)(1)(i) of this
section and partly in the manner specified in paragraph (b)(1)(ii) of
this section; and
(2) A pension benefit plan the benefits of which are provided
exclusively through allocated insurance contracts or policies which are
issued by, and pursuant to the specific terms of such contracts or
policies benefit payments are fully guaranteed by an insurance company
or similar organization which is qualified to do business in any State,
and the premiums for which are paid directly by the employer or
employee organization from its general assets or partly from its
general assets and partly from contributions by its employees or
members: Provided, That contributions by participants are forwarded by
the employer or employee organization to the insurance company or
organization within three months of receipt and, in the case of a plan
that provides for the return of refunds to contributing participants,
such refunds are returned to them within three months of receipt by the
employer or employee organization.
* * * * *
0
4. In Sec. 2520.104-46, add a new paragraph (e) and a new appendix to
the section to read as follows:
Sec. 2520.104-46 Waiver of examination and report of an independent
qualified public accountant for employee benefits plan with fewer than
100 participants.
* * * * *
(e) Model notice. The appendix to this section contains model
language for inclusion in the summary annual report to assist plan
administrators in complying with the requirements of paragraph
(b)(1)(i)(B) of this section to avail themselves of the waiver of
examination and report of the independent qualified public accountant
for employee benefit plans with fewer than 100 participants. Use of the
model language is not mandatory. In order to use the model language in
the plan's summary annual report, administrators must, in addition to
any other information required to be in the summary annual report,
select among alternative language and add relevant information where
appropriate in the model language. Items of information that are not
applicable to a particular plan may be deleted. Use of the model
language, appropriately modified and supplemented, will be deemed to
satisfy the notice content requirements of paragraph (b)(1)(i)(B) of
this section.
Appendix to Sec. 2520.104-46--Model Summary Annual Report Notice (Plan
Administrators Will Need to Modify the Model to Omit Information That
Is Not Applicable to the Plan)
The U.S. Department of Labor's regulations require that an
independent qualified public accountant audit the plan's financial
statements unless certain conditions are met for the audit
requirement to be waived. This plan met the audit waiver conditions
for the plan year beginning (insert year) and therefore has not had
an audit performed. Instead, the following information is provided
to assist you in verifying that the assets reported on the (Form
5500 or Form 5500-SF--select as applicable) were actually held by
the plan.
At the end of the (insert year) plan year, the plan had (include
separate entries for each regulated financial institution holding or
issuing qualifying plan assets):
[Set forth amounts and names of institutions as applicable where
indicated], [(insert $ amount) in assets held by (insert name of
bank)], [(insert $ amount) in securities held by (insert name of
registered broker-dealer)], [(insert $ amount) in shares issued by
(insert name of registered investment company)], [(insert $ amount)
in investment or annuity contract issued by (insert name of
insurance company)].
The plan receives year-end statements from these regulated
financial institutions that confirm the above information. [Insert
as applicable--The remainder of the plan's assets were (1)
qualifying employer securities, (2) loans to participants, (3) held
in individual participant accounts with investments directed by
participants and beneficiaries and with account statements from
regulated financial institutions furnished to the participant or
beneficiary at least annually, or (4) other assets covered by a
fidelity bond at least equal to the value of the assets and issued
by an approved surety company.]
Plan participants and beneficiaries have a right, on request and
free of charge, to get copies of the financial institution year-end
statements and evidence of the fidelity bond. If you want to examine
or get copies of the financial institution year-end statements or
evidence of the fidelity bond, please contact [insert mailing
address and any other available way to request copies such as e-mail
and phone number].
If you are unable to obtain or examine copies of the regulated
financial institution statements or evidence of the fidelity bond,
you may contact the regional office of the U.S. Department of
Labor's Employee Benefits Security Administration (EBSA) for
assistance by calling toll-free 1.866.444.EBSA (3272). A listing of
EBSA regional offices can be found at http://www.dol.gov/ebsa.
General information regarding the audit waiver conditions
applicable to the plan can be found on the U.S. Department of Labor
Web site at http://www.dol.gov/ebsa under the heading ``Frequently
Asked Questions.''
[[Page 64729]]
0
5. Amend Sec. 2520.104a-2(a) to read as follows:
Sec. 2520.104a-2 Electronic filing of annual reports.
(a) Any annual report (including any accompanying statements or
schedules) filed with the Secretary under part 1 of title I of the Act
for any plan year (reporting year, in the case of common or collective
trusts, pooled separate accounts, and similar non-plan entities)
beginning on or after January 1, 2009, shall be filed electronically in
accordance with the instructions applicable to such report, and such
other guidance as the Secretary may provide.
* * * * *
0
6. Revise the Appendix to Sec. 2520.104b-10 to read as follows:
Sec. 2520.104b-10 Summary Annual Report.
* * * * *
Appendix to Sec. 2520.104b-10.--The Summary Annual Report (SAR) Under ERISA: A Cross-Reference to the Annual
Report
----------------------------------------------------------------------------------------------------------------
Form 5500 large plan Form 5500 small plan Form 5500-SF filer line
SAR item filer line items filer line items items
----------------------------------------------------------------------------------------------------------------
A. PENSION PLAN:
1. Funding arrangement........... Form 5500-9a........... Same................... Not applicable.
2. Total plan expenses........... Sch. H-2j.............. Sch. I-2j.............. Line 8h.
3. Administrative expenses....... Sch. H-2i(5)........... Sch. I-2h.............. Line 8f.
4. Benefits paid................. Sch. H-2e(4)........... Sch. I-2e.............. Line 8d.
5. Other expenses................ Sch. H-Subtract the sum Sch. I-2i.............. Line 8g.
of 2e(4) & 2i(5) from
2j.
6. Total participants............ Form 5500-6f........... Same................... Line 5b.
7. Value of plan assets (net):... Sch. H-1l [Col. (b)]... Sch. I-1c [Col. (b)]... Line 7c [Col. (b)].
a. End of plan year..........
b. Beginning of plan year.... Sch. H-1l [Col. (a)]... Sch. I-1c [Col. (a)]... Line 7c [Col. (a)].
8. Change in net assets.......... Sch. H-Subtract 1l Sch. I-Subtract 1c Line 7c-Subtract Col.
[Col. (a)] from 1l [Col. (a) from Col. (a) from Col. (b).
[Col. (b)]. (b)].
9. Total income.................. Sch. H-2d.............. Sch. I-2d.............. Line 8c.
a. Employer contributions.... Sch. H-2a(1)(A) & 2a(2) Sch. I-2a(1) & 2b if Line 8a(1) if
if applicable. applicable. applicable.
b. Employee contributions.... Sch. H-2a(1)(B) & 2a(2) Sch. I-2a(2) & 2b if Line 8a(2) & 8a(3) if
if applicable. applicable. applicable.
c. Gains (losses) from sale Sch. H-2b(4)(C)........ Not applicable......... Not applicable.
of assets.
d. Earnings from investments. Sch. H-Subtract the sum Sch. I-2c.............. Line 8b.
of 2a(3), 2b(4)(C) and
2c from 2d.
10. Total insurance premiums..... Total of all Schs. A-6b Total of all Schs. A-6b Not applicable.
11. Unpaid minimum required Sch. SB-39............. Same................... Same.
contribution (S-E plans) or
Funding deficiency (ME plans):.
a. S-E Defined benefit plans.
b. ME Defined benefit plans.. Sch. MB-10............. Same................... Not applicable.
c. Defined contribution plans Sch. R-6c, if more than Same................... Line 12d.
zero.
B. WELFARE PLAN
1. Name of insurance carrier..... All Schs. A-1(a)....... Same................... Not applicable.
2. Total (experience rated and All Schs. A-Sum of Same................... Not applicable.
non-experienced rated) insurance 9a(1) and 10a.
premiums.
3. Experience rated premiums..... All Schs. A-9a(1)...... Same................... Not applicable.
4. Experience rated claims....... All Schs. A-9b(4)...... Same................... Not applicable.
5. Value of plan assets (net):... Sch. H-1l [Col. (b)]... Sch. I-1c [Col. (b)]... Line 7c [Col. (b)].
a. End of plan year..........
b. Beginning of plan year.... Sch. H-1l [Col. (a)]... Sch. I-1c [Col. (a)]... Line 7c [Col. (a)].
6. Change in net assets.......... Sch. H-Subtract 1l Sch. I-Subtract 1c Line 7c-Subtract [Col.
[Col. (a)] from 1l [Col. (a)] from 1c (a)] from 7c [Col.
[Col. (b)]. [Col. (b)]. (b)].
7. Total income.................. Sch. H-2d.............. Sch. I-2d.............. Line 8c
a. Employer contributions.... Sch. H-2a(1)(A) & 2a(2) Sch. I-2a(1) & 2b if Line 8a(1) if
if applicable. applicable. applicable.
b. Employee contributions.... Sch. H-2a(1)(B) & 2a(2) Sch. I-2a(2) & 2b if Line 8a(2) if
if applicable. applicable. applicable.
c. Gains (losses) from sale Sch. H-2b(4)(C)........ Not applicable......... Not applicable.
of assets.
d. Earnings from investments. Sch. H-Subtract the sum Sch. I-2c.............. Line 8b.
of 2a(3), 2b(4)(C) and
2c from 2d.
8. Total plan expenses........... Sch. H-2j.............. Sch. I-2j.............. Line 8h.
9. Administrative expenses....... Sch. H-2i(5)........... Sch. I-2h.............. Line 8f.
10. Benefits paid................ Sch. H-2e(4)........... Sch. I-2e.............. Line 8d.
11. Other expenses............... Sch. H-Subtract the sum Sch. I-2i.............. Line 8g.
of 2e(4) & 2i(5) from
2j.
----------------------------------------------------------------------------------------------------------------
[[Page 64730]]
Signed at Washington, DC, this 30th day of October, 2007.
Bradford P. Campbell,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
[FR Doc. E7-21765 Filed 11-15-07; 8:45 am]
BILLING CODE 4510-29-P