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Employee Benefits Security Administration

EBSA Final Rule

Annual Reporting and Disclosure Requirements [04/19/2000]

[PDF Version]

Volume 65, Number 76, Page 21067-21086


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Part II





Department of Labor





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Pension and Welfare Benefits Administration



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29 CFR Part 2520



Annual Reporting and Disclosure Requirements; Final Rule


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2520

RIN 1210-AA52

 
Annual Reporting and Disclosure Requirements

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Final rule.

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SUMMARY: This document contains amendments to Department of Labor 
(Department) regulations relating to the annual reporting and 
disclosure requirements under part 1 of Title I of the Employee 
Retirement Income Security Act of 1974, as amended (ERISA or the Act). 
The amendments contained in this document are necessary to conform the 
regulations to revisions to the annual return/report forms (Form 5500 
Series) intended to streamline the annual report required to be filed 
by administrators of employee pension and welfare benefit plans under 
part 1 of Title I of ERISA. The regulatory amendments, in conjunction 
with the revisions to the Form 5500 Series, which were published in the 
Federal Register on February 2, 2000, 65 FR 5026, are intended to 
reduce the annual reporting burdens on employee benefit plans while 
ensuring that the Department has access to the information it needs to 
carry out its administrative and enforcement responsibilities under 
ERISA and that participants and beneficiaries have access to the 
information they need to protect their rights and benefits under ERISA. 
Other amendments contained in this document modify the reporting 
requirements for certain group insurance arrangements. The remaining 
amendments are technical in nature and are designed to clarify existing 
reporting regulations. The amendments will affect the financial and 
other information required to be reported and disclosed by employee 
benefit plans filing Form 5500 Series reports under part 1 of Title I 
of ERISA.

DATES: Effective Date: This regulation is effective on May 19, 2000. 
The amendments generally apply to employee benefit plan years beginning 
on or after January 1, 1999.

FOR FURTHER INFORMATION CONTACT: Eric A. Raps, Office of Regulations 
and Interpretations, Pension and Welfare Benefits Administration 
(PWBA), (202) 219-8515 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

A. Background

    Under Titles I and IV of ERISA, and the Internal Revenue Code, as 
amended, pension and other employee benefit plans are generally 
required to file annual return/reports concerning, among other things, 
the financial condition and operations of the plan. These annual 
reporting requirements generally can be satisfied by filing the Form 
5500 Series in accordance with its instructions and related 
regulations. The Form 5500 Series is the primary source of information 
concerning the operation, funding, assets and investments of pension 
and other employee benefit plans. In addition to being an important 
disclosure document for plan participants and beneficiaries, the Form 
5500 Series is a compliance and research tool for the Department, and a 
source of information and data for use by other federal agencies, 
Congress, and the private sector in assessing employee benefit, tax, 
and economic trends and policies.
    On September 3, 1997, the Department in conjunction with the 
Internal Revenue Service and Pension Benefit Guaranty Corporation (the 
Agencies) published in the Federal Register (62 FR 46556) proposed 
changes to the Form 5500 Series. The Agencies received over 60 public 
comments and received oral testimony from employer groups, employee 
representatives, financial institutions, service organizations and 
others on the form streamlining proposal. In response to public 
comments, the Agencies made various adjustments to the proposed forms 
and instructions. Those comments and the changes in the forms and 
instructions are discussed in the notice of adoption of revised forms 
published separately on February 2, 2000, in the Federal Register (65 
FR 5026).
    As part of the development of the revised Form 5500 Series, the 
Department published in the Federal Register (63 FR 68370), on December 
10, 1998, proposed amendments to the annual reporting regulations (Part 
2520 of Chapter XXV of Title 29 of the Code of Federal Regulations) 
which were necessary to implement certain of the proposed changes to 
the Form 5500 Series. A number of technical amendments to the 
regulations were also proposed in order to update certain of the 
reporting and disclosure regulations. In the December 10, 1998 notice, 
the Department stated that the public comments submitted in response to 
the September 3, 1997 Notice of proposed forms revisions would be 
treated as part of the public record for the Notice of proposed 
rulemaking, and, to the extent those comments included information 
relevant to the proposed regulatory amendments, the Department would 
treat those comments as comments on the Notice of proposed rulemaking 
to avoid the need to submit duplicate public comments. The Department 
received four comments in response to the December 10, 1998 notice.
    The Department has decided, after reviewing the relevant comments 
on the proposed amendments and proposed form revisions, to adopt the 
proposed regulatory amendments largely as proposed with certain 
technical or clarifying changes.

B. Discussion of the Final Regulation and Comments

1. Section 2520.103-1

    Section 2520.103-1 generally describes the content of the Form 5500 
Series as a limited exemption and alternative method of compliance. One 
of the central changes announced in the September 3, 1997 Notice of 
proposed forms revisions for improving the Form 5500 Series was the 
development of one Form 5500 for use by both ``large plan'' filers 
(plans that previously could file the Form 5500) and ``small plan'' 
filers (plans that previously could file the Form 5500-C/R. The new 
Form 5500 was structured along the lines of tax returns familiar to 
individual and corporate taxpayers---a simple main form with basic 
information necessary to identify the plan for which the report is 
filed that guides each filer to those schedules applicable to the 
filer's specific type of plan. Although the Form 5500-C/R was 
eliminated, limited financial reporting options for small plans has 
been preserved.\1\ To accommodate these form changes, the regulatory 
amendments to Sec. 2520.103-1 update the references to the annual 
report in that section to reflect the new structure and components of 
the Form 5500 Series.\2\
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    \1\ For example, plans eligible to file as small plans that take 
advantage of the simplified reporting rules will continue to be 
exempt from the annual audit requirements contained in ERISA section 
103 and will continue to be relieved of the obligation to file 
certain schedules required for large plan filers (e.g., Schedule C--
Service Provider Information).
    \2\ The amendments also delete the cross-reference to obsolete 
Sec. 2520.103-7. This provision was removed from the Code of Federal 
Regulations on July 1, 1996 (61 FR 33847).
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2. Section 2520.103-2

    Welfare plans participating in a group insurance arrangement (GIA) 
are exempt from filing individual annual reports under conditions set 
forth in

[[Page 21069]]

Sec. 2520.104-43 provided that the trust, trade association, or other 
entity which holds the insurance contracts and acts as a conduit for 
the payment of insurance premiums files an annual report for the entire 
arrangement. Section 2520.103-2 prescribes the contents of the annual 
report for GIAs in order for the participating plans to be eligible for 
the exemption described in Sec. 2520.104-43. The annual report required 
to be filed under Sec. 2520.103-2 must contain a completed Form 5500, 
any required schedules and attachments, a report by an independent 
qualified public accountant (IQPA), and separate financial statements 
if prepared by the IQPA in order to form the opinion required by 
Sec. 2520.103-2(b)(5). As with the changes adopted in Sec. 2520.103-1, 
the regulatory amendments update the references in Sec. 2520.103-2 to 
the annual report to reflect the new structure and components of the 
Form 5500 Series. The regulatory amendments also conform Sec. 2520.103-
2 to the amendments of Secs. 2520.104-21 and 2520.104-43 (described in 
section B.7 of this preamble). Of particular note for GIAs is the 
addition of a new Schedule D (DFE/Participating Plan Information) to 
the Form 5500 Series. The Schedule D, which is described in more detail 
below, is primarily intended to serve as a multipurpose schedule for 
reporting certain information on relationships between plans and 
entities, including GIAs, that are classified as ``direct filing 
entities'' or DFEs.

3. Sections 2520.103-3, 2520.103-4, 2520.103-9, 2520.103-12 and 
2520.103-1(e)

(a) Common/Collective Trusts (CCTs) and Pooled Separate Accounts (PSAs)
    Section 2520.103-3 provides an exemption from certain annual 
reporting requirements for plan assets held in a CCT maintained by a 
bank, trust company or similar institution. Section 2520.103-4 provides 
a similar exemption for plan assets held in a PSA maintained by an 
insurance carrier. Pursuant to Secs. 2520.103-3 and 2520.103-4, a plan 
investing in these entities generally is not required to include 
information regarding the individual transactions of the entity in the 
plan's annual report. Rather, the plan must include in its annual 
report certain information regarding: (i) the current value of the 
plan's units of participation in the CCT or PSA, (ii) transactions 
involving the acquisition and disposition of units of participation in 
the CCT or PSA, and (iii) a statement of the assets and liabilities of 
the CCT or PSA. Further, the Department, pursuant to Secs. 2520.103-
3(c)(3) and 2520.103-4(c)(3), exempts plans and GIAs from filing a 
statement of the assets and liabilities of the CCT and/or PSA as part 
of their annual report if the bank, trust company, similar institution 
or insurance carrier sponsoring the CCT or PSA files directly with the 
Department a statement of assets and liabilities for the fiscal year of 
the CCT or PSA ending with or within the plan year for which the 
information is being filed, and a list of participating plans 
identified by employer identification number (EIN), plan number and 
name of plan sponsor. In such a case, the bank, trust company, similar 
institution or insurance carrier sponsoring the CCT or PSA that files a 
statement of assets and liabilities directly with the Department must, 
within 120 days after the end of the plan year of the participating 
plan, transmit and certify the information needed by the plan 
administrator to file the annual report including, among other things, 
the CCT's or PSA's annual statement of assets and liabilities. See 
Secs. 2520.103-5 and 2520.103-9(b)(3)(ii). In addition, the bank, trust 
company or insurance carrier sponsoring the CCT or PSA must furnish to 
the plan administrator a certification that a copy of its statement of 
assets and liabilities has been timely filed with the Department.
    The absence of a standardized report for CCTs and PSAs to use in 
filing information directly with the Department has made it virtually 
impossible for the Department to correlate and effectively use the data 
regarding the plan assets held for investment by CCTs and PSAs. 
Further, the value of plan assets invested in CCTs and PSAs increased 
between 1990 and 1996, the latest year for which information is 
available, from $113.9 billion to $280 billion. The Department, 
accordingly, has concluded that a change in the current reporting rules 
is needed to enable it to continue to satisfy its research, disclosure 
and enforcement responsibilities.
    Under the new Form 5500 Series and revised annual reporting 
regulations, as under the current Form 5500 Series and regulations, 
CCTs and PSAs may still elect to file information on behalf of their 
participating plans. Also, all CCTs and PSAs must notify participating 
plans within 120 days after the end of the plan year whether it intends 
to file a Form 5500 as a DFE, and furnish the plan administrator with 
the CCT's or PSA's statement of assets and liabilities as well as 
additional information about the assets held by such CCT or PSA needed 
by the plan administrator to satisfy its reporting obligations under 
Title I of ERISA.
    The major change in this area is the new requirement that CCTs and 
PSAs electing to file as DFEs must report information on the Form 5500 
as the standardized reporting format for all filers. In the case of a 
CCT or PSA that elects to file as a DFE, the CCT or PSA must complete: 
(i) applicable items on the revised Form 5500; (ii) a Schedule D to 
list all participating plans at any time during the year and all CCTs, 
PSAs, or investment entities described in Sec. 2520.103-12 (103-12 IEs) 
that such CCT or PSA invested in during the year; and (iii) a Schedule 
H (Financial Information) (formerly referred to as the Schedule FIN in 
the September 3, 1997 Federal Register Notice of proposed forms 
revisions).
    A large plan investing in one or more CCTs or PSAs that elect to 
file as a DFE may continue to include in its annual report, pursuant to 
revised Secs. 2520.103-3 and 2520.103-4, the current value of its 
interest in these entities as a single entry on the appropriate lines 
in the plan's Schedule H (Financial Information) as of the beginning 
and end of the plan year. A large plan investing in a CCT or PSA which 
files as a DFE also reports on the plan's Schedule H income and expense 
statement the net investment gain/loss for each class of DFE as a 
single entry for each class of DFE. Schedule D (DFE/Participating Plan 
Information) must be attached to the plan's Form 5500 to report 
information about the plan's participation in all CCTs and PSAs, 
regardless of whether they file as DFEs.
    In the case of small plans with CCT or PSA investments, regardless 
of whether the CCT or PSA files as a DFE, the small plan must file a 
Schedule D, but will report total assets and total income, 
respectively, on single line items of the small plan Schedule I 
financial statements without separate Schedule I financial statement 
reporting on CCT or PSA investments.
    Thus, the reporting for large plans investing in CCTs and PSAs that 
elect to file as DFEs and for small plan filers has not changed 
significantly from the current reporting requirements. Similarly, 
except for the addition of Schedule H (Part II), generally the 
information that must be filed by a CCT or PSA that elects to file as a 
DFE would be substantially the same as the current reporting 
requirements.
    Under revised Secs. 2520.103-3 and 2520.103-4, if a CCT or PSA does 
not file a Form 5500 as a DFE, large employee benefit plans must break 
out their percentage interest in the underlying assets of the CCT or 
PSA and

[[Page 21070]]

report that interest as a dollar value in the appropriate categories on 
the asset and liability statement contained in Schedule H (Financial 
Information). The failure by a large plan to break out its allocated 
interest in a CCT or PSA on the asset and liability statement contained 
in Schedule H when the CCT or PSA does not file as a DFE will be 
considered a failure by the plan administrator to file a complete Form 
5500. The Department does not envision this as imposing a substantial 
additional burden on large plan filers because there is only a small 
number of general investment categories on the Schedule H (for example, 
interest bearing cash; U.S. government securities; corporate debt 
instruments; corporate stock; partnership/joint venture interests; real 
estate; loans; registered investment companies; other assets; and 
employer securities) such that the currently required asset and 
liability statement of the CCT or PSA should provide for many filers 
most of the detail needed to break the assets and liabilities into 
these categories. Also, large plan filers investing in CCTs and PSAs 
that do not file as DFEs may still report the net investment gain/loss 
with respect to their participation in a CCT or PSA as part of single 
entries on Part II of the Schedule H (income and expense statement) and 
will continue to report their interest in a CCT or PSA on the Form 5500 
financial schedules (other than Part I of Schedule H) in the same 
general manner as under current rules (e.g., current value of the units 
of participation in CCTs and PSAs will be reported on the schedule of 
assets held for investment and the Schedule D).
    The Department believes that these changes to the reporting 
requirements for plans investing in CCTs and PSAs is the best available 
alternative for effectively capturing the information needed to carry 
out the Department's oversight responsibilities about the substantial 
amount of plan assets held by CCTs and PSAs, while ensuring that there 
is adequate disclosure regarding those plan investments to plan 
participants and beneficiaries. The Department, therefore, is 
exercising its regulatory authority under sections 103(b)(4), 
104(a)(3), 110 and 505 to modify the reporting requirements with 
respect to plans that participate in CCTs and PSAs.
    Some commentators stated that substantial lead time would be needed 
by CCTs and PSAs to prepare for the new reporting requirements and 
suggested delaying the implementation year. As discussed in the Notice 
of Adoption of Revised Forms published separately on February 2, 2000, 
in the Federal Register (65 FR 5026), to facilitate the transition to 
the new reporting rules for DFEs, the Department is clarifying the due 
date for Form 5500 DFE filings and adopting a transitional reporting 
rule for DFEs, other than GIAs, and for plans participating in DFEs, 
other than GIAs. First, as to the due date, inasmuch as the DFE filing 
continues to be considered an integral part of the annual report of 
each participating plan, the plan's annual report will continue to be 
treated as not complete unless the DFE information is filed within the 
prescribed time. The regulatory amendments clarify that, as with the 
current rule for statements of assets and liabilities, the DFE Form 
5500 filing should pertain to the DFE fiscal year ending with or within 
the plan year. For example, if a DFE fiscal year begins on July 1 and 
ends on June 30, and the plan year begins on January 1 and ends on 
December 31, the DFE's 1999 Form 5500 filing should be for the fiscal 
year of the DFE ending on June 30, 1999. The regulatory amendments also 
establish the filing due date for all DFEs, other than GIAs, as no 
later than 9\1/2\ months after the end of the DFE's fiscal year.\3\ 
This structure is intended to provide a simple and predictable filing 
deadline for DFEs while also ensuring that all DFE filings will be due 
on or before the latest possible due date for the annual report of any 
participating plan.
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    \3\ The Department did not extend the filing due date for GIAs 
(i.e., due no later than the last day of the seventh calendar month 
after the end of the GIA fiscal year) because the GIA filing is in 
lieu of the plan's filing rather than supplementing the plan's 
filing (as is the case of filings made by CCTs, PSAs, master trusts 
and 103-12IEs). GIAs, however, are able to obtain the filing 
extension that is available to plans (i.e., 2\1/2\ months by timely 
filing an IRS Form 5558).
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    Second, the transitional rule applies to plans participating in 
CCTs or PSAs which do not elect to file as a DFE for their fiscal year 
ending in 1999. The transitional rule waives for the 1999 plan year the 
requirement that large plan filers break out their percentage interest 
in the underlying assets of the CCT or PSA that do not file as DFEs as 
dollar value entries in the appropriate categories on the asset and 
liability statement contained in Schedule H (Financial Information). 
Rather, for the 1999 plan year, plans may report their interest in the 
CCT or PSA on the aggregate amount lines of the plan's asset and 
liability statement (i.e., lines 1c(9) and 1c(10) of Schedule H) as of 
the beginning and end of the plan year even if the CCT or PSA does not 
file a Form 5500 as a DFE. Plans participating in a CCT or PSA also are 
not required to attach the CCT's or PSA's statement of assets and 
liabilities to its 1999 filing.
(b) Master Trusts and 103-12 Investment Entities
    Section 2520.103-1(e) provides for special reporting rules for 
plans that participate in master trusts. In general, a master trust is 
a trust maintained by a bank, trust company or similar regulated 
financial institution to hold the assets of more than one plan 
sponsored by a single employer or by a group of employers under common 
control. Such plans must report the value of their interest in the 
master trusts as a single asset category in the plan's statement of 
assets and liabilities. The plan's share of master trust earnings, and 
realized and unrealized gains and losses is reported in the plan's 
statement of income, expenses and changes in net assets for the plan 
year. Under current rules, a separate annual report for each master 
trust is required to include certain information such as the statement 
of assets and liabilities, income and expense statement, service 
provider information, five percent reportable transactions schedule and 
schedule of assets held for investment, all of which are required to be 
separately reported for each master trust investment account. The 
amendments to Sec. 2520.103-1(e) generally do not change the 
information required to be reported regarding the master trust and the 
related master trust investment accounts, but rather establish the Form 
5500 Series as the standardized annual reporting format for each master 
trust investment account.
    Section 2520.103-12 provides an exemption and alternative method of 
reporting for plans investing in certain investment entities the assets 
of which are deemed to include plan assets under Sec. 2510.3-101. 
Specifically, if the 103-12 IE files certain information directly with 
the Department, the plan administrator is not required to include in 
the plan's annual report information regarding the underlying assets 
and individual transactions of the 103-12 IE. Instead, the 
administrator may report regarding the plan's investment or units of 
participation in the investment entity. The amendments to 
Sec. 2520.103-12(b) do not change the information required to be 
reported by the 103-12 IE, but rather establish the Form 5500 Series as 
the standardized reporting format.

4. Section 2520.103-5

    Section 2520.103-5 implements for certain annual reporting purposes 
the requirement in section 103(a)(2) of the Act under which insurance 
carriers or other organizations which provide some

[[Page 21071]]

or all of the benefits under a plan or hold plan assets, banks or 
similar institutions which hold plan assets, and plan sponsors \4\ must 
transmit and certify to the accuracy and completeness of such 
information as is needed by the plan administrator to comply with the 
requirements of Title I of the Act. Because the filing requirements for 
employee benefit plans participating in a CCT or PSA generally will be 
affected by whether such CCT or PSA directly files as a DFE, 
Sec. 2520.103-5 has been amended to clarify the notice and information 
obligations CCT and PSA sponsors have to plan administrators.
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    \4\ Neither the new Form 5500 nor these regulatory amendments 
change the plan sponsors' obligations described in Sec. 2520.103-5.
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    In the case of a CCT or PSA, the amendments require that such CCT 
or PSA notify its participating plans whether it intends to file a Form 
5500 as a DFE, and to furnish the plan administrator with the 
information about the assets held by such CCT or PSA, respectively, 
needed by the plan administrator to satisfy its obligations under Title 
I of ERISA. The notification must be provided within the same period of 
time already required by Sec. 2520.103-5 (i.e., 120 days after the 
close of each participating plan's plan year). Revised Sec. 2520.103-5 
does not contain detailed rules relating to the manner of the exchange 
of information between the plan and the CCT or PSA. Rather, plan 
administrators should develop with the sponsors of the CCT or PSA a 
suitable procedure whereby the plan administrator can establish to his 
or her satisfaction that the administrator and the Department will 
receive all of the required information in a timely fashion. The plan 
administrator, however, continues to be responsible for monitoring the 
conduct of the CCT or PSA sponsor and ultimately may be subject to 
Title I annual reporting penalties if the plan's annual report is 
rejected because the CCT or PSA failed to meet its commitment to file a 
DFE Form 5500 or because of defects in the DFE information filed by the 
CCT or PSA.

5. Section 2520.103-6 and Section 2520.103-11

    Section 2520.103-6 sets forth the definition of reportable (5%) 
transactions for the Form 5500, and section 2520.103-11 provides rules 
for preparing the schedule of assets held for investment purposes and 
the schedule of assets held for investment purposes that were both 
acquired and disposed of within the same plan year (hereinafter 
collectively referred to as the schedules of assets held for investment 
purposes). The proposed regulations would have amended the reportable 
transactions rules to no longer require that participant directed 
transactions under an individual account plan be reported on the 
schedule of reportable transactions. Similarly, the proposed amendments 
to Sec. 2520.103-11 would have eliminated for such participant directed 
assets the requirement to prepare the ``historical cost'' entry on the 
schedules of assets held for investment purposes. The amendments would 
not have relieved the administrator from including in the schedules of 
assets held for investment purposes descriptions and current values for 
assets held at a participant's or beneficiary's direction. The 
amendments are being adopted largely as proposed.
    Sections 2520.103-6 and 2520.103-11, as amended, provide that, 
solely for purposes of the reporting relief for participant directed 
transactions, a transaction will be considered ``directed'' by a 
participant or beneficiary if it has been authorized by such 
participant or beneficiary. The Department in the final rule has 
modified the definition of the term ``directed'' by eliminating the 
requirement that the participant or beneficiary ``affirmatively'' 
authorize the transaction. The purpose of this change is to clarify 
that the term ``directed'' encompasses investments authorized through 
automatic enrollments, negative investment elections or default 
investment options under the terms of the plan instrument or 
instruments. This modification is intended to respond to comments that 
indicated the proposed reporting relief under Secs. 2520.103-6 and 
2520.103-11 would be ineffective if plan administrators were required 
to segregate such authorized transactions made without an 
``affirmative'' direction from a participant or beneficiary. The 
Department notes, however, that these amendments do not affect the 
conditions for the fiduciary liability relief prescribed by 
Sec. 2550.404c-1 which applies to a narrower class of transactions.
    The Department is also amending Sec. 2520.103-6 to include a 
special rule for the reportable transaction schedule for initial plan 
years. Section 2520.103-6(b)(1) currently requires calculation of the 
5% thresholds for reportable transactions to be calculated using 
current value of assets as of the beginning of the plan year. Concerns 
have been expressed by filers that in the case of an initial plan year 
the current rule results in virtually all investment transactions 
during such plan year as being reportable transactions under 
Sec. 2520.103-6. The Department does not believe that this result was 
intended under ERISA inasmuch as the purpose of the reportable 
transaction rules is to identify transactions relating to a significant 
portion of the plan's assets because these transactions are likely to 
pose the greatest financial risk to a plan. Accordingly, the Department 
is amending Sec. 2520.103-6 to provide that the current value of plan 
assets as of the end of the plan year can be used for preparing the 
schedule of reportable transactions for the initial plan year.
    Although the schedule of reportable transactions and schedules of 
assets held for investment purposes continue to be required as part of 
the annual report, filers are allowed to continue to use the format 
prescribed by the instructions to the Form 5500 or a similar format for 
preparing the schedules as long as the content requirements of 
Secs. 2520.103-6 and 2520.103-11 are met and the same size paper as the 
Form 5500 is used.

6. Section 2520.103-10

    Section 2520.103-10 identifies the separate financial schedules 
that are required to be included in the annual report filed for a plan 
under Sec. 2520.103-1(a)(2) or a GIA under Sec. 2520.103-2. The 
Department is amending Sec. 2520.103-10 to update references to the 
annual report financial schedules to the schedules associated with the 
new Form 5500. Further, Sec. 2520.103-10 is being amended to reflect 
the fact that under the new Form 5500 the use of the revised Schedule G 
is mandatory for large plans, master trust investment accounts, 103-12 
IEs and GIAs required to report a schedule of party in interest 
transactions, a schedule of loans and fixed income obligations in 
default, and/or a schedule of leases in default. These schedules, 
through the 1998 plan year, could be filed on the Schedule G or by 
using a similar format and using the same size paper as the current 
Schedule G.

7. Section 2520.104-21 and Section 2520.104-43

    Sections 2520.104-21 and 2520.104-43 provide an exemption from 
certain Title I reporting and disclosure requirements for welfare plans 
that are part of a GIA, as defined in paragraph (b) of section 
2520.104-21, if the GIA files a Form 5500 Series annual report on 
behalf of all the participating plans. The annual reporting exemption 
is available if the arrangement, among other things, uses a trust (or 
other entity such as a trade association) as the

[[Page 21072]]

holder of the insurance contracts and the conduit for payment of 
premiums to an insurance company. See Secs. 2520.104-21(b)(3) and 
2520.104-43. The amendments to Secs. 2520.104-21 and 2520.104-43 
provide that the reporting exemption is available only in those cases 
in which the GIA utilizes a trust as the conduit for the payment of the 
premiums. The amendments also modify the examples in paragraph (d) of 
Sec. 2520.104-21 to reflect that change. In the Department's view, 
clarifying the trust requirement in the reporting exemption for GIAs 
conforms it with section 403 of ERISA and Sec. 2550.403a-1, which do 
not provide a trust exception for GIAs.\5\ The Department does not 
envision that the amendments will create administrative burdens for 
GIAs or result in increased costs for participating plans because the 
plan assets already must be separately accounted for and subjected to 
an annual audit by an IQPA. However, the Department has adopted a 
delayed applicability date to allow a transition period for GIAs that 
currently do not use a trust. Specifically, the requirement that GIAs 
must use a trust as the conduit for the payment of all insurance 
premiums to the insurance company, for purposes of the reporting 
exemption described in Secs. 2520.104-21 and 2520.104-43, applies 
beginning with the first reporting year commencing on or after January 
1, 2001.
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    \5\ ERISA Technical Release 92-01 (57 FR 23272 and 58 FR 45359) 
announced interim relief from the trust and certain reporting 
requirements of ERISA for certain contributory welfare plans. 
Cafeteria plans of the individual employers participating in a GIA 
may continue to rely on the trust relief in Technical Release 92-01. 
Technical Release 92-01, however, is not available to GIAs or to 
participant contributions after they have been segregated from an 
employer's general assets and transmitted to the GIA.
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8. Sections 2520.104-41 and 2520.104-46

    Section 2520.104-41 provides a simplified method of annual 
reporting for plans with fewer than 100 participants and Sec. 2520.104-
46 waives the IQPA requirement for such small plans. In general, small 
plans eligible to file simplified reports are currently required to 
file the Form 5500-C every third plan year and the Form 5500-R (an 
abbreviated version of the Form 5500-C) for the two intervening plan 
years. As indicated previously, the Agencies are replacing the Form 
5500 and the Form 5500-C/R with a single Form 5500 for use by all 
filers, with simplified reporting options for small plans being 
incorporated into the structure and components of the new Form 5500. 
The final rule amends Secs. 2520.104-41 and 2520.104-46 to conform the 
terms used in the regulations to the new Form 5500.

9. Section 2520.104-44

    Section 2520.104-44 contains a limited exemption and alternative 
method of compliance for annual reporting by certain unfunded and 
insured plans. The current Form 5500 Series instructions provide for 
limited reporting for pension plans exclusively using a tax deferred 
annuity arrangement under Internal Revenue Code section 403(b)(1) and/
or a custodial account for regulated investment company stock under 
Internal Revenue Code section 403(b)(7). The Department has previously 
expressed its view that such plans are not subject to the IQPA audit 
requirements as part of their annual reporting obligations under Title 
I of ERISA. The Department is adopting a technical amendment to 
Sec. 2520.104-44 to clarify the availability of this exemption.

10. Section 2520.104b-10

    Section 2520.104b-10 sets forth the requirements for the summary 
annual report (SAR) and prescribes formats for such reports. The 
amendments to section 2520.104b-10 conform the SAR requirements to the 
new Form 5500 Series. For example, the amendments restate the 
information listed in Secs. 2520.104b-10(d)(3) and 2520.104b-10(d)(4) 
that is available to participants and beneficiaries under the heading 
``Your Rights to Additional Information'' so that it is consistent with 
the new Form 5500 Series.
    The amendments also address the elimination of the Form 5500-R. 
Under current SAR rules, administrators of small plans are not required 
to prepare and furnish a SAR for those plan years in which a Form 5500-
R is filed if one of the two following methods of compliance is met. 
Under the first method of compliance, plans must furnish participants 
(and beneficiaries receiving benefits under a pension plan) with a copy 
of the filed Form 5500-R as a substitute for furnishing the SAR. Under 
the second method, plans are required to notify participants and such 
beneficiaries in writing of their right upon written request to receive 
free-of-charge a copy of the Form 5500-R filed by the plan. Under the 
second method of compliance, Sec. 2520.104b-10(b)(2)(ii) permits active 
participants to be notified by posting the notice at worksite locations 
in a manner reasonably calculated to ensure disclosure of the 
information. The Form 5500-R furnished under either method of 
compliance must be accompanied by a prescribed notice. Because the Form 
5500-R has been eliminated, small plans will be required to furnish a 
SAR every year.
    In order to facilitate compliance with the SAR requirement, the 
Department also updated its cross-reference guide to correspond to the 
line items of the SAR to the relevant line items on the new Form 5500 
and/or schedules. The cross-reference guide, as before, continues to be 
an appendix to Sec. 2520.104b-10.

C. Findings Regarding the New Form 5500 as a Limited Exemption and 
Alternative Method of Compliance

    Section 104(a)(2)(A) of the Act authorizes the Secretary 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 ERISA and it 
provides adequate disclosure to plan participants and beneficiaries, 
and 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 (including any required statements, schedules, and IQPA report) 
generally constitutes compliance with the limited exemption and 
alternative method of compliance in 29 CFR 2520.103-1(b). The findings 
required under ERISA sections 104(a)(3) and 110 relating to the use of 
the Form 5500, as revised, as an alternative method of compliance and 
limited exemption from the reporting and disclosure requirements of 
part 1 of Title I of ERISA are addressed below.

1. General Findings

    In adopting revisions to the Form 5500 Series and the amendments in 
this final rule, the Department attempted to

[[Page 21073]]

balance the needs of participants, beneficiaries and the Department to 
obtain information necessary to protect ERISA rights and interests with 
the needs of administrators to minimize costs attendant with the 
reporting of information to the federal government. The Department 
makes the following findings under sections 104(a)(3) and 110 of the 
Act with regard to the utilization of the revised Form 5500 (and 
revised statements and schedules required to be attached to the Form 
5500) as an alternative method of compliance and limited exemption 
pursuant to 29 CFR 2520.103-1(b).
    The use of the revised Form 5500 as an alternative method of 
compliance is consistent with the purposes of Title I of ERISA and 
provides adequate disclosure to participants and beneficiaries and 
adequate reporting to the Secretary. While the information required to 
be reported on or in connection with the revised Form 5500 deviates, in 
some respects, from that delineated in section 103 of the Act, the 
information essential to ensuring adequate disclosure and reporting 
under Title I is required to be included on or as part of the Form 
5500, as revised.
    The use of Form 5500 as an alternative method of compliance 
relieves plans subject to the annual reporting requirements from 
increased costs and unreasonable administrative burdens by providing a 
standardized format which facilitates reporting, eliminates duplicative 
reporting requirements, and simplifies the content of the annual report 
in general. The Form 5500, as revised, is intended to further reduce 
the administrative burdens and costs attributable to compliance with 
the annual reporting requirements.
    Taking into account the above, the Department has determined that 
application of the statutory annual reporting and disclosure 
requirements without the availability of the Form 5500 would be adverse 
to the interests of participants in the aggregate. The revised Form 
5500 provides for the reporting and disclosure of basic financial and 
other plan information described in section 103 in a uniform, 
efficient, and understandable manner, thereby facilitating the 
disclosure of such information to plan participants.
    Finally, the Department has determined under section 104(a)(3) that 
a strict application of the statutory reporting requirements, without 
taking into account the revisions to the Form 5500, would be 
inappropriate in the context of welfare plans for the same reasons 
discussed in this section C (the streamlined form reduces filing 
burdens without impairing enforcement, research and policy needs while 
at the same time providing adequate disclosure to participants and 
beneficiaries).

2. Special Findings

(a) Schedule A (Insurance Information)
    Schedule A must be attached to the annual report if any benefits 
under a plan that is subject to Title I of ERISA are provided by an 
insurance company, insurance service or other similar organization. 
Although most of the Schedule A data has been retained substantially 
unchanged, certain changes were made to conform the Schedule A to 
recent accounting industry changes on ``current value'' financial 
reporting of investment-type contracts with insurance companies,\6\ and 
to collect: (i) better identifying information on the type of insurance 
contracts and type of insured benefits being reported and (ii) the 
insurer's employer identification number and National Association of 
Insurance Commissioners' (NAIC) code.
---------------------------------------------------------------------------

    \6\ ERISA Sec. 3(26) defines ``current value'' as ``fair market 
value where available and otherwise the fair value as determined in 
good faith by a trustee or named fiduciary *  *  * pursuant to the 
terms of the plan and in accordance with the regulations of the 
Secretary, assuming an orderly liquidation at the time of such 
determination.''
---------------------------------------------------------------------------

    In the interest of the efficient administration of ERISA, the 
Department has attempted to align the reporting and disclosure 
requirements, where possible and to the extent consistent with the 
interests of plan participants, with generally accepted accounting 
principles (GAAP). The Schedule A changes adopted by the Department are 
intended to be consistent with the Financial Accounting Standards Board 
Statement of Financial Accounting Standards No. 110 (FAS 110) and No. 
126 (FAS 126) and American Institute of Certified Public Accountants 
Statement of Position 94-4 (SOP 94-4), which generally require the 
disclosure of the fair value of investment contracts with insurance 
companies (except for certain investment contracts held by defined 
benefit pension plans and ``fully benefit responsive'' contracts held 
by defined contribution pension and welfare plans with assets of $100 
million or less). Because it is the Department's view that the Schedule 
A reporting requirements generally should be the same for small and 
large plans, the revised Form 5500 does not provide different Schedule 
A reporting standards depending on the size of the plan.
    The Department also believes that the additional information 
required to be reported on the Schedule A (i.e., reporting fees and 
commissions paid to persons other than agents and brokers, improved 
identification of the types of insurance products, the NAIC code, and 
the EIN of the insurance company (or similar organization)) is useful 
to the Department in accomplishing its oversight responsibilities, and 
should not be burdensome to plans inasmuch as it can be provided to 
plans at the same time the insurance company (or similar organization) 
furnishes the other information required by section 103(a)(2) and the 
related annual reporting regulations.
(b) Schedule C (Service Provider Information)
    Schedule C must be attached to the Form 5500 filed by large plan 
filers if any person received, directly or indirectly, $5,000 or more 
in compensation from the plan for all services rendered to the plan 
during the plan year. The major changes to the Schedule C involve 
eliminating the requirement to annually identify plan trustees, 
limiting the current requirement to explain certain service provider 
terminations to terminations of accountants and enrolled actuaries, and 
limiting the number of plan service providers required to be 
individually reported to the forty top paid service providers at or 
above the $5,000 threshold. The Department notes that trustee 
information already must be disclosed in the summary plan description 
(SPD), and changes in trustees must be disclosed in a summary of 
material modification (SMM). SPDs and SMMs must be furnished 
automatically, whereas the Form 5500 is required to be disclosed only 
on request. Further, although the reason for the termination will not 
be required to be reported in the case of other service provider 
terminations that previously were required to be reported, to the 
extent a service provider receives $5,000 or more in compensation from 
the plan, comparing the list of service providers on Schedule Cs from 
year to year will allow a participant or beneficiary to determine 
whether a particular service provider (such as an investment manager, 
trustee, or custodian) was terminated. With respect to limiting of the 
Schedule C list of service providers to the forty top paid providers 
receiving $5,000 or more in compensation, only 54 employee benefit 
plans filing the 1996 Form 5500 listed 40 or more service providers on 
their Schedule Cs. Those 54 filings constituted less than one percent 
of the Form 5500 filings received. These Schedule C changes will not, 
in the Department's view,

[[Page 21074]]

result in inadequate disclosure to participants and beneficiaries in 
large plans. Because Schedule C is not required to be filed by small 
plans, the Schedule C changes described herein would not affect the 
annual reports of those plans.
(c) Schedule D (DFE/Participating Plan Schedule)
    As indicated previously, the new DFE reporting rules were developed 
in an effort to improve the reporting requirements for plans 
participating in CCTs, PSAs, master trusts, 103-12 IEs and GIAs. With 
the exception of the new requirement for small plans on the Schedule D 
to report year-end dollar value of interests in individual CCTs, PSAs, 
master trusts and 103-12 IEs, substantially all of the information that 
would be required to be reported by employee benefit plans under the 
new DFE reporting regime is currently required to be reported. 
Similarly, substantially all of the information that is required to be 
reported by DFEs is currently required to be filed by CCTs and PSAs 
that elect to file as DFEs as well as master trusts, 103-12 IEs and 
GIAs. Thus, the Department believes that the major change in reporting 
with respect to DFEs is that information must be reported in a 
standardized format using the Form 5500 and associated schedules.\7\ 
The Department does not believe that the new DFE rules should result in 
material cost increases or administrative burdens for plans. Further, 
direct reporting by CCTs, PSAs, 103-12 IEs and GIAs continues to be 
optional. To the extent there are cost or burden increases being passed 
through to the plan by the entity, plans can evaluate those annual 
reporting implications when deciding whether to participate in a CCT, 
PSA, 103-12 IE or GIA. The information that is available to be 
disclosed to participants and beneficiaries under the current annual 
reporting regime would not be reduced under the new Form 5500. Finally, 
as indicated previously, continuation of the current rules would result 
in inadequate reporting to the Department, would mean that the 
Department would continue to be unable to correlate and effectively use 
the data regarding the more than $2 trillion in plan assets invested by 
plans in DFEs or entities eligible to file as DFEs, and, therefore, in 
the Department's view, would be adverse to the interests of 
participants and beneficiaries in the aggregate.
---------------------------------------------------------------------------

    \7\ In the case of GIAs, the current rules require use of a Form 
5500. For master trusts and 103-12 IEs, the Form 5500 instructions 
already require the filer either use the Form 5500 and schedules or 
report information in the same format using the same categories as 
those specified in the Form 5500. In the case of CCTs and PSAs, the 
Department does not believe imposing similar formatting requirements 
should involve any significant additional burden. The Department 
also believes that there will be minimal additional burden in 
requiring CCTs and PSAs that elect to file as a DFE to report income 
and expenses on Schedule H (Part II).
---------------------------------------------------------------------------

(d) Schedule of Reportable Transactions and Schedules of Assets Held 
for Investment Purposes
    A major underlying purpose for the schedule of reportable 
transactions is to identify significant transactions that may reveal 
fiduciary misconduct. Information on the schedule of reportable 
transactions regarding participant directed transactions is not 
generally relevant to that purpose. Similarly, historical cost 
information on the schedules of assets held for investment purposes is 
intended to provide information on the investment gain/loss performance 
of the specific assets or classes of assets. The plan's aggregate gain 
or loss on a class of assets held as a result of collective participant 
direction generally does not provide meaningful information on the gain 
or loss to a particular participant's account resulting from 
individually directed transactions. In light of the purposes underlying 
the reporting requirements and the additional costs and administrative 
burdens to plans from having to include this participant directed 
transaction information in these schedules, the Department believes 
that the revisions to these schedules are in the interest of 
participants and beneficiaries, will provide adequate disclosure to 
plan participants and beneficiaries, and will provide adequate 
reporting to the Department.

Other Supplementary Information

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 likely to have 
a significant economic impact on a substantial number of small 
entities. If an agency determines that a final rule is likely to have a 
significant economic impact on a substantial number of small entities, 
section 604 of the RFA requires the agency to present a final 
regulatory flexibility analysis at the time of the publication of the 
notice of final rulemaking describing the impact of the rule on small 
entities. Small entities include small businesses, organizations, and 
governmental jurisdictions.
    For purposes of analysis under the RFA, the Pension and Welfare 
Benefits Administration (PWBA) considers a small entity to be an 
employee benefit plan with fewer than 100 participants. The basis for 
this definition is found in section 104(a)(2) of ERISA, which permits 
the Secretary to prescribe simplified annual reports for pension plans 
which cover fewer than 100 participants. Under section 104(a)(3), the 
Secretary may also provide for simplified annual reporting and 
disclosure if the statutory requirements of part 1 of Title I of ERISA 
would otherwise be inappropriate for welfare benefit plans. Pursuant to 
the authority of sections 104(a)(2) and 104(a)(3), the Department has 
previously issued certain simplified reporting provisions and limited 
exemptions from reporting and disclosure requirements for small plans, 
including unfunded or insured welfare plans covering fewer than 100 
participants and which satisfy certain other requirements.
    The definition of small entity used for the purpose of regulatory 
flexibility analysis differs from a definition of small business based 
on size standards promulgated by the Small Business Administration 
(SBA) (13 CFR 121.201) pursuant to the Small Business Act (5 U.S.C. 631 
et seq.). Because of this, PWBA consulted with the SBA's Office of 
Advocacy on the use of its definition for purposes of the RFA analysis, 
and sought comments on the size standard used for purposes of its 
analysis and the estimated impact of the proposal on small entities. No 
comments were received which addressed the size standard under the RFA 
or the estimated impact on small entities.
    PWBA has conducted a final regulatory flexibility analysis which 
takes into account both the general and specific findings specified in 
section C of this preamble as well as the public comments on the 
September 3, 1997 Notice of proposed forms revisions and the December 
10, 1998 Notice of proposed rulemaking. This analysis is summarized 
below.
    (1) The Department is promulgating this rule to amend the 
regulations relating to the annual reporting and disclosure 
requirements of section 103 of ERISA to conform existing regulations to 
revisions to the annual return/report forms (Form 5500). The extensive 
revision of the Form 5500 was undertaken for the purpose of 
streamlining and simplifying the form, and facilitating the 
implementation of an updated and efficient electronic processing system 
for Form 5500 filings.

[[Page 21075]]

    (2) Section 103 of ERISA requires every employee benefit plan 
covered under part 1 of Title I of ERISA to publish and file an annual 
report concerning, among other things, the financial conditions and 
operations of the plan. Section 109 of ERISA authorizes the Secretary 
to prescribe forms for the reporting of information that is required to 
be submitted as part of the annual report.
    The Secretary may also prescribe alternative methods of complying 
with reporting and disclosure requirements if the Secretary finds that: 
(a) the use of the alternative method is consistent with the purposes 
of ERISA and provides adequate disclosure to participants and 
beneficiaries and adequate reporting to the Secretary, (b) 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 (c) the application of the 
statutory reporting and disclosure requirements would be adverse to the 
interests of plan participants in the aggregate.
    The Department finds that use of the Form 5500 as revised 
constitutes an alternative method of compliance which is consistent 
with these conditions. Generally, the Department believes that use of 
the revised Form 5500 will relieve plans of all sizes from increased 
costs and unreasonable burdens that would otherwise arise by providing 
a standard format which facilitates reporting required by the statute, 
eliminates duplicative reporting requirements, and streamlines the 
content of the annual report.
    (3) The Department, in conjunction with the IRS and PBGC, made a 
number of changes to the existing Form 5500 Series in an effort to 
reduce paperwork burdens and costs and enhance the utility of the 
annual report forms generally. The regulatory amendments adopted herein 
are designed to ease the burden of plans, both large and small, in 
complying with the reporting and disclosure requirements of ERISA. The 
regulatory amendments do not directly affect the number of small plans 
required to comply with the annual reporting requirements or change 
existing small plan limited exemptions from reporting requirements. 
Thus, for example, under the final rule small plans will continue to be 
exempt from reporting service provider information and supplying the 
report of an independent qualified public accountant. In addition, the 
conforming rules generally preserve the more limited reporting for 
small plans which is presently in effect.
    (4) The 1995 Form 5500 filings indicate that there are 
approximately 662,000 small pension and welfare benefit plans required 
to file Form 5500 under Title I of ERISA. Because a significant number 
of insured or unfunded welfare plans with fewer than 100 participants 
are currently exempt from Form 5500 filing requirements and will 
continue to be exempt under the proposed revisions to the Form 5500 
Series, other data sources must be consulted in order to assess the 
number of small plans impacted by the regulation in the context of a 
credible universe estimate. The 1996 Medical Expenditure Panel Survey, 
as tabulated by the Agency for Health Care Policy and Research, 
indicates the number of establishments offering health and other 
welfare plans. Using 1995 Census Bureau data on the ratio of firms to 
establishments, this establishment-based plan count can be converted to 
the number of welfare plans offered by firms. Adjusting this number to 
allow for multiemployer plans (in which two or more firms participate 
in a given plan), and for the number of welfare plans with 100 or more 
participants, yields an estimate of 6 million small welfare plans. The 
final rule, therefore, will impact only 662,000, or 11 percent of 6 
million small plans.
    (5) The revisions to the Form 5500 are expected to result in 
aggregate savings of $64 million per year for all plans completing and 
filing the form. Of this total, savings of $59 million (an 11 percent 
reduction) is attributable to large plans, and saving of $5 million (a 
3 percent reduction) is attributable to small plans. While the revision 
of the form is expected to be beneficial to all plans, the savings by 
small plans is smaller relative to the large plan savings for two 
principal reasons. First, the reporting requirements for small plans 
are generally more limited under existing regulations. This is 
illustrated by the fact that 81 percent of all filers are small plans, 
while these small plans represent only 23 percent of total burden cost. 
As a consequence, current annual reporting requirements for small plans 
included fewer elements that might have been considered for revision or 
elimination.
    In addition, although burden is expected to be reduced in the 
aggregate for all small plan filers, under certain circumstances the 
revisions of the form will result in the reporting of additional 
information by some small plan filers, offsetting to some degree the 
aggregate reduction in burden. Under the filing requirements in effect 
prior to implementation of this final rule, small plans were required 
to file a Form 5500-C at least once every three years, and the less 
detailed Form 5500-R in the two intervening years. While the ratio of 
Form 5500-R to Form 5500-C filings has varied from year to year, on 
average about 55% of all annual small plan filings have been on the 
Form 5500-R (45% on the Form 5500-C) because many small plans elected 
to file the Form 5500-C each year. Under this final rule, the more 
limited reporting for small plans is generally maintained, but the Form 
5500-C/R is eliminated, increasing to some extent the burden for those 
who would have filed Form 5500-R for two of every three years, and 
offsetting the burden decrease for Form 5500-C filers. These changes 
for small plan filers are taken into account in the aggregate cost 
estimates.
    (6) Costs for revisions to automated systems are not expected to 
impact small plans because it is assumed that small plans generally do 
not develop software to be used for preparation and filing of Form 
5500. Although small plans seek the assistance of service providers for 
preparation and filing of the Form 5500, as noted below, the Department 
assumes that those service providers will not pass on to the small 
plans their development costs, or the fees they pay for software 
support if they purchase software from other developers.
    (7) Completion of the Form 5500 requires a mixture of professional 
and clerical skills. As noted below, the burden estimate study 
indicated that about 90% of filers purchase services of service 
providers to file Form 5500, although filer resources are normally 
required to prepare documents for the service providers, review 
information submitted, and sign the form even when service providers 
maintain records and prepare the form. Both provider fees and filer 
time are included in the cost estimates presented here, based on 
information reported in the survey. It is assumed that these practices 
will not change as a result of the revisions to the Form 5500 Series.
    (8) No significant alternatives to the final rule which would 
minimize the impact on small entities have been identified, although 
the review and proposed revision of the Form 5500 Series were 
undertaken to reduce paperwork burden for all filers while maintaining 
the more limited reporting for small plans. The Department believes it 
has minimized the economic impact of the forms revision and conforming 
rules on small plans to the extent possible while recognizing plan 
participants' and the Department's need

[[Page 21076]]

for information to protect participant rights under Title I of ERISA, 
and needs of other interested parties for timely statistical 
information on employee benefit plans.

Executive Order 12866 Statement

    Under Executive Order 12866, the Department must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f), the order defines a 
``significant regulatory action'' as an action that is likely to result 
in a rule (1) having an annual effect on the economy of $100 million or 
more, or adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    Pursuant to the terms of the Executive Order, it has been 
determined that this regulatory action creates a novel method of 
statutory compliance consistent with the President's priorities that 
will reduce paperwork and regulatory compliance burdens on businesses, 
including small businesses and organizations, and make better use of 
scarce federal resources, consistent with the mandates of the Paperwork 
Reduction Act (PRA) and the President's priorities. Therefore, this 
notice is ``significant'' and subject to OMB review under Executive 
Order 12866(3)(f)(4). Accordingly, the Department has undertaken an 
assessment of the costs and benefits of this regulatory action. This 
analysis follows the description of ERISA's annual reporting 
requirements and the development of the new Form 5500.

Background

    Under part 1 of Title I of ERISA, administrators of pension and 
welfare benefit plans (collectively referred to as employee benefit 
plans) are required to file annual returns/reports concerning their 
financial condition and operations. ERISA section 104(a)(2)(A) 
authorizes the Secretary 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 or to provide simplified reporting and disclosure if the Secretary 
finds that such requirements are inappropriate as applied to such 
plans. Section 110 permits the Secretary to prescribe for pension plans 
alternative methods of complying with any of the reporting and 
disclosure requirements if the Secretary finds that: (1) The use of the 
alternative method is consistent with the purposes of ERISA and 
provides adequate disclosure to plan participants and beneficiaries and 
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 (including any required statements, schedules, and the report of 
an independent qualified public accountant) generally constitutes 
compliance with the limited exemption and alternative method of 
compliance set forth by regulation in Sec. 2520.103-1(b). As stated in 
this preamble, the Department has made the determination that 
application of the statutory annual reporting and disclosure 
requirements without the availability of the Form 5500 as revised would 
be adverse to the interests of participants in the aggregate. The use 
of the new Form 5500 as an alternative method of compliance would 
relieve plans subject to the annual reporting requirements from 
increased costs and unreasonable administrative burdens by providing a 
standardized format which facilitates reporting, eliminates duplicative 
reporting requirements, and simplifies the content of the annual report 
in general.
    The Form 5500 Series serves as the primary source of information 
concerning the operation, funding, assets and investments of pension 
and other employee benefit plans. The Form 5500 is not only an 
important disclosure document for participants and beneficiaries, but 
also a compliance and research tool for the Department and a source of 
information and data for use by other federal agencies, Congress, and 
the private sector in assessing employee benefit, tax, and economic 
trends and policies.
    The Pension and Welfare Benefits Administration, the Internal 
Revenue Service, and the Pension Benefit Guaranty Corporation have 
conducted an extensive review of the Form 5500 Series in an effort to 
streamline the information required to be reported and the methods by 
which the information is filed and processed. A proposed revision of 
the Form 5500 Series was published in the Federal Register on September 
3, 1997 (62 FR 46556). The proposal was designed to lower the 
administrative burdens and costs incurred by the more than 800,000 
employee benefit plans that annually file the Form 5500 Series. A 
public hearing on the proposed revision was held on November 17, 1997, 
and written comments on the proposal were received until the public 
record was closed on December 3, 1997. On February 4, 1998, the 
Department announced that, in response to public comments, the 
implementation of the new Form 5500 would be delayed until the 1999 
plan year.
    The Form 5500 as revised by the Agencies in response to comments 
received on the proposal and information presented at the public 
hearing, was submitted to the Office of Management and Budget (OMB) for 
approval under the PRA and a Notice was published in the Federal 
Register on June 24, 1998 (63 FR 34493) which provided a 30-day 
opportunity to submit comments to OMB on the new Form 5500. At the same 
time, a draft version of the new Form 5500 was also made available on 
PWBA's Internet site (http://www.dol.gov/dol/pwba) as part of the 
Agencies' commitment to make information about the new forms available 
to plans and their service providers at the earliest opportunity. 
Following its PRA review, OMB gave conditional PRA approval to the new 
Form 5500 on August 26, 1998. The approval was conditioned on the 
Agencies making minor technical adjustments to the form \8\ and 
soliciting

[[Page 21077]]

public comments on computer scannable versions of the new form. On June 
28, 1999, the Agencies published a Federal Register notice (64 FR 
34686) soliciting public comments on the draft computer scannable 
versions of the new form developed by two vendors who were competing 
for the contract to install the ERISA Filing Acceptance System (EFAST). 
Contracts were initially awarded to two national computer firms to 
competitively develop this system and the computer scannable versions 
of the new Form 5500. The Agencies subsequently selected the vendor to 
process the final scannable version of the new Form 5500. Although the 
reformatting of the form approved by OMB on August 26, 1998 to a 
computer scannable form affects the appearance and length of the new 
form, the data elements have not been affected. See the EFAST Internet 
site at www.efast.dol.gov and the Notice of Adoption of Revised Forms 
(published separately on February 2, 2000 in the Federal Register (65 
FR 5026)) for information on filing the 1999 Form 5500.\9\
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    \8\ The OMB conditions were published in the Federal Register on 
December 10, 1998 (63 FR 68370) in the preamble to the proposed 
amendments to the Department of Labor reporting regulations that 
would conform them to the previously published proposed form 
changes. The conditions, as stated in footnote number 1 to that 
preamble, involved (i) consolidating the separate reporting of long-
term and short-term corporate debt instruments into one line item 
for all corporate debt instruments on the Schedule H (Income and 
Expense Statement), (ii) adding a clarifying instructional statement 
to the text on line 5 of Schedule R, (iii) bolding instructional 
text on line 3 of Schedule T, (iv) adding a statement to the 
Schedule C instructions that trades and businesses (whether or not 
incorporated) are ``persons'' required to be reported as service 
providers, and (v) clarifying the instructions for line 3b(2) of 
Schedule H regarding the inapplicability of the ``short plan year'' 
provisions of 29 CFR 2520.104-50 to Direct Filing Entity Form 5500s 
filed for GIAs and 103-12 IEs.
    \9\ To allow filers more time to transition to the new computer 
scannable formats for the Form 5500 Series and EFAST, the Agencies 
announced on March 22, 2000, that, for filers whose 1999 Form 5500 
Series would be due on or before July 31, 2000, the deadline for 
filing has been extended to October 16, 2000. See PWBA News Release 
USDL 00-16, dated March 22, 2000, for details on the transition-year 
automatic extension.
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    The final Form 5500 to be used for 1999 and later plan years 
incorporates the new structure as proposed (i.e., a short form that 
serves both as a simple registration statement and a checklist that 
guides each filer to the more detailed schedules that are applicable to 
the filer's specific type of plan). The new structure allows filers to 
assemble and file a ``customized'' report, and also allows the Agencies 
to maintain a less costly and more efficient processing system.\10\ 
Because information reported to the Department is also subject to 
ERISA's disclosure provisions, the Department in this final rule has 
attempted to balance the needs of participants, beneficiaries and the 
Department to obtain information necessary to protect ERISA rights and 
interests with the needs of administrators to minimize costs attendant 
with the reporting of information to the federal government.
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    \10\ There are 13 schedules as part of the new Form 5500 
package--five pension schedules, seven financial schedules, and one 
fringe benefit schedule. The pension Schedules are: Schedule B 
(Actuarial Information), Schedule E (ESOP Annual Information), 
Schedule R (Retirement Plan Information), Schedule T (Qualified 
Pension Plan Coverage Information), and Schedule SSA (Annual 
Registration Statement Identifying Separated Participants With 
Deferred Vested Benefits). The financial Schedules are: Schedule A 
(Insurance Information), Schedule C (Service Provider Information), 
Schedule D (DFE/Participating Plan Information); Schedule G 
(Financial Transaction Schedules), Schedule H (Financial 
Information), Schedule I (Financial Information-Small Plan) and 
Schedule P (Annual Return of Fiduciary of Employee Benefit Trust). 
The fringe benefit schedule is Schedule F (Fringe Benefit Plan 
Annual Information Return). The new schedules are Schedules D, H, I, 
R and T; the schedules that have been revised are Schedules A, C and 
G; and the schedules that have either not been revised or have 
undergone minimal changes are Schedules B, E, F, P and SSA.
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    The Department believes that the current action conforming rules 
related to annual reporting obligations for employee benefit plan 
administrators to the new Form 5500 Series is consistent with the 
principles set forth in the Executive Order in that it will reduce 
costs and paperwork burdens over the life of the forms while enhancing 
the ability to protect benefits with timely and accurate information.

Overview of Costs and Benefits of the Regulation

    This regulation conforms the reporting and disclosure regulations 
of Title I of ERISA to the revisions made to the Form 5500 for the 
purpose of streamlining and simplifying the form, and reduces burdens 
while ensuring that both the Department and participants have 
sufficient information to protect participant rights under ERISA. The 
Department has assessed the costs and benefits of the final regulation 
relative to the costs of annual reporting in the current environment. 
The benefits and costs of the statutory annual reporting requirements 
and current practices are included in the baseline and are, therefore, 
not considered benefits or costs of the final regulation.
    The baseline net costs of the annual reporting requirements include 
the benefits which arise from the use of a standardized reporting form, 
the costs of maintaining certain records, communicating with 
professional service providers, and completing and mailing the form 
each time it is required to be filed. The unit cost of completing and 
filing the form is known to be highly variable due to the very large 
number of filer types (e.g., defined benefit and defined contribution 
pension plans, fully insured and trust-funded welfare plans, small and 
large plans, etc.) with differing data requirements. In addition, 
assessment of a baseline cost was further complicated by differing 
methodologies used by the Department and by the Internal Revenue 
Service for estimating the burden of the Form 5500 for PRA purposes. 
The PRA burden is relevant because it is assumed that the baseline cost 
of the annual reporting requirement is the total cost of the PRA burden 
prior to the revision of the form. The cost of the regulation is 
assumed to be the estimated cost of the PRA burden for preparing and 
filing the Form 5500 as revised, plus the estimated cost of any 
automated system changes for filers and service providers to implement 
the revisions to the Form 5500, less the baseline PRA cost.
    The Agencies solicited comments on the burden estimates of the 
proposed changes to the Form 5500 in September of 1997. The comments 
indicated that the burden estimates were too low. In order to address 
these comments, and in an effort to develop a consistent approach to 
the estimation of the burden of the form, the Agencies undertook an 
evaluation of their burden estimation methodologies for the purpose of 
developing a revised and uniform methodology. The Agencies have 
subsequently adopted the methodological approach developed in the 
course of this study.
    The results of the study, which involved the input of employee 
benefits professionals and a survey of actual plan sponsor and service 
provider filers of the Form 5500,\11\ supply the basis of both the 
baseline cost shown here, as well as the estimated cost of completing 
and filing the revised Form 5500 for those portions attributable to the 
Department under Title I of ERISA. The additional economic cost of 
automated system change was estimated based on a separate consultation 
with a small number of entities which either develop, purchase, or 
offer automated systems for annual reporting by employee benefit plans. 
The burden methodology study addressed the time required by filers and 
service providers to maintain necessary records and complete the form, 
but did not address the potential cost of adjustments which may be 
required for automated systems to alter output format for consistency 
with the changes made to the organization of the information on the 
form. While these costs would not necessarily be borne by plans or by 
respondents to the information collection provisions of the regulation, 
costs of this nature are expected to be incurred and are appropriately 
accounted for in the analysis of the

[[Page 21078]]

impact of this final regulation. The findings of these surveys are 
discussed in greater detail in the discussion of costs below.
---------------------------------------------------------------------------

    \11\ The survey was designed and conducted by a survey research 
organization and received prior approval by OMB under control number 
1210-0109 based on the Department's submission of the information 
collection request.
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    The principal benefit of the regulation arises from the 
streamlining of the form, the elimination and clarification, where 
possible, of elements known to contribute to errors or confusion, and 
the improved organization of the form, which are expected to result in 
direct savings for filers. Other benefits less readily quantifiable 
include the availability of more complete information on the large 
volume of assets held by DFEs, and support of a simplified and 
expedited system for processing the Form 5500 that provides better and 
faster enforcement as well as better and faster disclosure.
    The net benefits of the revisions of the Form 5500 attributable to 
the Department are estimated at approximately $59 million in the first 
year of implementation, and approximately $64 million in each 
subsequent year. The savings figure is somewhat lower in the first year 
due to the costs of automated system modifications, which are expected 
to amount to approximately $5 million. The total baseline cost of 
completion of the portions of the Form 5500 attributed to the 
Department is estimated at $717.8 million, while the cost of completion 
of the revised Form 5500 is estimated at $653.7 million. This estimate 
of savings does not yet take into account additional and potentially 
significant savings which may be realized in connection with the 
implementation of EFAST.

Benefits

    The revision of the Form 5500 Series was undertaken in an effort to 
simplify and streamline the annual return/report, and reduce the 
reporting burden on filers. The new form is intended to reduce the 
total amount of information to be reported by many plans by eliminating 
information that is not useful for enforcement, disclosure to 
participants and beneficiaries, research, or other statutorily mandated 
missions. The revisions are also designed to eliminate redundant items 
and revise questions that have historically produced filing errors. The 
revisions also generally require welfare plans to complete fewer items 
than pension plans, and small plans to complete fewer items than large 
plans.
    The revisions eliminate the Form 5500-C/R, but maintain limited 
financial reporting similar to the existing Form 5500-R for small 
plans. Plans currently exempt from filing a return/report (such as 
certain small unfunded/insured welfare plans and certain Simplified 
Employee Pensions (SEPs), or those eligible for limited reporting 
options (such as certain Internal Revenue Code section 403(b) plans) 
will continue to be eligible for that annual reporting relief.
    The revisions restructure the Form 5500 along the lines familiar to 
individual and corporate taxpayers--a simple main form with basic 
information necessary to identify the plan for which the report is 
filed, along with a checklist of the schedules being filed which are 
applicable to the filer's plan type. The structure should aid filers by 
allowing them to assemble and file a return that is customized to their 
plan. Instructions to the form have been reorganized with the intention 
that they be easier to use due to grouping on the basis of the 
schedules to be attached. In other words, the revised instructions will 
allow filers to go directly to the instructions which apply to them, 
and bypass those which do not apply.
    Based on the elimination of certain information and reformatting of 
the Form 5500 Series, the burden of preparing and filing the form is 
estimated to be reduced by almost 9 percent per year over the life of 
the form. As noted earlier, the savings is estimated to amount to $64 
million per year, before adjustment for additional costs expected to be 
incurred for automated system changes.
    The revisions also establish the Form 5500 as the standardized 
reporting format for DFEs. The DFE reporting rules were intended to 
simplify the annual reporting requirements for participating plans and 
eliminate confusion regarding the reporting obligations of plans which 
participate in DFEs. Standardization of the information reported by 
DFEs is expected to allow the Department to correlate asset information 
with plans and to use the DFE data more effectively for enforcement, 
disclosure and research purposes with respect to the approximately $2 
trillion in plan assets presently held by DFEs or entities eligible to 
file as DFEs.\12\ Improved data is expected to contribute to the 
meaningful analysis of the assets of pension plans because 
approximately 45 percent of private pension assets are held by DFEs or 
entities eligible to file as DFEs.
---------------------------------------------------------------------------

    \12\ Estimate based on the total assets held by private pension 
plans in 1999 as reported by the Federal Reserve Board and the 
percentage of all plan assets reported to be invested in these 
entities in 1995 Form 5500 filings.
---------------------------------------------------------------------------

    The revisions are also designed to support and facilitate EFAST, 
the processing system being developed to simplify and expedite the 
processing of the Form 5500. This new system will rely on electronic 
filing with automatic error detection, and optical scanning technology 
and optical character recognition to computerize the paper forms, 
resulting in increasing efficiencies in processing and corresponding 
reductions in the government's processing costs. Implementation of the 
single form with multiple schedules is also expected to reduce the 
government's costs to process the forms, due to the overall reduction 
in the information submitted.

Costs of the Regulation

    The baseline costs of annual reporting consist of a number of 
elements such as the time and cost of maintaining records for the 
purpose of reporting on Form 5500, the time and cost of hiring service 
providers such as accountants and administrators to complete all or 
part of work necessary to maintain appropriate records and complete and 
file the form, time required to communicate with and review the work of 
service providers, and time required to complete and file the form 
manually or through automation. The variability of these elements is 
dependent upon choices made by filers as well as the nature and size of 
their plans.
    In order to develop an accurate estimate of baseline cost to file 
Form 5500, among other reasons, the Agencies involved in the revision 
of the Form 5500 engaged a survey research firm to conduct a survey of 
filers. Because of the wide variation in filing behavior and 
requirements among sponsors and service providers, the survey included 
a sample intended to be reasonably representative of the filer 
universe, rather than a probability sample, which would have been 
substantial in size thereby resulting in a survey which would have been 
very costly to conduct. A very large sample was not considered likely 
to result in more reliable data in any event because neither sponsors 
nor service providers tend to maintain detailed records of the time 
required or costs of preparing and filing Form 5500.
    The methodology for the survey was developed by the contractor with 
input from experts who are familiar with reporting requirements and who 
file Form 5500 professionally. Survey respondents were asked to report 
sponsor burden in hours, and service provider burden in actual dollars 
spent for purchased services. The survey showed that about 90 percent 
of filers employ service providers for the completion and filing of 
Form 5500. The baseline survey, which referred to the 1997 Form 5500 
(the latest available at

[[Page 21079]]

the time the survey was initiated) after application of actual 
responses across filer categories, indicated that 2,131,261 sponsor 
hours and $557,907,442 in fees were expended annually in the completion 
of the Department's elements of the Form 5500. The total cost of 
$717,752,000, which includes the cost represented by the sponsor hours, 
is calculated using an assumed average rate of $75 per burden hour.\13\
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    \13\ The average rate used for this estimate is based on average 
labor hour rates for lawyers, accountants, budget analysts and 
financial managers from the 1998 Employment Cost Index and the 1997 
Occupational Employment Statistics Survey (Bureau of Labor 
Statistics) as adjusted for estimated overhead and profit margin.
---------------------------------------------------------------------------

    The change in burden for the 1999 Form 5500 was estimated by means 
of a second survey of the respondents which focused on the changes made 
to the form. The relationship between hours and costs was assumed to 
remain constant. After application of responses across filer 
categories, the second phase of the survey indicated a reduction from 
the baseline sponsor hours to 1,817,412 and a reduction from the 
baseline cost to $517,367,000. The total cost of filing the 1999 Form 
5500 was therefore estimated at $653,673,000, including the hours at a 
rate of $75 per hour. It is the Department's view that these estimates, 
while somewhat different from those presented at the time of the 
proposal, represent reasonable current estimates of the cost of the 
baseline and regulation due to the design of the survey and its 
reliance on a representative group of actual filers.
    As noted, however, filers who rely on automated recordkeeping and 
document production systems for completion of the Form 5500 may be 
expected to incur other costs to reconfigure output for consistency 
with the new organization of the form. Although maintenance of 
automated systems is not required, it is assumed that sponsors and 
service providers who currently make use of automated systems due to 
their improved efficiency will revise and continue to make use of such 
systems in the future. In order to establish a basis for the estimate 
of the cost of these revisions, the Department arranged for the conduct 
of a separate survey of a total of 9 software developers and service 
providers that either offer software to complete Form 5500 or services 
which incorporate a software package either developed internally or 
purchased from an outside software developer.
    These respondents were asked to describe the nature of the changes 
that would be required, and either the magnitude and nature of their 
costs to make changes or the fees they would charge in order to recover 
their costs. Most respondents indicated that system updating is a 
relatively constant process, but that substantial additional work would 
be required for 1999 principally to modify system output. Developers 
indicated that they anticipated charging either a one-time fee to their 
system purchasers, or a percentage increase in the maintenance fees 
charged to system purchasers. Based on the information collected in the 
survey, those system purchasers are predominantly service providers to 
plans. Service provider responses to the survey appeared to indicate in 
general that additional fees charged to them for system programming and 
maintenance would not necessarily be passed on to plans.
    This may be explained in several ways, including the fact that 
service providers may view the investment in software revision as an 
investment to be used for future earnings, that they may be in a 
position to spread such increases over many clients resulting in a 
small rate of profit reduction per client, that they may expect to 
readily recover the investment in efficiency gains arising from the 
streamlining of the form and electronic filing, and the fact that 
existing service provider fees are based on a complex set of factors 
not necessarily directly related to the service provider's direct cost 
of providing a specific service such as the completion of Form 5500.
    Based on the ratios of the numbers of plans per automated system 
reported by respondent, reported estimates of charges to recover 
reprogramming costs, and the number of plans estimated to make use of 
service providers for the completion and filing of Form 5500, it is 
estimated that developers and providers will invest approximately $5 
million in reprogramming efforts prior to implementation of the revised 
Form 5500.

Paperwork Reduction Act Statement

    This final regulation imposes no new information collection 
requirements in addition to the information collection requirements 
associated with the submission of the Form 5500 Series (OMB control 
numbers 1210-0110 and 1210-0089) and the ERISA Summary Annual Report 
(OMB Control number 1210-0040).

Small Business Regulatory Enforcement Fairness Act

    This final rule is subject to the provisions of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and 
is being transmitted to Congress and the Comptroller General for 
review. The final rule, however, is not a ``major rule,'' as that term 
is defined in 5 U.S.C. 804, because it is not likely to result in (1) 
an annual effect on the economy of $100 million or more; (2) a major 
increase in costs or prices for consumers, individual industries, or 
federal, State or local government agencies, or geographic regions; or 
(3) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic or 
export markets.

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, this final regulation does 
not include any Federal mandate that may result in expenditures by 
State, local or tribal governments, and would not impose an annual 
burden exceeding $100 million on the private sector.

Executive Order 13132 Statement

    This final rule does not have federalism implications because it 
has 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 supercede 
any and all laws of the States as they relate to any employee benefit 
plan covered under ERISA. This final rule, therefore, does not affect 
the States or change the relationship or distribution of power between 
the national government and the States. Further, this final rule 
implements certain revisions to annual reporting and disclosure 
regulations which have been in effect in similar form for many years. 
The amendments incorporated in this final rule do not alter the 
fundamental requirements of the statute with respect to the reporting 
and disclosure requirements for employee benefit plans, and as such 
have no implications for the States or the relationship or distribution 
of power between the national government and the States.

Statutory Authority

    This regulation is adopted pursuant to the authority in sections 
101, 103, 104, 109, 110, 111, 504 and 505 of ERISA

[[Page 21080]]

and under Secretary of Labor's Order No. 1-87, 52 FR 13139, April 21, 
1987.

List of Subjects in 29 CFR Part 2520

    Accountants, Disclosure requirements, Employee benefit plans, 
Employee Retirement Income Security Act, Pension plans, Pension and 
welfare plans, Reporting and recordkeeping requirements, and Welfare 
benefit plans.

    In view of the foregoing, Part 2520 of Chapter XXV of Title 29 of 
the Code of Federal Regulations is amended as set forth below:

PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE

    1. The authority citation for Part 2520 continues to read as 
follows:

    Authority:  Secs. 101, 102, 103, 104, 105, 109, 110, 111(b)(2), 
111(c), and 505, Pub. L. 93-406, 88 Stat. 840-52 and 894 (29 U.S.C. 
1021-1025, 1029-31, and 1135); Secretary of Labor's Order No. 27-74, 
13-76, 1-87, and Labor Management Services Administration Order 2-6.

    Sections 2520.102-3, 2520.104b-1 and 2520.104b-3 also are issued 
under sec. 101(a), (c) and (g)(4) of Pub. L. 104-191, 110 Stat. 1936, 
1939, 1951 and 1955 and, sec. 603 of Pub. L. 104-204, 110 Stat. 2935 
(29 U.S.C. 1185 and 1191c).

    2. Section 2520.103-1 is amended by revising the phrase ``section 
104(a)(1)(A)'' in paragraph (a) introductory text to read ``section 
104(a)(1)'', revising the introductory text of paragraph (b), paragraph 
(b)(1), the first sentence of paragraph (b)(2)(i), paragraphs (b)(4), 
(c), (d) and the first sentence of paragraph (e) and by adding a 
paragraph (f) to read as follows:


Sec. 2520.103-1  Contents of the annual report.

* * * * *
    (b) Contents of the annual report for plans with 100 or more 
participants electing the limited exemption or alternative method of 
compliance. Except as provided in paragraph (d) of this section and in 
Secs. 2520.103-2 and 2520.104-44, the annual report of an employee 
benefit plan covering 100 or more participants at the beginning of the 
plan year which elects the limited exemption or alternative method of 
compliance described in paragraph (a)(2) of this section shall include:
    (1) A Form 5500 ``Annual Return/Report of Employee Benefit Plan'' 
and any statements or schedules required to be attached to the form, 
completed in accordance with the instructions for the form, including 
Schedule A (Insurance Information), Schedule B (Actuarial Information), 
Schedule C (Service Provider Information), Schedule D (DFE/
Participating Plan Information), Schedule G (Financial Transaction 
Schedules), Schedule H (Financial Information), Schedule R (Retirement 
Plan Information), and the other financial schedules described in 
Sec. 2520.103-10. See the instructions for this form.
    (2) * * *
    (i) A statement of assets and liabilities at current value 
presented in comparative form for the beginning and end of the year. * 
* *
* * * * *
    (4) In the case of a plan, some or all of the assets of which are 
held in a pooled separate account maintained by an insurance company, 
or a common or collective trust maintained by a bank or similar 
institution, a copy of the annual statement of assets and liabilities 
of such account or trust for the fiscal year of the account or trust 
which ends with or within the plan year for which the annual report is 
made as required to be furnished to the administrator by such account 
or trust under Sec. 2520.103-5(c). Although the statement of assets and 
liabilities referred to in Sec. 2520.103-5(c) shall be considered part 
of the plan's annual report, such statement of assets and liabilities 
need not be filed with the plan's annual report. See Secs. 2520.103-3 
and 2520.103-4 for reporting requirements for plans some or all of the 
assets of which are held in a pooled separate account maintained by an 
insurance company, or a common or collective trust maintained by a bank 
or similar institution.
* * * * *
    (c) Contents of the annual report for plans with fewer than 100 
participants. Except as provided in paragraph (d) of this section and 
in Secs. 2520.104-43 and 2520.104a-6, the annual report of an employee 
benefit plan which covers fewer than 100 participants at the beginning 
of the plan year shall include a Form 5500 ``Annual Return/Report of 
Employee Benefit Plan'' and any statements or schedules required to be 
attached to the form, completed in accordance with the instructions for 
the form, including Schedule A (Insurance Information), Schedule B 
(Actuarial Information), Schedule D (DFE/Participating Plan 
Information), Schedule I (Financial Information--Small Plan), and 
Schedule R (Retirement Plan Information). See the instructions for this 
form.
    (d) Special rule. If a plan has between 80 and 120 participants 
(inclusive) as of the beginning of the plan year, the plan 
administrator may elect to file the same category of annual report 
(i.e., the annual report for plans with 100 or more participants under 
paragraph (b) of this section or the annual report for plans with fewer 
than 100 participants under paragraph (c) of this section) that was 
filed for the previous plan year.
    (e) Plans which participate in a master trust. The plan 
administrator of a plan which participates in a master trust shall file 
an annual report on Form 5500 in accordance with the instructions for 
the form relating to master trusts and master trust investment 
accounts. * * *
    (f) Electronic filing. The Form 5500 ``Annual Return/Report of 
Employee Benefit Plan'' may be filed electronically or through other 
media in accordance with the instructions accompanying the form, 
provided the plan administrator maintains an original copy, with all 
required signatures, as part of the plan's records.

    3.-4. Section 2520.103-2 is amended by revising paragraph (b)(1), 
the first sentence of paragraph (b)(2)(i) and paragraph (b)(4) and by 
adding paragraph (c) to read as follows:


Sec. 2520.103-2  Contents of the annual report for a group insurance 
arrangement.

* * * * *
    (b) Contents. (1) A Form 5500 ``Annual Return/Report of Employee 
Benefit Plan'' and any statements or schedules required to be attached 
to the form, completed in accordance with the instructions for the 
form, including Schedule A (Insurance Information), Schedule C (Service 
Provider Information), Schedule D (DFE/Participating Plan Information), 
Schedule G (Financial Transaction Schedules), Schedule H (Financial 
Information), and the other financial schedules described in 
Sec. 2520.103-10. See the instructions for this form.
    (2) * * *
    (i) A statement of all trust assets and liabilities at current 
value presented in comparative form for the beginning and end of the 
year. * * *
* * * * *
    (4) In the case of a group insurance arrangement some or all of the 
assets of which are held in a pooled separate account maintained by an 
insurance carrier, or in a common or collective trust maintained by a 
bank, trust company or similar institution, a copy of the annual 
statement of assets and liabilities of such account or trust for the 
fiscal year of the account or trust which ends with or within the plan 
year for which the annual report is made as required to be furnished by 
such account or trust under Sec. 2520.103-5(c). Although the statement 
of assets and

[[Page 21081]]

liabilities referred to in Sec. 2520.103-5(c) shall be considered part 
of the group insurance arrangement's annual report, such statement of 
assets and liabilities need not be filed with its annual report. See 
Secs. 2520.103-3 and 2520.103-4 for reporting requirements for plans 
some or all of the assets of which are held in a pooled separate 
account maintained by an insurance company, or a common or collective 
trust maintained by a bank or similar institution, and see 
Sec. 2520.104-43(b)(2) for when the terms ``group insurance 
arrangement'' or ``trust or other entity'' shall be, respectively, used 
in place of the terms ``plan'' and ``plan administrator.''
* * * * *
    (c) Electronic filing. The Form 5500 ``Annual Return/Report of 
Employee Benefit Plan'' may be filed electronically or through other 
media in accordance with the instructions accompanying the form, 
provided the trust or other entity described in Sec. 2520.104-43(b) 
maintains an original copy, with all required signatures, as part of 
the trust's or entity's records.

    5.-6. Section 2520.103-3 is amended by revising paragraphs (a) and 
(c) to read as follows:


Sec. 2520.103-3  Exemption from certain annual reporting requirements 
for assets held in a common or collective trust.

    (a) General. Under the authority of sections 103(b)(3)(G), 
103(b)(4), 104(a)(2)(B), 104(a)(3), 110 and 505 of the Act, a plan 
whose assets are held in whole or in part in a common or collective 
trust maintained by a bank, trust company, or similar institution which 
meets the requirements of paragraph (b) of this section shall include 
as part of the annual report required to be filed under 
Secs. 2520.104a-5 or 2520.104a-6 the information described in paragraph 
(c) of this section. Such plan is not required to include in its annual 
report information concerning the individual transactions of the common 
or collective trust. This exemption has no application to assets not 
held in such trusts.
* * * * *
    (c) Contents. (1) A plan which meets the requirements of paragraph 
(b) of this section, and which invests in a common or collective trust 
that files a Form 5500 report in accordance with Sec. 2520.103-9, shall 
include in its annual report: information required by the instructions 
to Schedule H (Financial Information) or Schedule I (Financial 
Information--Small Plan) about the current value of and net investment 
gain or loss relating to the units of participation in the common or 
collective trust held by the plan; identifying information about the 
common or collective trust including its name, employer identification 
number, and any other information required by the instructions to the 
Schedule D (DFE/Participating Plan Information); and such other 
information as is required in the separate statements and schedules of 
the annual report about the value of the plan's units of participation 
in the common or collective trust and transactions involving the 
acquisition and disposition by the plan of units of participation in 
the common or collective trust.
    (2) A plan which meets the requirements of paragraph (b) of this 
section, and which invests in a common or collective trust that does 
not file a Form 5500 report in accordance with Sec. 2520.103-9, shall 
include in its annual report: information required by the instructions 
to Schedule H (Financial Information) or Schedule I (Financial 
Information--Small Plan) about the current value of the plan's 
allocable portion of the underlying assets and liabilities of the 
common or collective trust and the net investment gain or loss relating 
to the units of participation in the common or collective trust held by 
the plan; identifying information about the common or collective trust 
including its name, employer identification number, and any other 
information required by the instructions to the Schedule D (DFE/
Participating Plan Information); and such other information as is 
required in the separate statements and schedules of the annual report 
about the value of the plan's units of participation in the common or 
collective trust and transactions involving the acquisition and 
disposition by the plan of units of participation in the common or 
collective trust.

    7. Section 2520.103-4 is amended by revising paragraphs (a) and (c) 
to read as follows:


Sec. 2520.103-4  Exemption from certain annual reporting requirements 
for assets held in an insurance company pooled separate account.

    (a) General. Under the authority of sections 103(b)(3)(G), 
103(b)(4), 104(a)(2)(B), 104(a)(3), 110 and 505 of the Act, a plan 
whose assets are held in whole or in part in a pooled separate account 
of an insurance carrier which meets the requirements of paragraph (b) 
of this section shall include as part of the annual report required to 
be filed under Sec. 2520.104a-5 or Sec. 2520.104a-6 the information 
described in paragraph (c) of this section. Such plan is not required 
to include in its annual report information concerning the individual 
transactions of the pooled separate account. This exemption has no 
application to assets not held in such a pooled separate account.
* * * * *
    (c) Contents. (1) A plan which meets the requirements of paragraph 
(b) of this section, and which invests in a pooled separate account 
that files a Form 5500 report in accordance with Sec. 2520.103-9, shall 
include in its annual report: information required by the instructions 
to Schedule H (Financial Information) or Schedule I (Financial 
Information--Small Plan) about the current value of, and net investment 
gain or loss relating to, the units of participation in the pooled 
separate account held by the plan; identifying information about the 
pooled separate account including its name, employer identification 
number, and any other information required by the instructions to the 
Schedule D (DFE/Participating Plan Information); and such other 
information as is required in the separate statements and schedules of 
the annual report about the value of the plan's units of participation 
in the pooled separate accounts and transactions involving the 
acquisition and disposition by the plan of units of participation in 
the pooled separate account.
    (2) A plan which meets the requirements of paragraph (b) of this 
section, and which invests in a pooled separate account that does not 
file a Form 5500 report in accordance with Sec. 2520.103-9, shall 
include in its annual report: information required by the instructions 
to Schedule H (Financial Information) or Schedule I (Financial 
Information--Small Plan) about the current value of the plan's 
allocable portion of the underlying assets and liabilities of the 
pooled separate account and the net investment gain or loss relating to 
the units of participation in the pooled separate account held by the 
plan; identifying information about the pooled separate account 
including its name, employer identification number, and any other 
information required by the instructions to the Schedule D (DFE/
Participating Plan Information); and such other information as is 
required in the separate statements and schedules of the annual report 
about the value of the plan's units of participation in the pooled 
separate account and transactions involving the acquisition and 
disposition by the plan of units of participation in the pooled 
separate account.
    8. Section 2520.103-5 is amended by redesignating paragraph 
(c)(1)(iii) as paragraph (c)(1)(iv), redesignating paragraphs 
(c)(2)(ii) and (c)(2)(iii), as paragraphs (c)(2)(iii) and (c)(2)(iv),

[[Page 21082]]

revising all references in the section to the term ``section 
104(a)(1)(A)'' to read ``section 104(a)(1)'', revising paragraphs 
(c)(1)(ii) and (c)(2)(i) and adding new paragraphs (c)(1)(iii), and 
(c)(2)(ii) to read as follows:


Sec. 2520.103-5  Transmittal and certification of information to plan 
administrator for annual reporting purposes.

* * * * *
    (c) * * *
    (1) * * *
    (ii) Holds assets of a plan in a pooled separate account and files 
a Form 5500 report pursuant to Sec. 2520.103-9 for the participating 
plan's plan year--
    (A) A copy of the annual statement of assets and liabilities of the 
separate account for the fiscal year of such account ending with or 
within the plan year for which the participating plan's annual report 
is made,
    (B) A statement of the value of the plan's units of participation 
in the separate account,
    (C) The Employer Identification Number (EIN) of the separate 
account, entity number required for purposes of completing the Form 
5500 and any other identifying number assigned by the insurance carrier 
to the separate account,
    (D) A statement that a filing pursuant to Sec. 2520.103-9(c) will 
be made for the separate account (for its fiscal year ending with or 
within the participating plan's plan year) on or before the filing due 
date for such account in accordance with the Form 5500 instructions, 
and
    (E) Upon request of the plan administrator, any other information 
that can be obtained from the ordinary business records of the 
insurance carrier and that is needed by the plan administrator to 
comply with the requirements of section 104(a)(1) of the Act and 
Sec. 2520.104a-5 or Sec. 2520.104a-6;
    (iii) Holds assets of a plan in a pooled separate account and does 
not file a Form 5500 report pursuant to Sec. 2520.103-9 for the 
participating plan's plan year--
    (A) A copy of the annual statement of assets and liabilities of the 
separate account for the fiscal year of such account that ends with or 
within the plan year for which the participating plan's annual report 
is made,
    (B) A statement of the value of the plan's units of participation 
in the separate account,
    (C) The EIN of the separate account and any other identifying 
number assigned by the insurance carrier to the separate account,
    (D) A statement that a filing pursuant to Sec. 2520.103-9(c) will 
not be made for the separate account for its fiscal year ending with or 
within the participating plan's plan year, and
    (E) Upon request of the plan administrator, any other information 
that can be obtained from the ordinary business records of the 
insurance carrier and that is needed by the plan administrator to 
comply with the requirements of section 104(a)(1) of the Act and 
Sec. 2520.104a-5 or Sec. 2520.104a-6.
* * * * *
    (2) * * *
    (i) In a common or collective trust that files a Form 5500 report 
pursuant to Sec. 2520.103-9 for the participating plan's plan year--
    (A) A copy of the annual statement of assets and liabilities of the 
common or collective trust for the fiscal year of such trust ending 
with or within the plan year for which the participating plan's annual 
report is made,
    (B) A statement of the value of the plan's units of participation 
in the common or collective trust,
    (C) The EIN of the common or collective trust, entity number 
assigned for purposes of completing the Form 5500 and any other 
identifying number assigned by the bank, trust company, or similar 
institution,
    (D) A statement that a filing pursuant to Sec. 2520.103-9(c) will 
be made for the common or collective trust (for its fiscal year ending 
with or within the participating plan's plan year) on or before the 
filing due date for such trust in accordance with the Form 5500 
instructions, and
    (E) Upon request of the plan administrator, any other information 
that can be obtained from the ordinary business records of the bank, 
trust company or similar institution and that is needed by the plan 
administrator to comply with the requirements of section 104(a)(1) of 
the Act and Secs. 2520.104a-5 or 2520.104a-6.
    (ii) In a common or collective trust that does not file a Form 5500 
report pursuant to Sec. 2520.103-9 for the participating plan's plan 
year--
    (A) A copy of the annual statement of assets and liabilities of the 
common or collective trust for the fiscal year of such account that 
ends with or within the plan year for which the participating plan's 
annual report is made,
    (B) A statement of the value of the plan's units of participation 
in the common or collective trust,
    (C) The EIN of the common or collective trust and any other 
identifying number assigned by the bank, trust company or similar 
institution,
    (D) A statement that a filing pursuant to Sec. 2520.103-9(c) will 
not be made for the common or collective trust for its fiscal year 
ending with or within the participating plan's plan year, and
    (E) Upon request of the plan administrator, any other information 
that can be obtained from the ordinary business records of the bank, 
trust company or similar institution and that is needed by the plan 
administrator to comply with the requirements of section 104(a)(1) of 
the Act and Secs. 2520.104a-5 or 2520.104a-6.
* * * * *

    9. Section 2520.103-6 is amended by redesignating paragraph (b)(1) 
as paragraph (b)(1)(i), revising paragraphs (a) and (b)(1)(ii), and 
adding paragraph (f) to read as follows:


Sec. 2520.103-6  Definition of reportable transaction for Annual 
Return/Report.

    (a) General. For purposes of preparing the schedule of reportable 
transactions described in Sec. 2520.103-10(b)(6), and subject to the 
exceptions provided in Secs. 2520.103-3, 2520.103-4 and 2520.103-12, 
with respect to individual transactions by a common or collective 
trust, pooled separate account, or a 103-12 investment entity, a 
reportable transaction includes any transaction or series of 
transactions described in paragraph (c) of this section.
    (b) * * *
    (1) * * *
    (ii) Except as provided in paragraphs (c)(2) and (d)(1)(vi) of this 
section (relating to assets acquired or disposed of during the plan 
year), with respect to schedules of reportable transactions for the 
initial plan year of a plan, ``current value'' shall mean the current 
value, as defined in section 3(26) of the Act, of plan assets at the 
end of a plan's initial plan year.
* * * * *
    (f) Special rule for certain participant-directed transactions. 
Participant or beneficiary directed transactions under an individual 
account plan shall not be taken into account under paragraph (c)(1) of 
this section for purposes of preparing the schedule of reportable 
transactions described in this section. For purposes of this section 
only, a transaction will be considered directed by a participant or 
beneficiary if it has been authorized by such participant or 
beneficiary.

    10. Section 2520.103-9 is revised to read as follows:


Sec. 2520.103-9  Direct filing for bank or insurance carrier trusts and 
accounts.

    (a) General. Under the authority of sections 103(b)(4), 104(a)(3), 
110 and 505 of the Act, an employee benefit

[[Page 21083]]

plan, some or all of the assets of which are held in a common or 
collective trust or a pooled separate account described in section 
103(b)(3)(G) of the Act and Secs. 2520.103-3 and 2520.103-4, is 
relieved from including in its annual report information about the 
current value of the plan's allocable portion of assets and liabilities 
of the common or collective trust or pooled separate account and 
information concerning the individual transactions of the common or 
collective trust or pooled separate account, provided that the plan 
meets the requirements of paragraph (b) of this section, and, provided 
further, that the bank or insurance carrier which holds the plan's 
assets meets the requirements of paragraph (c) of this section.
    (b) Application. A plan whose assets are held in a common or 
collective trust or a pooled separate account described in section 
103(b)(3)(G) of the Act and Secs. 2520.103-3 and 2520.103-4, provided 
the plan administrator, on or before the end of the plan year, provides 
the bank or insurance carrier which maintains the common or collective 
trust or pooled separate account with the plan number, and name and 
Employer Identification Number of the plan sponsor as will be reported 
on the plan's annual report.
    (c) Separate filing by common or collective trusts and pooled 
separate accounts. The bank or insurance carrier which maintains the 
common or collective trust or pooled separate account in which assets 
of the plan are held shall file, in accordance with the instructions 
for the form, a completed Form 5500 ``Annual Return/Report of Employee 
Benefit Plan'' and any statements or schedules required to be attached 
to the form for the common or collective trust or pooled separate 
account, including Schedule D (DFE/Participating Plan Information) and 
Schedule H (Financial Information). See the instructions for this form. 
The information reported shall be for the fiscal year of such trust or 
account ending with or within the plan year for which the annual report 
of the plan is made.
    (d) Method of filing. The Form 5500 ``Annual Return/Report of 
Employee Benefit Plan'' may be filed electronically or through other 
media in accordance with the instructions accompanying the form, 
provided the bank or insurance company which maintains the common or 
collective trust or pooled separate account maintains an original copy, 
with all required signatures, as part of its records.

    11. Section 2520.103-10 is revised to read as follows:


Sec. 2520.103-10  Annual report financial schedules.

    (a) General. The administrator of a plan filing an annual report 
pursuant to Sec. 2520.103-1(a)(2) or the report for a group insurance 
arrangement pursuant to Sec. 2520.103-2 shall, as provided in the 
instructions to the Form 5500 ``Annual Return/Report of Employee 
Benefit Plan,'' include as part of the annual report the separate 
financial schedules described in paragraph (b) of this section.
    (b) Schedules. (1) Assets held for investment. (i) A schedule of 
all assets held for investment purposes at the end of the plan year 
(see Sec. 2520.103-11) with assets aggregated and identified by:
    (A) Identity of issue, borrower, lessor or similar party to the 
transaction (including a notation as to whether such party is known to 
be a party in interest);
    (B) Description of investment including maturity date, rate of 
interest, collateral, par, or maturity value;
    (C) Cost; and
    (D) Current value, and, in the case of a loan, the payment 
schedule.
    (ii) Except as provided in the Form 5500 and the instructions 
thereto, in the case of assets or investment interests of two or more 
plans maintained in one trust, all entries on the schedule of assets 
held for investment purposes that relate to the trust shall be 
completed by including the plan's allocable portion of the trust.
    (2) Assets acquired and disposed within the plan year. (i) A 
schedule of all assets acquired and disposed of within the plan year 
(see Sec. 2520.103-11) with assets aggregated and identified by:
    (A) Identity of issue, borrower, issuer or similar party;
    (B) Descriptions of investment including maturity date, rate of 
interest, collateral, par, or maturity value;
    (C) Cost of acquisitions; and
    (D) Proceeds of dispositions.
    (ii) Except as provided in the Form 5500 and the instructions 
thereto, in the case of assets or investment interests of two or more 
plans maintained in one trust, all entries on the schedule of assets 
held for investment purposes that relate to the trust shall be 
completed by including the plan's allocable portion of the trust.
    (3) Party in interest transactions. A schedule of each transaction 
involving a person known to be a party in interest except do not 
include:
    (i) A transaction to which a statutory exemption under part 4 of 
title I applies;
    (ii) A transaction to which an administrative exemption under 
section 408(a) of the Act applies; or
    (iii) A transaction to which the exemptions of section 4975(c) or 
4975(d) of the Internal Revenue Code (Title 26 of the United States 
Code) applies.
    (4) Obligations in default. A schedule of all loans or fixed income 
obligations which were in default as of the end of the plan year or 
were classified during the year as uncollectible.
    (5) Leases in default. A schedule of all leases which were in 
default or were classified during the year as uncollectible.
    (6) Reportable transactions. A schedule of all reportable 
transactions as defined in Sec. 2520.103-6.
    (c) Format requirements for certain schedules. See the instructions 
to the Form 5500 ``Annual Return/Report of Employee Benefit Plan'' as 
to the format requirement for the schedules referred to in paragraphs 
(b)(1), (b)(2) or (b)(6) of this section.

    12. Section 2520.103-11 is amended by revising paragraph (a) and 
adding paragraph (d) to read as follows:


Sec. 2520.103-11  Assets held for investment purposes.

    (a) General. For purposes of preparing the schedule of assets held 
for investment purposes described in Sec. 2520.103-10(b)(1) and (2), 
assets held for investment purposes include those assets described in 
paragraph (b) of this section.
* * * * *
    (d) Special rule for certain participant-directed transactions. 
Cost information may be omitted from the schedule of assets held for 
investment purposes for assets described in paragraphs (b)(1)(i) and 
(b)(1)(ii) of this section only with respect to participant or 
beneficiary directed transactions under an individual account plan. For 
purposes of this section only, a transaction will be considered 
directed by a participant or beneficiary if it has been authorized by 
such participant or beneficiary.

    13. Section 2520.103-12 is amended by revising the last two 
sentences of paragraph (a), revising paragraph (b), and also adding a 
new paragraph (f) to read as follows:


Sec. 2520.103-12  Limited exemption and alternative method of 
compliance for annual reporting of investments in certain entities.

    (a) * * * The plan is not required to include in its annual report 
any information regarding the underlying assets or individual 
transactions of the entity, provided the information described in 
paragraph (b) regarding the entity is reported directly to the 
Department on behalf of the plan administrator on or before the filing 
due date for the entity in accordance with

[[Page 21084]]

the instructions to the Form 5500 Annual Return/Report. The information 
described in paragraph (b), however, shall be considered as part of the 
annual report for purposes of the requirements of section 104(a)(1) of 
the Act and Secs. 2520.104a-5 and 2520.104a-6.
    (b) The following information must be filed regarding the entity 
described in paragraph (c) of this section:
    (1) A Form 5500 ``Annual Return/Report of Employee Benefit Plan'' 
and any statements or schedules required to be attached to the form for 
such entity, completed in accordance with the instructions for the 
form, including Schedule A (Insurance Information), Schedule C (Service 
Provider Information), Schedule D (DFE/Participating Plan Information), 
Schedule G (Financial Transaction Schedules), Schedule H (Financial 
Information), and the schedules described in Sec. 2520.103-10(b)(1) and 
(b)(2). See the instructions for this form. The information reported 
shall be for the fiscal year of such entity ending with or within the 
plan year for which the annual report of the plan is made.
    (2) A report of an independent qualified public accountant 
regarding the financial statements and schedules described in paragraph 
(b)(1) of this section which meets the requirements of Sec. 2520.103-
1(b)(5).
* * * * *
    (f) Method of filing. The Form 5500 ``Annual Return/Report of 
Employee Benefit Plan'' may be filed electronically or through other 
media in accordance with the instructions accompanying the form 
provided the entity described in paragraph (c) of this section 
maintains an original copy, with all required signatures, as part of 
its records.

    14. Section 2520.104-21 is amended by revising paragraphs (b)(3) 
and (d), and adding paragraph (e) to read as follows.


Sec. 2520.104-21  Limited exemption for certain group insurance 
arrangements.

* * * * *
    (b) * * *
    (3) Uses a trust (or other entity such as a trade association) as 
the holder of the insurance contracts and uses a trust as the conduit 
for payment of premiums to the insurance company.
* * * * *
    (d) Examples. (1) A welfare plan has 25 participants at the 
beginning of the plan year. It is part of a group insurance arrangement 
of a trade association which provides benefits to employees of two or 
more unaffiliated employers, but not in connection with a multiemployer 
plan as defined in the Act. Plan benefits are fully insured pursuant to 
insurance contracts purchased with premium payments derived half from 
employee contributions (which the employer forwards within three months 
of receipt) and half from the general assets of each participating 
employer. Refunds to the plan are paid to participating employees 
within three months of receipt as provided in the plan and as described 
to each participant upon entering the plan. The trade association holds 
the insurance contracts. A trust acts as a conduit for payments, 
receiving premium payments from participating employers and paying the 
insurance company. The plan appoints the trade association as its plan 
administrator. The association, as plan administrator, provides summary 
plan descriptions to participants and beneficiaries, enlisting the help 
of participating employers in carrying out this distribution. The plan 
administrator also makes copies of certain plan documents available to 
the plan's principal office and such other places as necessary to give 
participants reasonable access to them. The plan administrator files 
with the Secretary an annual report covering activities of the plan, as 
required by the Act and such regulations as the Secretary may issue. 
The exemption provided by this section applies because the conditions 
of paragraph (b) have been satisfied.
    (2) Assume the same facts as paragraph (d)(1) of this section 
except that the premium payments for the insurance company are paid 
from the trust to an independent insurance brokerage firm acting as the 
agent of the insurance company. The trade association is the holder of 
the insurance contract. The plan appoints an officer of the 
participating employer as the plan administrator. The officer, as plan 
administrator, performs the same reporting and disclosure functions as 
the administrator in paragraph (d)(1) of this section, enlisting the 
help of the association in providing summary plan descriptions and 
necessary information. The exemption provided by this section applies.
    (3) The facts are the same as paragraph (d)(1) of this section 
except the welfare plan has 125 participants at the beginning of the 
plan year. The exemption provided by this section does not apply 
because the plan had 100 or more participants at the beginning of the 
plan year. See, however, Sec. 2520.104-43.
    (4) The facts are the same as paragraph (d)(2) of this section 
except the welfare plan has 125 participants. The exemption provided by 
this section does not apply because the plan had 100 or more 
participants at the beginning of the plan year. See, however, 
Sec. 2520.104-43.
    (e) Applicability date. For purposes of paragraph (b)(3) of this 
section, the arrangement may continue to use an entity (such as a trade 
association) as the conduit for the payment of insurance premiums to 
the insurance company for reporting years of the arrangement beginning 
before January 1, 2001.

    15. Section 2520.104-41 is amended by revising paragraphs (b) and 
(c) to read as follows:


Sec. 2520.104-41  Simplified annual reporting requirements for plans 
with fewer than 100 participants.

* * * * *
    (b) Application. The administrator of an employee pension or 
welfare benefit plan which covers fewer than 100 participants at the 
beginning of the plan year and the administrator of an employee pension 
or welfare benefit plan described in Sec. 2520.103-1(d) may file the 
simplified annual report described in paragraph (c) of this section in 
lieu of the annual report described in Sec. 2520.103-1(b).
    (c) Contents. The administrator of an employee pension or welfare 
benefit plan described in paragraph (b) of this section shall file, in 
the manner described in Sec. 2520.104a-5 and in accordance with the 
instructions for the form, a completed Form 5500 ``Annual Return/Report 
of Employee Benefit Plan'' and any statements or schedules required to 
be attached to the form, including Schedule A (Insurance Information), 
Schedule B (Actuarial Information), Schedule D (DFE/Participating Plan 
Information), Schedule I (Financial Information--Small Plan), and 
Schedule R (Retirement Plan Information). See the instructions for this 
form.

    16. Section 2520.104-43 is amended by revising paragraphs 
(b)(1)(ii) and (b)(2) to read as follows:


Sec. 2520.104-43  Exemption from annual reporting requirement for 
certain group insurance arrangements.

* * * * *
    (b) * * *
    (1) * * *
    (ii) an annual report containing the items set forth in 
Sec. 2520.103-2 has been filed with the Secretary of Labor in 
accordance with Secs. 2520.104a-6 by the trust or other entity which is 
the holder of the group insurance contracts by which plan benefits are 
provided.
    (2) For purposes of this section, the terms ``group insurance 
arrangement'' or ``trust or other entity'' shall be used in place of 
the terms ``plan'' and ``plan administrator,'' as applicable, in 
Secs. 2520.103-3, 2520.103-4, 2520.103-6,

[[Page 21085]]

2520.103-8, 2520.103-9 and 2520.103-10.
* * * * *

    17. Section 2520.104-44 is amended by revising the second sentence 
of paragraph (a)(2), removing the word ``and'' at the end of paragraph 
(b)(1)(iii), revising the period at the end of paragraph (b)(2) to a 
semicolon, and adding the word ``and'' after such semi-colon, adding 
paragraph (b)(3), and revising paragraph (c)(1) to read as follows:


Sec. 2520.104-44  Limited exemption and alternative method of 
compliance for annual reporting by unfunded plans and certain insured 
plans.

    (a) * * *
    (2) * * * An employee pension benefit plan which meets the 
requirements of paragraph (b)(2) or (b)(3) of this section is not 
required to comply with the annual reporting requirements described in 
paragraph (c) of this section.
    (b) * * *
    (3) A pension plan using a tax deferred annuity arrangement under 
section 403(b)(1) of the Internal Revenue Code (Title 26 of the United 
States Code) and/or a custodial account for regulated investment 
company stock under Code section 403(b)(7) as the sole funding vehicle 
for providing pension benefits.
    (c) * * *
    (1) Completing certain items of the annual report relating to 
financial information and transactions entered into by the plan as 
described in the instructions to the Form 5500 ``Annual Return/Report 
of Employee Benefit Plan'' and accompanying schedules;
* * * * *

    18. Section 2520.104-46 is amended by revising paragraph (d)(1) to 
read as follows:


Sec. 2520.104-46  Waiver of examination and report of an independent 
qualified public accountant for employee benefit plans with fewer than 
100 participants.

* * * * *
    (d) Limitations. (1) The waiver described in this section does not 
affect the obligation of the plan described in paragraph (b)(1), or 
(b)(2) of this section to file the Form 5500 ``Annual Return/Report of 
Employee Benefit Plan'' and all applicable financial schedules and 
statements as prescribed by the instructions to the form. See 
Sec. 2520.104-41.
* * * * *
    19. Section 2520.104b-10 is amended by revising the phrase in the 
first sentence of paragraph (a) ``paragraphs (b) and (g)'' to read 
``paragraph (g)'', by removing and reserving paragraph (b), and by 
revising paragraph (c) introductory text and paragraph (f) to read as 
follows.


Sec. 2520.104b-10  Summary Annual Report.

* * * * *
    (c) When to furnish. Except as otherwise provided in this paragraph 
(c), the summary annual report required by paragraph (a) of this 
section shall be furnished within nine months after the close of the 
plan year.
* * * * *
    (f) Furnishing of additional documents to participants and 
beneficiaries. A plan administrator shall promptly comply with any 
request by a participant or beneficiary for additional documents made 
in accordance with the procedures or rights described in paragraph (d) 
of this section.
* * * * *


Sec. 2520.104b-10  [Amended]

    20. Section 2520.104b-10 is further amended as follows.
    a. The following sentence from paragraph (d)(3) under the heading 
``Basic Financial Statement'' is removed:
    [For plans filing form 5500K, omit separate entries for employer 
contributions and employee contributions and insert instead 
``contributions by the employer and employees of ($)''].
    b. In paragraph (d)(3), in the list under the heading ``Your Rights 
to Additional Information'' items 1. through 8. are revised and items 
9. and 10. are added to read as follows:
* * * * *
    1. an accountant's report;
    2. financial information and information on payments to service 
providers;
    3. assets held for investment;
    4. fiduciary information, including non-exempt transactions between 
the plan and parties-in-interest (that is, persons who have certain 
relationships with the plan);
    5. loans or other obligations in default or classified as 
uncollectible;
    6. leases in default or classified as uncollectible;
    7. transactions in excess of 5 percent of the plan assets;
    8. insurance information including sales commissions paid by 
insurance carriers;
    9. information regarding any common or collective trusts, pooled 
separate accounts; master trusts or 103-12 investment entities in which 
the plan participates, and
    10. actuarial information regarding the funding of the plan.
* * * * *
    c. In paragraph (d)(4), in the list under the heading ``Your Rights 
to Additional Information'' items 1. through 7. are revised and items 
8. and 9. as added to read as follows:
    1. an accountant's report;
    2. financial information and information on payments to service 
providers;
    3. assets held for investment;
    4. fiduciary information, including non-exempt transactions between 
the plan and parties-in-interest (that is, persons who have certain 
relationships with the plan);
    5. loans or other obligations in default or classified as 
uncollectible;
    6. leases in default or classified as uncollectible;
    7. transactions in excess of 5 percent of the plan assets;
    8. insurance information including sales commissions paid by 
insurance carriers; and
    9. information regarding any common or collective trusts, pooled 
separate accounts, master trusts or 103-12 investment entities in which 
the plan participates.
    d. The last sentence of both paragraphs (d)(3) and (d)(4) under the 
heading ``Your Rights to Additional Information'' are revised to read 
as follows:
    ``Requests to the Department should be addressed to: Public 
Disclosure Room, Room N5638, Pension and Welfare Benefits 
Administration, U.S. Department of Labor, 200 Constitution Avenue, 
N.W., Washington, D.C. 20210.''
    e. The last sentence of the undesignated paragraph following 
paragraph (e)(2) is removed.

    21. The appendix to Sec. 2520.104b-10 is revised to read as 
follows:

[[Page 21086]]

APPENDIX TO Sec. 2520.104b-10--THE SUMMARY ANNUAL REPORT (SAR) UNDER 
ERISA: A CROSS-REFERENCE TO THE ANNUAL REPORT

----------------------------------------------------------------------------------------------------------------
                                       Form 5500 Large Plan
             SAR Item                    Filer Line Items            Form 5500 Small Plan Filer Line Items
----------------------------------------------------------------------------------------------------------------
          A. PENSION PLAN

1. Funding arrangement............  Form 5500--9a............  Same.
2. Total plan expenses............  Sch. H--2j...............  Sch. I--2i.
3. Administrative expenses........  Sch. H--2i(5)............  Not applicable.
4. Benefits paid..................  Sch. H--2e(4)............  Sch. I--2e.
5. Other expenses.................  Sch. H--Subtract the sum   Sch. I--2h.
                                     of 2e(4) & 2i(5) from 2j.
6. Total participants.............  Form 5500--7f............  Same.
7. Value of plan assets (net):
    a. End of plan year...........  Sch. H--1l [Col. (b)]....  Sch. I--1c [Col. (b)].
    b. Beginning of plan year.....  Sch. H--1l [Col. (a)]....  Sch. I--1c [Col. (a)].
8. Change in net assets...........  Sch. H--Subtract 1l [Col.  Sch. I--Subtract 1c [Col. (a) from 1c [Col. (b)].
                                     (a)] from 1l[Col. (b)].
9. Total income...................  Sch. H--2d...............  Sch. I--2d.
    a. Employer contributions.....  Sch. H--2a(1)(A) & 2a(2)   Sch. I--2a(1) & 2b if applicable.
                                     if applicable.
    b. Employee contributions.....  Sch. H--2a(1)(B) & 2a(2)   Sch. I--2a(2) & 2b if applicable.
                                     if applicable.
    c. Gains (losses) from sale of  Sch. H--2b(4)(C).........  Not applicable.
     assets.
    d. Earnings from investments..  Sch. H--Subtract the sum   Sch. I -2c.
                                     of 2a(3), 2b(4)(C) and
                                     2C from 2d.
10. Total insurance premiums......  Total of all Schs. A -5b.  Total of all Schs. A--5b.
11. Funding deficiency:
    a. Defined benefit plans......  Sch. B--10...............  Same.
    b. Defined contribution plans.  Sch. R--6c, if more than   Same.
                                     zero.

          B. WELFARE PLAN

1. Name of insurance carrier......  All Schs. A--1(a)........  Same.
2. Total (experience rated and non- All Schs. A--Sum of 8a(4)  Same.
 experienced rated) insurance        and 9(a).
 premiums.
3. Experience rated premiums......  All Schs. A--8a(4).......  Same.
4. Experience rated claims........  All Schs. A--8b(4).......  Same.
5. Value of plan assets (net):
    a. End of plan year...........  Sch H.--1l [Col. (b)]....  Sch. I--1c [Col. (b)].
    b. Beginning of plan year.....  Sch H.--1l [Col. (a)]....  Sch. I--1c [Col. (a)].
6. Change in net assets...........  Sch. H--Subtract 1l [Col.  Sch. I--Subtract 1c [Col. (a)] from 1c [Col.
                                     (a)] from 1l [Col. (b)].   (b)].
7. Total income...................  Sch. H--2d...............  Sch. I--2d.
    a. Employer contributions.....  Sch. H--2a(1)(A) & 2a(2)   Sch. I--2a(1) & 2b if applicable.
                                     if applicable.
    b. Employee contributions.....  Sch. H--2a(1)(B) & 2a(2)   Sch. I--2a(2) & 2b if applicable.
                                     if applicable.
    c. Gains (losses) from sale of  Sch. H--2b(4)(C).........  Not applicable.
     assets.
    d. Earnings from investments..  Sch. H--Subtract the sum   Sch. I -2c.
                                     of 2a(3), 2b(4)(C) and
                                     2c from 2d.
 8. Total plan expenses...........  Sch. H--2j...............  Sch. I--2i.
9. Administrative expenses........  Sch. H--2i(5)............  Not applicable.
10. Benefits paid.................  Sch. H--2e(4)............  Sch. I--2e.
11. Other expenses................  Sch. H--Subtract the sum   Sch. I--2h.
                                     of 2e(4) & 2i(5) from 2j.
----------------------------------------------------------------------------------------------------------------


    Signed at Washington, D.C., this 12th day of April, 2000.
Leslie Kramerich,
Acting Assistant Secretary, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 00-9611 Filed 4-18-00; 8:45 am]
BILLING CODE 4510-29-P