Annual Reporting and Disclosure Requirements [04/19/2000]
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.
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\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.''
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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).
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(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.
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\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.
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\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.
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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.
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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) Specia |
