Skip to page content
Employee Benefits Security Administration

EBSA Proposed Rule

Annual Reporting and Disclosure [07/21/2006]

[PDF Version]

Volume 71, Number 140, Page 41392-41407

-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2520

RIN 1210-AB06

 
Annual Reporting and Disclosure

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed amendments to Department of 
Labor (Department) regulations relating to annual reporting and 
disclosure requirements under Part 1 of Subtitle B of Title I of the 
Employee Retirement Income Security Act of 1974, as amended (ERISA or 
Act). The proposed amendments contained in this document are necessary 
to conform the annual reporting and disclosure regulations to proposed 
revisions to the Form 5500 Annual Return/Report of Employee Benefit 
Plan forms and instructions. The proposed changes to the Form 5500 and 
implementing regulatory amendments are intended to facilitate the 
transition to an electronic filing system, separately proposed at 70 FR 
51542 (August 30, 2005), reduce and streamline annual reporting 
burdens, especially for small businesses, and update the annual 
reporting forms to reflect current issues and agency priorities. The 
regulatory amendments thus would, upon adoption, apply for the 
reporting year for which the electronic filing requirement is 
implemented. The proposed regulatory amendments will affect the 
financial and other information required to be reported and disclosed 
by employee benefit plans filing the Form 5500 Annual Return/Report of 
Employee Benefit Plan under Part 1 of Subtitle B of Title I of ERISA.

DATES: Written comments must be received by the Department of Labor on 
or before September 19, 2006.

ADDRESSES: Comments should be addressed to the Office of Regulations 
and Interpretations, Employee Benefits Security Administration (EBSA), 
Room N-5669, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210. Attn: Form 5500 Regulation Revisions (RIN 1210-
AB06). Comments also may be submitted electronically to e-ori@dol.gov 
or by using the Federal eRulingmaking Portal http://www.regulations.gov 

(follow instructions for submission of comments). EBSA will make all 
comments available to the public on its Web site at http://www.dol.gov/ebsa.
 The comments also will be available for public inspection at the 

Public Disclosure Room, N-1513, EBSA, U.S. Department of Labor, 200 
Constitution Avenue, NW., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Elizabeth A. Goodman or Michael Baird, 
Office of Regulations and Interpretations, Employee Benefits Security 
Administration, U.S. Department of Labor, (202) 693-8523 (not a toll-
free number).

SUPPLEMENTARY INFORMATION:

A. Background

    Under Titles I and IV of ERISA, and the Internal Revenue Code 
(Code), as amended, pension and other employee benefit plans are 
generally required to file annual returns/reports concerning, among 
other things, the financial condition and operations of the plan. 
Filing the Form 5500 ``Annual Return/Report of Employee Benefit Plan,'' 
together with any required attachments and schedules (Form 5500 Annual 
Return/Report) generally satisfies these annual reporting requirements. 
The Form 5500 Annual Return/Report is the primary source of information 
concerning the operation, funding, assets, and investments of pension 
and other employee benefit plans. In addition to being an important 
disclosure document for plan participants and beneficiaries, the Form 
5500 Annual Return/Report is a compliance and research tool for the 
Department 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.

[[Page 41393]]

B. Discussion of the Proposed Revisions to Part 2520

1. Section 2520.103-1

    The Department of Labor (Department) annual reporting regulations, 
including Sec.  2520.103-1, are promulgated under the provisions of 
ERISA that authorize the creation of limited exemptions and simplified 
reporting and disclosure for welfare plans under ERISA section 
104(a)(3), simplified annual reports under ERISA section 104(a)(2)(A) 
for pension plans that cover fewer than 100 participants, and 
alternative methods of compliance for all pension plans under ERISA 
section 110(a). Various changes are being proposed to the Form 5500 
Annual Return/Report and its instructions in a Notice of Proposed Form 
Revisions published today in the Federal Register. To accommodate those 
form and instruction changes, the regulatory amendments to 29 CFR 
2520.103-1 are being proposed to update the references to the annual 
report to reflect the new structure and components of the Form 5500 
Annual Return/Report.
    The following subsections outline major changes to the Form 5500. A 
more comprehensive discussion of the form and instructions changes is 
in the above-referenced Notice of Proposed Forms Revisions. Facsimiles 
of the proposed form revisions and proposed form instructions can be 
viewed on the EBSA's Web site at http://www.dol.gov/ebsa.\1\ To avoid 

unnecessary duplication, only a general summary of the form and 
instruction changes is included in this notice as background for the 
required cost/benefit and regulatory analysis discussions. For a 
comprehensive discussion of form and instruction changes, see the 
Notice of Proposed Forms Revisions published concurrently in today's 
Federal Register.
---------------------------------------------------------------------------

    \1\ Paper copies of the proposed form revisions and proposed 
instructions may be obtained by telephoning 1-866-444-EBSA (3272) 
(this is a toll-free number).
---------------------------------------------------------------------------

(a) Short Form 5500 (Eligible Small Plan Filers)
    A new two-page Form 5500 Annual Return/Report of Employee Benefit 
Plan--the Form 5500-SF (Short Form 5500)--is being proposed in an 
effort to streamline the reporting requirements for certain small 
pension and welfare plans (generally, plans with fewer than 100 
participants) that have investment portfolios in which their assets are 
held by regulated financial institutions and the investments have a 
readily determinable fair market value as described in the proposed 
regulation at Sec.  2520.103-1(c)(2)(iii). A detailed description of 
the proposed Form 5500-SF and a facsimile of the form is in the Notice 
of Proposed Forms Revisions being published concurrently in today's 
Federal Register. Substantially all of the information required to be 
reported by employee benefit plans on the proposed Short Form 5500 
currently is included in that information required to be reported as 
part of the Form 5500 Annual Return/Report under the simplified 
reporting options presently available to small plans. The proposal 
would not eliminate the existing simplified reporting options for small 
plans but, rather, would add the Short Form 5500 as another simplified 
reporting option for eligible small plans.
    The Internal Revenue Service (IRS) has advised the Department that, 
although there are no mandatory electronic filing requirements for the 
Form 5500 under the Code or the regulations issued thereunder, to ease 
the burdens on plans that are not subject to Title I of ERISA but that 
file the Form 5500-EZ to satisfy the annual reporting and filing 
obligations imposed by the Code, the IRS is proposing to permit certain 
Form 5500-EZ filers to satisfy the requirement to file the Form 5500-EZ 
with the IRS by filing the proposed Short Form 5500 electronically 
through the EFAST processing system. Therefore, under the IRS' 
proposal, certain Form 5500-EZ filers will be provided both electronic 
and paper filing options. The electronic option will allow 5500-EZ 
filers to complete and electronically file with EFAST selected 
information on the Short Form 5500. 5500-EZ filers will also be able to 
choose instead to file a Form 5500-EZ on paper with the IRS.\2\
---------------------------------------------------------------------------

    \2\ Under the voluntary electronic filing option, 5500-EZ filers 
filing an amended return for a plan year must file the amended 
return electronically using the Form 5500-SF if they initially filed 
electronically for the plan year and must file with the IRS using 
the paper Form 5500-EZ if they filed for plan year with the IRS on a 
paper Form 5500-EZ.
---------------------------------------------------------------------------

(b) Removal of Internal Revenue Service-Only Schedules From the Form 
5500 Annual Return/Report
    Under the proposal the Form 5500 Annual Return/Report will no 
longer include any of the schedules from the current Form 5500 Annual 
Return/Report that are required only for the IRS. This will effectuate 
the adoption of a wholly electronic filing requirement for the Form 
5500 Annual Return/Report given the current limitations on the IRS's 
authority to mandate electronic filing of certain tax returns. 
Accordingly, under the proposal, the following schedules will no longer 
be required to be filed as part of the Form 5500 Annual Return/Report: 
Schedule E (ESOP Annual Information), Schedule P (Annual Return of 
Fiduciary of Employee Benefit Trust), and Schedule SSA (Annual 
Registration Statement Identifying Separated Participants With Deferred 
Vested Benefits). The IRS, however, has advised the Department that it 
intends that plan administrators, employers, and certain other entities 
that are subject to filing and reporting requirements under the Code 
will have to continue to satisfy any applicable requirements in 
accordance with IRS revenue procedures, regulations, publications, 
forms, and instructions. In that regard, the IRS has independently 
eliminated the Schedule P from the 2006 Form 5500 in anticipation of 
the transition to a wholly electronic filing environment. Further, as 
described elsewhere in this document, the Department is proposing to 
move to the Schedule R three questions on ESOP information formerly 
reported on the Schedule E, and the IRS has advised the Department that 
it does not anticipate requiring separate filings by ESOPs on the 
remaining questions from the Schedule E. The IRS is evaluating the 
information collected on Schedule SSA, and considering whether other 
existing information collections could be used in place of the Form 
5500 Annual Return/Report.
(c) Schedule A (Insurance Information)
    Schedule A must be attached to the Form 5500 Annual Return/Report 
for an ERISA-covered plan if any pension or welfare benefits under the 
plan are provided by, or if the plan holds any investment contracts 
with, an insurance company or other similar organization. Although the 
proposal would retain most of the Schedule A data substantially 
unchanged, the Department is proposing to add a line item to give 
administrators a specific space on the Schedule A to report the failure 
by an insurance carrier to provide necessary information. Certain other 
technical changes are being proposed to the Schedule A form and 
instructions to improve Schedule A as a tool for disclosure of 
insurance fees and commissions.
(d) Schedule B (Actuarial Information)
    Schedule B is required for defined benefit pension plans subject to 
the minimum funding standards (see Code section 412 and Part 3 of Title 
I of ERISA). The Pension Benefit Guaranty Corporation (PBGC) proposes 
adding questions to the Schedule B designed to

[[Page 41394]]

obtain a ``look-through'' allocation of plan investments in certain 
pooled investment funds for certain very large defined benefit plans. 
Under the proposal, defined benefits plans with more than 1,000 
participants would be required to breakout the percentage of total plan 
assets held as ``stock,'' ``debt,'' ``real estate,'' and ``other.'' The 
underlying investments in master trusts, common or collective trusts, 
pooled separate accounts, and other pooled investment vehicles, would 
be required to be broken out and could not be treated merely as 
``other,'' regardless of how they are listed on Schedule H. For 
investments in ``debt,'' plans would be required to provide the 
``Macaulay duration'' and break out the percentages held as government 
debt, investment-grade corporate debt, and high-yield corporate debt.
(e) Schedule C (Service Provider Information)
    Schedule C must be attached to the Form 5500 Annual Return/Report 
filed by large plan filers to report any person who rendered services 
to the plan that received directly or indirectly $5,000 or more in 
compensation from the plan during the plan year, and to report 
terminated accountants or actuaries. Consistent with recommendations of 
the ERISA Advisory Council Working Groups and the Government 
Accountability Office (GAO), EBSA has concluded that more information 
should be disclosed on the Form 5500 Annual Return/Report regarding 
plan fees and expenses. See ERISA Advisory Council Report of the 
Working Group on Plan Fees and Reporting on Form 5500 (November 10, 
2004) (available on the Internet at: http://www.dol.gov/ebsa/publications
) and the Government Accountability Office (See Private 

Pensions: Government Actions Could Improve the Timeliness and Content 
of Form 5500 Pension Information, GAO-05-491) (available on the 
Internet at: http://www.gao.gov). EBSA's proposal would continue to 

limit Schedule C reporting to large plan filers and would retain the 
$5,000 reporting threshold, but would revise the Schedule C and 
accompanying instructions to clarify the requirements regarding 
reporting of direct and indirect compensation (i.e., money or anything 
else of value) received during the plan year in connection with 
services rendered to the plan or the person's position with the plan. 
Also, a new section would be added requiring that the source and nature 
of compensation in excess of $1,000 received from parties other than 
the plan or the plan sponsor be disclosed for certain key service 
providers, including, among others, investment managers, consultants, 
brokers, and trustees, as well as all other fiduciaries.
(f) Schedule R (Retirement Plan Information)
    In light of the proposed removal of the Schedule E (ESOP Annual 
Information), certain questions from the Schedule E are being 
incorporated into the Schedule R in order to continue to collect 
certain information regarding ESOPs as part of the Form 5500 Annual 
Return/Report. In addition, multiemployer defined benefit pension plans 
would have to provide a list identifying each employer contributing an 
annual amount equal to or greater than five percent of all annual 
contributions to the plan (measured in dollars) and setting forth (1) 
the name of the contributing employer; (2) employer's employer 
identification number (EIN); (3) dollar amount contributed; (4) 
contribution rate; (5) whether the contribution base unit measure was 
hourly, weekly, unit of product, or other; and (6) expiration date for 
the collective bargaining agreement pursuant to which contributions are 
required to be made to the plan.
(g) Technical and Conforming Changes for Forms and Instructions
    Various other technical and conforming changes are being proposed 
as part of the restructuring of the Form 5500 Annual Return/Report. 
Several of the more significant changes include: (1) Revision of the 
instructions for the Form 5500 Annual Return/Report and development of 
instructions for the Short Form 5500 to reflect the new structure of 
the reports and electronic filing requirements; (2) addition of 
questions regarding compliance with the Department's blackout notice 
regulation in 29 CFR 2510.101-3; (3) addition of a compliance question 
on whether the plan failed to pay benefits when due under the plan; (4) 
expansion of the use of codes to report plan feature information on 
pension and welfare benefit plans; (5) elimination of the optional 
entry of the name and the EIN of the preparer; (6) requiring 
administrative expenses to be reported separately from other expenses 
on the Schedule I; (7) addition of a question on whether any minimum 
funding amount reported for a pension plan will be met by the funding 
deadline; and (8) adoption of a standard format for use in connection 
with an independent qualified public accountant (IQPA) rendering an 
opinion on the supplemental schedule information on Line 4a of Schedule 
H and I relating to delinquent participant contributions.

2. Section 2520.104-44

    Section 2520.104-44 and the current Form 5500 Annual Return/Report 
instructions provide for limited reporting for pension plans 
exclusively using a tax deferred annuity arrangement under Code section 
403(b)(1), custodial accounts for regulated investment company stock 
under Code section 403(b)(7), or a combination of both. Under the 
proposal, the exemption in Sec.  2520.104-44(b)(3) would be eliminated, 
with the result that Code section 403(b) pension plans subject to Title 
I would be treated the same as any other Title I pension plan for 
purposes of the annual reporting requirements under Title I of ERISA. 
With the growth in the size and number of Code section 403(b) 
arrangements, and the advent of Code section 401(k) plans, the Code 
403(b) arrangements have become more like Code section 401(k) plans. In 
this regard, the IRS has undertaken to update certain of its 
regulations. See 69 FR 67075, 67076 (November 16, 2004). For those 
section 403(b) plans that are subject to Title I of ERISA, the 
Department has detected violations in a high percentage of its 
investigations of Code section 403(b) plans. The predominant issue has 
been improper handling of employee contributions. The Department 
believes that these developments warrant amending the annual reporting 
requirements to put Code section 403(b) plans on par with other ERISA-
covered pension plans. Small Code section 403(b) plans generally would 
be 100 percent invested in eligible assets for purposes of filing the 
proposed Short Form 5500.

3. Section 2520.104-46

    In accordance with the Department's authority under section 
104(a)(2)(A) and 104(a)(3) of ERISA, the Department has adopted, at 29 
CFR 2520.104-41, simplified annual reporting requirements for pension 
and welfare benefit plans with fewer than 100 participants. In 
addition, the Department, at 29 CFR 2520.104-46, has prescribed for 
such small plans a waiver from the requirements of section 103(a)(3)(A) 
to engage an IQPA and to include the opinion of the accountant as part 
of the plan's annual report. The waiver of the IQPA requirements for 
pension plans was conditioned, among other requirements, on enhanced 
disclosure in the Summary Annual Report (SAR) provided to participants 
and beneficiaries. In that regard, the Department prepared a model 
notice

[[Page 41395]]

that plans could use to satisfy the enhanced SAR disclosure conditions. 
That model notice has been available at the EBSA's Web site at http://www.dol.gov/ebsa.
 In order to provide plan administrators with 

additional access to the model notice and facilitate compliance with 
the audit waiver and Short Form 5500 eligibility conditions, the 
Department is proposing to add the model notice as an appendix to Sec.  
2520.104-46.

4. Section 2520.104b-10

    Section 104(b)(3) of ERISA provides in part that, each year, 
administrators must furnish to participants and beneficiaries receiving 
benefits under a plan materials that fairly summarize the plan's annual 
report. Section 2520.104b-10 sets forth the requirements for the SAR 
and prescribes formats for such reports. The amendments being proposed 
do not include any change to the SAR requirements. However, in order to 
facilitate compliance with the SAR requirement for Short Form 5500 
filers, the Department is updating its cross-reference guide to 
correspond to the line items of the SAR to the relevant line items on 
the Short Form 5500. The cross-reference guide, as before, would 
continue to be an appendix to Sec.  2520.104b-10.

C. Findings on the Revised Form 5500 Annual Return/Report (including 
Short 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 Title I of ERISA, 
provides adequate disclosure to plan participants and beneficiaries, 
and provides adequate reporting to the Secretary; (2) application of 
the statutory reporting and disclosure requirements would increase 
costs to the plan or impose unreasonable administrative burdens with 
respect to the operation of the plan; and (3) the application of the 
statutory reporting and disclosure requirements would be adverse to the 
interests of plan participants in the aggregate.
    For purposes of Title I of ERISA, the filing of a completed Form 
5500 Return/Report, including the filing of the proposed Short Form 
5500, in accordance with the instructions and related regulations, 
generally would constitute 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 proposed revised Form 5500 Annual Return/Report, including the 
proposed Short Form 5500, as alternative methods of compliance, 
simplified report, and limited exemption from the reporting and 
disclosure requirements of part 1 of Title I of ERISA are set forth 
below.
    In proposing revisions to the Form 5500 Annual Return/Report and 
the amendments in this proposed rulemaking, the Department has 
attempted to balance the needs of participants, beneficiaries, and of 
the Department to obtain information necessary to protect ERISA rights 
and interests with the needs of administrators to minimize costs 
attendant with the reporting of information to the federal government. 
The Department makes the following findings under sections 104(a)(3) 
and 110 of the Act with regard to the use of the revised Form 5500 
Annual Return/Report as a simplified report, alternative method of 
compliance, and limited exemption pursuant to 29 CFR 2520.103-1(b).
    The use of the proposed revised Form 5500 Annual Return/Report, 
including the proposed Short Form 5500, is consistent with the purposes 
of Title I of ERISA and provides adequate disclosure to participants 
and beneficiaries and adequate reporting to the Secretary. While the 
information that would be required to be reported on or in connection 
with the revised Form 5500 Annual Return/Report and the proposed Short 
Form 5500 deviates, as before, 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 Annual Return/Report, as 
proposed to be revised, and the proposed Short Form 5500.
    The use of Form 5500 Annual Return/Report, as revised, or the 
proposed Short Form 5500 will relieve plans subject to the annual 
reporting requirements from increased costs and unreasonable 
administrative burdens by providing a standardized format that 
facilitates reporting, eliminates duplicative reporting requirements, 
and simplifies the content of the annual report in general. The Form 
5500 Annual Return/Report, under the proposed revision, including the 
proposed Short Form, 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 Annual Return/
Report, including the proposed Short Form 5500, would be adverse to the 
interests of participants in the aggregate. The proposed revised Form 
5500 Annual Return/Report provides for the reporting and disclosure of 
basic financial and other plan information described in section 103 of 
ERISA in a uniform, efficient, and understandable manner, thereby 
facilitating the disclosure of such information to plan participants 
and beneficiaries.
    Finally, the Department has determined under section 104(a)(3) of 
ERISA that a strict application of the statutory reporting 
requirements, without taking into account the proposed revisions to the 
Form 5500 Annual Return/Report and the proposed Short Form 5500, would 
be inappropriate in the context of welfare plans for the same reasons 
discussed above (i.e., 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).

D. Regulatory Impact Analysis

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) of Executive Order 
12866, 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

[[Page 41396]]

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 will have an annual effect on 
the economy of more than $100 million. Therefore, this action is 
``economically significant'' and subject to OMB review under section 
3(f)(4) of Executive Order 12866. The Department accordingly has 
undertaken to assess the costs and benefits of this regulatory action 
in satisfaction of the applicable requirements of the Executive Order.
    In accordance with OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf
), Table 1 below depicts 

an accounting statement showing the net annual cost reduction 
associated with the provisions of this proposed rule. The Department 
believes that some employee benefit plans will see a decrease in costs 
and others might see an increase in costs due to this proposed rule. 
Further information about the amount of increase and decrease in costs 
for particular plan types is displayed in the cost section later on in 
this document. On aggregate, the Department estimates a cost reduction 
of up to $174 million in the first year.

    Table 1.--Accounting Statement: Estimated Cost Reduction From the
      Current Reporting Requirements to the Proposed 2008 Reporting
                              Requirements
                              [In millions]
------------------------------------------------------------------------
                                                               Net cost
                          Category                            reduction
------------------------------------------------------------------------
Annualized Monetized Benefit...............................         $174
------------------------------------------------------------------------

Need for Regulatory Action
    The annual reporting regulations for which amendments are being 
proposed provide specific limited exceptions, for certain types of 
welfare benefit plans, from the statutory reporting requirements; 
simplified reporting and disclosure requirements for other types of 
small plans; and an alternative method of compliance in general for all 
pension plans. In providing these special rules, the Department and the 
other Agencies intend to reduce the overall burden of the statutory 
reporting requirements without sacrificing the quality of the 
information collected.
    As described in the preamble to the Department's proposal to 
require electronic filing of the Form 5500 (70 FR 51542) (E-Filing 
Proposal), the Department is in the process of creating a fully 
electronic filing system to receive the annual reports filed by 
employee benefit plans. In addition, as noted above, the Department has 
received reports from the GAO and the ERISA Advisory Council that 
suggest the need for some substantive changes to the annual reporting 
forms and the reporting regulations. The Department, in coordination 
with the IRS, and the PBGC (Agencies), also conducted a thorough review 
of the content requirements for the Form 5500. The Agencies believe the 
proposed regulatory and form changes, in conjunction with adoption of 
the electronic filing system, will substantially reduce plan 
administrators' reporting compliance burdens and also enhance the 
utility and accessibility of reported information to the government, 
participants and beneficiaries, and others.
    The Form 5500 Annual Return/Report serves as the primary source of 
information concerning the operation, funding, assets, and investments 
of pension and other employee benefit plans. The Form 5500 Annual 
Return/Report is an important disclosure document for participants and 
beneficiaries, an enforcement 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 Department in this proposal has 
attempted to balance the interests of participants, beneficiaries, and 
the Department in the protection of ERISA rights, as well as the 
public's interest in the availability of information on benefit plans, 
with plan administrators' and sponsors' interest in minimizing costs 
attendant with the reporting of information to the federal government. 
The Department believes that the proposed regulations' benefits justify 
the costs. The basis for this conclusion is explained below.
    As stated in this preamble, the Department has determined that the 
use of the revised Form 5500 Annual Return/Report, including the 
proposed new Short Form 5500, would relieve plans subject to the annual 
reporting requirements from increased costs and administrative burdens 
by providing a standardized format that facilitates reporting, 
eliminates duplicative reporting requirements, and simplifies the 
content of the annual report in general.
    Moreover, the Department believes that the revisions to the Form 
5500 Annual Return/Report implemented by these proposed regulations, as 
compared to the existing form and schedules, will both reduce the cost 
of reporting, on aggregate and for a large majority of affected plans, 
and enhance the protection of ERISA rights.

Regulatory Alternatives

    Executive Order 12866 directs Federal Agencies promulgating 
regulations to evaluate regulatory alternatives. The Department has 
concluded that, in connection with its proposal to move to a wholly 
electronic filing environment for employee benefit plan annual reports, 
form revisions and implementing regulatory changes should be made to 
facilitate the transition to an electronic filing system, reduce and 
streamline annual reporting burdens, especially for small businesses, 
and update the annual reporting forms to reflect current issues and 
agency priorities.
    In developing the forms revisions and implementing regulatory 
changes, the Department was informed by recommendations made by GAO and 
the ERISA Advisory Council and conducted a thorough-going review of the 
current regulations and the scope of information collected, which 
included consideration of alternative methods of reaching its goals. 
The Department's consideration included, for example, different 
approaches to eligibility for the Short Form 5500, (see discussion in 
preamble to the Notice of Proposed Forms Revisions under the heading 
``Short Form 5500 as New Simplified Report for Certain Small Plans''), 
different approaches to reporting for welfare plans (see id. under the 
heading ``F. Other Welfare Plan Issues''), and different approaches to 
improving the reporting of direct and indirect compensation paid to 
service providers (see id. under the heading ``Schedule C: Compensation 
received by plan service providers''). Similarly, the Notice of 
Proposed Forms Revision discusses the assessments on how to balance the 
need for information to help the PBGC evaluate the financial solvency 
of multiemployer plans and the potential burden on administrators of 
multiemployer plans (see id. under the heading ``Schedule R: 
Contributors to Multiemployer Pension Plans''). Inasmuch as the 
regulatory amendments contained in this Notice are intended to 
implement the forms revisions contained in the Notice of Proposed

[[Page 41397]]

Forms Revisions, the discussions in the Notice of Proposed Forms 
Revisions are directly relevant to the Department's analysis under 
Executive Order 12866 and should be read as part of the Department's 
compliance with the requirements of the Executive Order. The Department 
therefore incorporates those discussions by this reference.
    The public is invited to comment specifically on the decision 
points for the several categories of proposed revisions, and on the 
adequacy of the models, assumptions, and data developed in order to 
evaluate regulatory burden. In considering these alternatives, the 
Department weighted the objective of reduced regulatory burden against 
the need for adequate reporting and disclosure to insure the protection 
of plan participants, quantifying impacts where possible. For example:
     Establishment of a Short Form 5500 for certain small 
plans: In considering criteria of eligibility for filing the Short Form 
5500 the Department evaluated both less stringent and more stringent 
criteria. If, for example, the Department had relied solely on the 
conditions for a waiver of the audit requirements for small plans, the 
Department believes that as many as 95 percent of small plans (612,000 
plans) would meet the Short Form 5500 requirements. Because of concern 
about the need to limit eligibility to small plans with easy to value 
investment portfolios, however, the Department added the requirements 
of small plans that invest in secure assets that are held or issued by 
regulated financial institutions and that have a fair market value that 
is easily determined. In so doing, the Department estimates that 
approximately 90 percent of small plans (571,000 plans) that formerly 
were able to file under the simplified requirements would qualify as 
eligible to file the Short Form 5500. An additional 9,000 small Code 
section 403(b) plans would also qualify.
     Addition of certain asset allocation and duration 
information to Schedule B: Schedule B is filed by defined benefit 
pension plans subject to the minimum funding standards. As noted below, 
this revision will increase reporting costs for affected plans. The 
Agencies, however, believe that these costs are justified by the need 
to better monitor plan funding. In developing this proposed revision, 
the PBGC considered the approach that could balance the need for better 
monitoring of plan funding and the increased burden that would be 
incurred to provide additional information on the breakdown of assets 
and duration of debt instruments held by defined benefit plans. While 
the PBGC initially considered the application of the additional 
requirements to all large defined benefit plans (15,000 plans), it 
subsequently determined that additional information for the largest 
plans, i.e., those with more than 1,000 participants (5,000 plans), on 
the level and types of assets in the plan and the sensitivity of these 
assets to changes in market conditions would suffice for the desired 
improvement in the monitoring of plan funding.

Benefits and Costs

    Benefits--These regulations and the Form 5500 Annual Return/Report 
and Short Form 5500 that the regulations implement will provide a 
standardized, streamlined alternative means of compliance with 
applicable statutory reporting requirements. In so doing, they will 
both ease plan administrators' compliance with reporting requirements 
and greatly enhance the utility and accessibility of information 
reported to the government, participants and beneficiaries, and others. 
In particular, the regulations and forms, together with the 
Department's planned program for assisting filers in the preparation 
and electronic submission of filings, will give plan administrators 
clear guidance and a supportive, routine mechanism for satisfying their 
reporting obligations. They also will make it possible to efficiently 
capture and assemble the information into an electronic data system. 
The data can then be processed and analyzed in the service of many 
beneficial activities. These include monitoring compliance with ERISA's 
reporting and other requirements, targeting, and carrying out prompt 
and effective enforcement actions; informing participants and 
beneficiaries of the characteristics, operations, and financial status 
of their benefit plans; producing statistics on the employee benefit 
system and monitoring trends therein and informing the public; and 
assembling information and conducting research that advances knowledge 
and fosters the formulation of sound public policies toward employee 
benefits. The Department believes that the benefits of the proposed 
regulations justify the costs.
    The Department further believes that the revisions to the existing 
reporting requirements contained in the proposed regulations will both 
reduce aggregate reporting costs and enhance protection of ERISA 
rights. The former anticipated effect is quantified in the discussion 
of costs below. With respect to the latter, the Department developed 
each of the revisions contained in the proposed regulations either to 
enhance protections, or to reduce costs in ways that do not compromise 
protections. The revisions are considered separately below.
    Removal of the IRS-only schedules: As explained in the Notice of 
Proposed Forms Revisions published simultaneously with these proposed 
regulations, this change is intended partly to facilitate a change to 
mandatory electronic filing--a change which is expected to yield 
substantial benefits. As also explained therein, to the extent that 
some Title I information may have been collected in these schedules, 
these proposed regulations provide for the ongoing collection of that 
information in other parts of the Annual Return/Report. In addition, it 
is the Department's understanding that some of the IRS-only information 
that will no longer be collected as part of the annual return/report 
may be collected in the future via other Treasury or IRS vehicles. The 
Department expects this revision to preserve protections of ERISA 
rights, while reducing Form 5500 Return/Report filing reporting costs 
as estimated below. From a broader societal perspective, the reduction 
in reporting costs may be less than what has been assumed here if IRS 
elects to collect some of this information through other channels.
    Establishment of a Short Form 5500 for certain small plans: The 
Short Form 5500 is being developed with the specific intent of reducing 
reporting costs (as estimated below) while continuing to collect 
sufficient information to preserve ERISA protections, satisfying the 
enforcement, research, and regulatory needs of the Department and the 
other Agencies, and the disclosure needs of participants and 
beneficiaries. The Agencies determined that less information is needed 
in the case of small plans that invest in secure assets that are held 
or issued by regulated financial institutions and that have a fair 
market value that is easily determined. The Agencies believe that the 
eligibility conditions for Short Form 5500 filers, including the 
requirements relating to security and valuation of the plan's 
investments, ensure that the Short Form 5500 will provide adequate 
disclosure to the participants and beneficiaries in the plan and 
adequate annual reporting to the Agencies. The Notice of Proposed Forms 
Revisions published simultaneously with these proposed regulations 
details the content of the Short Form 5500 and elaborates on its 
adequacy for its intended purpose. Small plans that are not eligible to 
file the Short Form 5500 would continue to be able to file

[[Page 41398]]

simplified reports as under the current system.
    Elimination of the special reporting rules for Code section 403(b) 
plans: As noted below, this revision is expected to increase reporting 
costs for affected plans. However, the Department believes these added 
costs are justified by the need to enhance ERISA protections in 
connection with these plans the Department believes that developments 
with respect to Code section 403(b) plans, described above in 
connection with the proposed amendment to 2520.104-44, warrant amending 
the annual reporting requirements to put Code section 403(b) plans on 
par with other ERISA-covered pension plans. Small Code section 403(b) 
plans generally would be 100 percent invested in eligible assets for 
purposes of filing the proposed Short Form 5500. This would result in 
only a modest increase in the annual reporting burden on small Code 
section 403(b) plan filers.
    Addition of certain asset allocation and duration information to 
Schedule B: As noted below, this revision will increase reporting costs 
for affected plans. The Agencies, however, believe that these costs are 
justified by the need to better monitor plan funding. The PBGC has 
found that it needs more information on the breakdown of assets and 
duration of debt instruments held by defined benefit plans. A plan's 
funded status is highly dependent on the level and types of assets in 
the plan and the sensitivity of these assets to changes in market 
conditions. Thus, the additional information required by this revision 
will improve the PBGC's ability to estimate the impact of economic 
changes on the financial status of the plans it insures, and by 
extension, on the future financial status of the PBGC. Much of the 
information newly required by this revision is typically in the 
immediate possession of the committee or authority that oversees the 
investments of plans sponsored by privately held companies, and 
generally is already required to be provided to the United States 
Securities and Exchange Commission by public company sponsors of 
defined benefit plans.
    Adding Multiemployer Plan Contributing Employer Information: The 
Form 5500 Annual Return/Report currently does not require plans to 
state the number or identities of employers participating in a 
multiemployer plan. Multiemployer plans are, however, currently 
required to keep a list of participating employers on file and to make 
such information available to participants on request. Accordingly, 
requiring multiemployer plans to provide the number of participating 
employers will not create any new recordkeeping requirements. This 
information will be useful to various governmental and private firms 
that use the Form 5500 Annual Return/Report data for policy and 
research purposes. The Form 5500 Annual Return/Report also currently 
lacks information that shows a multiemployer plan's basis for employer 
contributions. This information is particularly important with respect 
to multiemployer defined benefit pension plans, as this information is 
needed by the PBGC in order for it to assess the financial risk posed 
to the plan by the financial collapse or withdrawal of one or more 
contributing employers. Over the past several years, the financial 
condition of many multiemployer plans has been deteriorating. The PBGC 
believes it is prudent to begin monitoring those companies that are 
major contributors to the multiemployer plans. To do so, the PBGC must 
be able to identify these companies. Because multiemployer plans are 
most at risk when a major contributing sponsor encounters financial 
difficulties, this proposed revision would require identification only 
of major contributors.
    Other Improvements and Clarifications of Existing Form 5500 
Reporting Requirements: Some of the revisions that come under this 
heading are technical clarifications or conforming changes to more 
substantive proposed revisions. These entail no material benefits or 
costs. Other revisions make small adjustments to the instructions or 
reporting requirements to reflect changing market or compliance trends. 
Some of these entail small increases in reporting costs that are 
justified by the need to stay current. These include, for example, the 
addition of feature codes to identify plans with certain default 
features, compliance questions directed at the provision of blackout 
notices, and fuller instruction on the reporting of certain indirect 
plan expenses. Others, such as the elimination of the requirement for 
self-insured health benefit plans to separately report certain payments 
to individual health care providers, may reduce reporting costs without 
compromising protections. These revisions and their respective intents 
are detailed in the Notice of Proposed Forms Revisions published 
simultaneously with these proposed regulations.

Costs

    Although the costs to plans of satisfying their annual reporting 
obligations will be lower under these proposed regulations than they 
would be under existing regulations, they will still be substantial.\3\ 
As shown in Table 2 below, the aggregate cost of such reporting under 
the existing regulations is estimated to be $1,062 million annually, 
shared across the 833,000 filers subject to the filing requirement. The 
Department estimates that the proposed regulations, however, impose an 
annual cost burden on the 833,000 filers of only $888 million.\4\
---------------------------------------------------------------------------

    \3\ The Department believes, however, that the annual cost 
burden on filers would be higher still in the absence of the 
existing regulations, because the filers would then be required to 
comply with the statutory filing requirements without the benefit of 
any regulatory exceptions, simplified reporting, or alternative 
methods of compliance.
    \4\ More detail about the cost estimates can be found in the 
section ``Assumptions, Methodology, and Uncertainty''.

      Table 2.--Summary of Costs: Current Requirements vs. Proposed
                              Requirements
------------------------------------------------------------------------
                                                           Total burden
                                            Total costs     hours  (in
                                           (in millions)     millions)
------------------------------------------------------------------------
Current Reporting Requirements..........          $1,062           13.51
Change due to Revisions for 2008........             174            2.26
Proposed Reporting Requirement, 2008....             888          11.25
------------------------------------------------------------------------
Note: Number of affected plans: 833,000.


[[Page 41399]]

    Because these proposed regulations make substantial revisions to 
the existing reporting requirements, they will entail some one-time 
transition costs. The Department examined such transition costs in 
connection with the last major revision to the Form 5500 Annual Return/
Report, which revised the Annual Return/Report for plan years beginning 
in 1999. See 65 FR 5026 (Feb. 2, 2000). Based on information provided 
by plan service providers and Form 5500 Annual Return/Report software 
developers at that time, the Department concluded that such costs are 
generally loaded into the prices paid by plans for affected services 
and products, spread both across plans and across the expected life of 
the service and product changes. The Department's estimates provided 
here are therefore intended to reflect such spreading and loading of 
these transition costs. That is, the gradual defrayal of the transition 
costs is included in the annual cost estimates here.
    In addition to estimating the total impact of the proposed 
revisions on aggregate costs, the Department has broken down the change 
in cost by individual revisions. This apportioning of costs to 
individual revisions could be potentially done in several ways, as some 
types of plans are affected by more than one revision and therefore 
sequencing of the changes becomes important for the calculations. For 
example, large and small Code section 403(b) plans are affected by the 
elimination of the special reporting rules, but small Code section 
403(b) plans are affected also by the introduction of the Short Form 
5500. For the purpose of quantifying the impact of the individual law 
changes, the Department carried out the calculations in the following 
way:
    1. Removal of the IRS-only schedules: Under the proposed 
regulations some of the information formerly collected in these 
schedules will be collected by the Department elsewhere in the Form 
5500 Annual Return/Report filing. On net, however, this revision will 
substantially reduce the amount of information collected. Relative to 
the current filing requirement, this revision will reduce the total 
annual burden hours for 740,000 affected filers by 1.2 million hours. 
Applying an hourly labor rate of $84 for service providers and $59 for 
plan sponsors, the Department estimates that this will lower the 
aggregate annual reporting cost by an estimated $90 million.\5\
---------------------------------------------------------------------------

    \5\ A discussion on the appropriateness of the labor rates used 
in the calculations as well as on other assumptions can be found in 
the Technical Appendix.
---------------------------------------------------------------------------

    2. Establishment of a Short Form 5500 for certain small plans: A 
large majority of small plans, or 580,000 of the 640,000 total small 
plan filers, are estimated to be eligible to use the Short Form 5500, 
thereby saving an estimated $154 million (1.9 million hours) annually. 
This estimate includes about 9,000 small Code section 403(b) plans that 
under the proposed rule would be subjected to increased filing 
requirements.
    3. Addition of certain asset allocation and duration information to 
Schedule B: The provision of this information, and its certification by 
an actuary, will entail estimated additional annual costs of $1.5 
million (19,000 hours) for 5,000 affected defined benefit pension plans 
with more than 1,000 participants.
    4. Revision of Schedule C (Service Provider Information): This 
revision intends to clarify the reporting requirements and improve the 
information plan officials receive regarding amounts being received by 
plan service providers. This is anticipated to add an estimated $3 
million (41,000 hours) for 79,000 affected plans to annual reporting 
costs.
    5. Addition of requirements for certain multi-employer plans to 
report certain information about contributing employers: This is 
anticipated to add an estimated $300,000 (3,500 hours) to annual 
reporting costs for 10,000 multiemployer plans.
    6. Adoption of various technical revisions and other miscellaneous 
revisions to the Form 5500 Annual Return/Report to improve and clarify 
existing reporting requirements: Together these are estimated to add an 
estimated $12 million (154,000 hours) to annual reporting costs and 
affect approximately 250,000 plans.
    7. Elimination of the special reporting rules for Code section 
403(b) plans: Approximately eighteen thousand Code section 403(b) plans 
are subject to the annual reporting requirements. It is anticipated 
that all 9,000 small Code section 403(b) plans will be eligible to use 
the new Short Form and will be eligible for waiver of the audit 
requirement. The impact of the proposed changes on the small Code 
section 403(b) plans is quantified above. Nine thousand large Code 
section 403(b) plans will be newly subject to the audit requirement and 
required to file a Form 5500 Annual Return/Report similar to those 
filed by similar Code section 401(k) plans. This revision will increase 
annual reporting costs for large Code section 403(b) plans by an 
estimated $54 million (or 690,000 hours).
    A summary of the changes in costs and burden hours that were 
allocated to the groups of proposed changes as outlined above, as well 
as the number of affected employee benefit plans, can be found in Table 
3 below.

      Table 3.--Summary of Proposed Changes to the Reporting Requirements: Cost, Burden, and Affected Plans
----------------------------------------------------------------------------------------------------------------
                                                                 Change in costs     Change in       Number of
                       Revisions for 2008                          (in millions)   burden hours   affected plans
----------------------------------------------------------------------------------------------------------------
IRS-only Schedules, Short Form and small.......................           -$90.1      -1,226,000         739,000
Code Section 403(b) plans......................................           -154.3      -1,938,000         580,000
Schedule B.....................................................              1.5          19,000           5,000
Schedule C.....................................................              3.2          41,000          79,000
Multi-employer plans...........................................              0.3           3,500          10,000
Technical and Miscellaneous Revisions..........................             11.9         154,000         253,000
Large Code Section 403(b) plans................................             53.9         689,000           9,000
                                                                ------------------------------------------------
    Total......................................................           -173.6      (2,258.30)        833,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers might not sum up to the totals due to rounding.


[[Page 41400]]

    The proposed regulation otherwise generally does not alter 
reporting costs. Plans currently exempt from annual reporting 
requirements (such as certain small unfunded or fully insured welfare 
plans and certain Simplified Employer Pensions) will remain exempt. 
Also, except for Code section 403(b) plans, plans eligible for limited 
reporting options (such as certain IRA-based pension plans) will 
continue to be eligible for that annual reporting relief. The revisions 
continue the Form 5500 Annual Return/Report structure that is familiar 
to individual and corporate taxpayers--a simple two-page main form with 
basic information necessary to identify the plan for which the report 
is filed, along with a checklist of the schedules being filed that are 
applicable to the filer's plan type. The structure is designed to aid 
filers by allowing them to assemble and file a return customized to 
their plan.

Assumptions, Methodology, and Uncertainty

    The cost and burden associated with the annual reporting 
requirement for any given plan will vary according to a variety of 
factors, including the plan's characteristics, practices, and 
operations, which in turn determine what information must be provided. 
A small, single-employer defined contribution pension plan filing a new 
Short Form 5500 generally will incur far lower costs than a large, 
multiemployer defined benefit pension plan that holds multiple 
insurance contracts, engages in numerous reportable transactions, and 
pays large fees to a number of service providers. Therefore, in 
arriving at its aggregate cost estimates, the Department separately 
considered the cost to different types of plans of providing different 
types of information. The basis for the Department's estimates is 
elaborated below.
    Assumptions Underlying this Analysis--The Department's analysis of 
the costs and benefits of these proposed amendments assumes that all 
benefits and costs will be realized in the first year of the reporting 
cycle to which the amendments apply and within each year thereafter. 
This assumption is based on the nature of the statutory reporting 
provisions, which require that each plan complete a filing within a 
yearly period. The Department has used a ``status quo'' baseline for 
this analysis, assuming that the world absent the regulations will 
resemble the present.\6\
---------------------------------------------------------------------------

    \6\ Further detail can be found in the Technical Appendix.
---------------------------------------------------------------------------

    Methodology--The underlying cost data was developed by Mathematica 
Policy Research, Inc. (MPR), and has been used by the Agencies in 
various burden estimates related to the Form 5500 Annual Return/Report 
during recent years. See, 65 FR 21068, 21077-78 (April 19, 2000); 
Borden, William S., ``Estimates of the Burden for Filing Form 5500: The 
Change in Burden from the 1997 to the 1999 Forms,'' Mathematica Policy 
Research, submitted to U.S. Dept. of Labor May 25, 1999.\7\ It is 
grounded in surveys of filers and their service providers, which 
measured the unit cost burden of providing various types of 
information. Aggregate estimates were produced by interacting these 
unit cost measures with historical counts of Form 5500 Annual Return/
Report filers.
---------------------------------------------------------------------------

    \7\ The Mathematica report can be accessed at the Department's 
Web site at http://www.dol.gov/ebsa.

---------------------------------------------------------------------------

    A new burden estimating model, based on the Form 5500 Burden Model 
that MPR most recently used for estimating burdens in October 2004, was 
assembled by Actuarial Research Corporation (ARC). ARC assembled a 
simplified model, drawing on implied burdens associated with subsets of 
filer groups represented in the MPR model. The model used the level of 
detail consistent with reflecting burden differences associated with 
the various proposed forms revisions. In the following, the ARC model 
is described in broad terms. Further details about the model are 
explained in the Technical Appendix that can be accessed at the 
Department's Web site at http://www.dol.gov/ebsa.

    To estimate aggregate burdens, the types of plans that have similar 
reporting requirements were grouped together. Thus, calculations were 
prepared for different subsets of types of plans as appropriate based 
on the specifics of the revisions to the reporting requirements. Table 
4 below shows the particular types of plans considered, the number of 
plans affected by the proposed revisions, as well as the aggregate 
costs under current and proposed requirements. As can be seen from the 
Total line in Table 4, aggregate cost under current and proposed 
regulations add up to $1,062 million and $888 million, respectively. 
The universe of filers was divided into three basic plan types: Defined 
benefit pension plans, defined contribution pension plans, and welfare 
plans, and each of these major plan types was further subdivided into 
multiemployer and single-employer plans. Defined contribution Code 
section 403(b) plans were treated separately from other defined 
contribution plans. Since the filing requirements differ substantially 
for small and large plans, the plan types were also divided by plan 
size. For large plans (100 or more participants), the defined benefit 
plans were further divided between very large (1000 or more 
participants) and other large plans (at least 100 participants, but 
less than 1000 participants). For each of these sets of respondents, 
burden hours per respondent were estimated for the Form 5500 Annual 
Return/Report itself and for up to eight schedules.

              Table 4.--Number of Affected Filers and Cost Under Current vs. Proposed Requirements
----------------------------------------------------------------------------------------------------------------
                                                                                  Aggregate cost  Aggregate cost
                                                                      Number       under current  under proposed
                          Type of plan                               affected      requirements    requirements
                                                                                   (in millions)   (in millions)
----------------------------------------------------------------------------------------------------------------
5500 Large Plans (> = 100 participants)--189,000:
    DB, ME, 100-1,000 participants..............................             800           7.6             7.2
    DB, ME, > 1,000 participants................................           1,100          13.3            13.2
    DB, SE, 100-1,000 participants..............................           8,900          80.2            74.2
    DB, SE, > 1,000 participants................................           4,200          38.8            39.2
    DC, ME, non-403(b)..........................................           2,300          14.4            13.7
    DC, ME, 403(b)..............................................             400           0.016           2.4
    DC, SE, non-403(b)..........................................          70,000         437.1           401.3
    DC, SE, 403(b)..............................................           8,600           0.350          51.9
    Welfare, ME.................................................           5,700          14.3            14.8
    Welfare, SE.................................................          86,600         124.3           127.9

[[Page 41401]]


5500 Small Short Form Eligible--580,000:
    DB..........................................................          30,800          30.3            21.2
    DC, non-403(b)..............................................         533,000         263.9            87.8
    DC, 403(b)..................................................           8,800           0.36            1.4
    Welfare.....................................................           7,000           3.4             1.2
5500 Small Short Form Ineligible--64,000:
    DB..........................................................           4,000           3.8             3.7
    DC, non-403(b)..............................................          60,200          29.3            26.9
    DC, 403(b)..................................................  ..............  ..............  ..............
    Welfare.....................................................             100           0.079           0.080
                                                                 -----------------------------------------------
        Total...................................................         832,500       1,061.5           888.08
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers might not sum up to the totals due to rounding.
DB--defined benefit plans.
SE--single-employer plans.
Large plans--100 participants or more.
DC--defined contribution plans
ME--multi employer plans.
Small plans--less than 100 participants.

    In addition to separating plans by type and size, costs were 
estimated separately for the form and for each schedule. When items on 
a Form 5500 Annual Return/Report schedule are required by more than one 
Agency, the estimated burden associated with that schedule is allocated 
among the Agencies. This allocation is based on whether only a single 
item on a schedule is required by more than one agency or whether 
several or all of the items are required by more than one agency. 
Filers must read not only the instructions for particular items but 
also instructions pertaining to the general filing requirements, and 
the burden associated with reading the instructions is tallied and 
allocated accordingly.
    A plan's reporting burden is estimated in light of the specific 
items and schedules it must complete as well as its size, funding 
method, and investment structures. For example, the annual report for a 
large fully insured welfare plan generally would consist of only a few 
questions on the Form 5500 and the Schedule A (Insurance Information). 
The requirement that this plan provide very limited information on the 
Form 5500 Annual Return/Report is reflected in the estimates of 
reporting burden time. By contrast, a large defined benefit pension 
plan that is intended to be tax-qualified and that uses a trust fund 
and invests in insurance contracts would be required to submit an 
annual report completing almost all the line items of the Form 5500, 
plus Schedule A (Insurance Information), Schedule B (Actuarial 
Information), Schedule C (Service Provider Information), Schedule D 
(DFE/Participating Plan Information), Schedule H (Financial 
Information), and Schedule R (Retirement Plan Information), and would 
be required to submit an IQPA's report and opinion. The Agencies' 
methodology attempts to capture, through its categorization, these 
different reporting burdens, thereby providing meaningful estimates of 
significant differences in the burdens placed on different categories 
of filers.
    Burden estimates for each schedule were adjusted for the proposed 
revisions, reflecting the numbers of items added or deleted in each 
schedule or moved from one schedule to another, and the average burden 
currently attributable to items on each of the corresponding current 
schedules. The burden for the proposed Short Form 5500 was built from 
the estimated current burden associated with the various line items 
included in it.
    The Department has not attributed a recordkeeping burden to the 
Form 5500 Annual Return/Report either here or in its Paperwork 
Reduction Act analysis because it believes that plan administrators' 
practice of keeping financial records necessary to complete the Form 
5500 Annual Return/Report arises from usual and customary management 
practices that would be used by any financial entity, and does not 
result from ERISA or Code annual reporting and filing requirements.
    The aggregate baseline burden is the sum of the burden per form and 
schedule filed multiplied by the estimated aggregate number of forms 
and schedules. The simplified model draws on Form 5500 Annual Return/
Report data representing each plan's filing for plan year 2002 (the 
most recent year for which complete data is available), both for 
estimating the impact of changes in the numbers of filings associated 
with the introduction of the Short Form 5500 for most small filers as 
well as for estimating the impact of changes in filing obligations 
associated with other schedules. In summary, the model estimates that 
due to $174 million in cost reductions the proposed revisions would 
lead to aggregate costs of $888 million. While there is a net reduction 
in costs, the Department estimates that some large plans might 
experience cost increases, while small plans will experience cost 
reductions. The total burden estimates, as well as the burden broken 
out by type of plan can be found in Table 4 above.
    Uncertainty within Estimates--The Department acknowledges that 
there are several areas of uncertainty that might affect the estimates, 
in particular the unit cost estimates. While the Department has a good 
sense for the filing universe and for the number of filers that file 
the different schedules of the Form 5500, the unit costs under the 
current requirements as well as the way they would change due to the 
proposed revisions are more uncertain. The Department has no direct 
measure for the unit costs, but rather uses a proxy adapted from the 
existing MPR model, which was developed in the late 1990s. Additional 
uncertainty is added due to the proposed revisions. Some of the 
revisions delete items or move them from certain schedules to others. 
The impact of these changes can be estimated more accurately than the 
impact of the revisions that require the

[[Page 41402]]

reporting of new items like fees. Consequently, the unit cost estimates 
would benefit from updated information and the Department welcomes 
comments that would provide information on this matter.
Peer Review
    In December 2004, the Office of Management and Budget (OMB) issued 
a Final Information Quality Bulletin for Peer Review, 70 FR 2664 
(January 14, 2005) (Peer Review Bulletin), establishing that important 
scientific information shall be peer reviewed before it is disseminated 
by the Federal government. The Peer Review Bulletin applies to original 
data and formal analytic models used by agencies in Regulatory Impact 
Analyses. The Department determined that the data and methods employed 
in its regulatory analysis of this proposal constitutes ``influential 
scientific information'' as defined in the Peer Review Bulletin. 
Accordingly, a peer review was conducted under Section II of the 
Bulletin. The peer review report concluded that the methodology and 
data generally were sound and produced plausible estimates, which 
supports the Department's conclusion that the proposed form changes 
should reduce the aggregate burden relative to the previous forms. The 
Peer Review Report can be accessed at the Department's Web site at 
http://www.dol.gov/ebsa.


Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency certifies that a proposed rule will not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities, section 603 of the RFA requires that the agency 
present an initial regulatory flexibility analysis at the time of the 
publication of the notice of proposed rulemaking describing the impact 
of the rule on small entities and seeking public comment on such 
impact. Small entities include small businesses, organizations, and 
governmental jurisdictions.
    For purposes of analysis under the RFA, EBSA proposes to continue 
to consider a small entity to be an employee benefit plan with fewer 
than 100 participants. The basis of this definition is found in section 
104(a)(2) of ERISA, which permits the Secretary to prescribe simplified 
annual reports for pension plans that cover fewer than 100 
participants. Under ERISA section 104(a)(3), the Secretary may also 
provide for exemptions or for simplified reporting and disclosure for 
welfare benefit plans. Pursuant to the authority of ERISA section 
104(a)(3), the Department has previously issued at 29 CFR 2520.104-20, 
2520.104-21, 2520.104-41, 2520.104-46, and 2520.104b-10 certain 
simplified reporting provisions and limited exemptions from reporting 
and disclosure requirements for small plans, including unfunded or 
insured welfare plans, that cover fewer than 100 participants and 
satisfy certain other requirements.
    Further, while some large employers may have small plans, in 
general small employers maintain most small plans. Thus, EBSA believes 
that assessing the impact of these proposed rules on small plans is an 
appropriate substitute for evaluating the effect on small entities. The 
definition of small entity considered appropriate for this purpose 
differs, however, from a definition of small business that is based on 
size standards promulgated by the Small Business Administration (SBA) 
(13 CFR 121.201) pursuant to the Small Business Act (15 U.S.C. 631 et 
seq.). EBSA therefore requests comments on the appropriateness of the 
size standard used in evaluating the impact of these proposed rules on 
small entities. EBSA has consulted with the SBA Office of Advocacy 
concerning use of this participant count standard for RFA purposes. See 
13 CFR 121.902(b)(4). The following seven subsections address specific 
requirements of the RFA.
    (1) The Department is proposing to amend the regulations relating 
to the annual reporting and disclosure requirements of section 103 of 
ERISA to conform existing regulations to proposed revisions to the Form 
5500 Annual Return/Report forms that are included in the Notice of 
Proposed Forms Revisions published simultaneously with these 
regulations.
    The Department continually strives to tailor reporting requirements 
to minimize reporting costs while ensuring that the information 
necessary to secure ERISA rights is adequately available. The optimal 
design for reporting requirements to satisfy these objectives changes 
over time. Benefit plan designs and practices evolve over time in 
response to market trends, including trends in labor markets, financial 
markets, health care and insurance markets, and markets for various 
services used by plans. Partly as a result, the nature and mix of 
compliance issues and risks to ERISA rights change over time. Frequent 
amendments to ERISA, the Code, and to associated regulations also 
change the parameters of ERISA rights and the methods needed to protect 
those rights. In addition, the technologies available to manage and 
transmit information continually advance. It is incumbent on the 
Department to revise its reporting requirements from time to time to 
keep pace with such changes. The Department is proposing these 
regulations and associated forms revisions to readjust its reporting 
requirements to take into account certain recent changes in markets, 
the law, and technology, many of which are referenced above in this 
preamble and/or in the Notice of Proposed Forms Revision published 
simultaneously with these regulations.
    (2) Section 103 of ERISA requires every employee benefit plan 
covered under part 1 of Subtitle B 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 included in the annual report. Section 104(a)(2)(A) 
of ERISA authorizes the Secretary to prescribe by regulation simplified 
annual reporting for pension plans that cover fewer than 100 
participants. Section 104(a)(3) of ERISA 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 of ERISA 
permits the Secretary to prescribe for pension plans alternative 
methods of complying with any of the reporting and disclosure 
requirements if the Secretary finds that: (1) The use of the 
alternative method is consistent with the purposes of Title I of ERISA, 
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.
    The Department proposes to find that use of the Form 5500 Annual 
Return/Report, as revised, along with the

[[Page 41403]]

proposed Short Form 5500, constitutes an alternative method of 
compliance, an exemption, and/or a simplified report, as applicable, 
consistent with these conditions. Generally, the Department believes 
that use of the revised Form 5500 Annual Return/Report and the proposed 
Short Form 5500 would relieve plans of all sizes of increased costs and 
burdens by providing a standard format that facilitates reporting 
required by the statute, eliminating duplicative reporting 
requirements, and streamlining the content of the annual return/report.
    The objectives of these proposed, amended regulations and the 
associated proposed forms revisions are to streamline reporting and 
reduce aggregate reporting costs, particularly for small plans, while 
preserving and enhancing protection of ERISA rights. These purposes are 
detailed above in this preamble and in the Notice of Proposed Forms 
Revisions published simultaneously with these regulations.
    (3) These proposed regulatory amendments do not alter the number of 
small plans required to comply with the annual reporting requirements, 
but do implement a new Short Form 5500, which is designed specifically 
to further streamline the limited reporting requirements presently 
applicable to small plans. The Department estimates that more than six 
million small, private-sector employee pension and welfare benefit 
plans are covered under Title I of ERISA. However, a large majority of 
these are fully insured or unfunded welfare benefit plans, which 
currently are exempt from annual reporting requirements and will 
continue to be exempt under these proposed regulations and the 
associated forms revisions. Approximately 644,000 small plans, 
including small pension plans and small funded welfare plans, currently 
are required to file annual reports and will continue to be so required 
under these proposed regulations and the associated forms revisions. Of 
these, an estimated 580,000 will be eligible to use the proposed new 
Short Form 5500. Use of the Short Form 5500 is expected to reduce these 
plans' reporting costs while preserving or enhancing the protection of 
their participants' ERISA rights.
    Among small plans, perhaps the most acutely affected will be the 
approximately 9,000 small Code section 403(b) plans. As explained 
above, such plans are currently subject only to limited annual 
reporting requirements. These proposed regulations and associated forms 
revisions, which will subject these plans to the same requirements as 
other covered small plans, will increase these plans' reporting costs. 
As discussed above, the Department believes these added costs are 
justified by the need to strengthen protections for affected 
participants' ERISA rights. The numbers and types of small plans 
affected by these proposed regulations and the magnitude and nature of 
the proposed regulations' effects are further elaborated below.
    (4) The proposed regulations' reporting requirements applicable to 
small plans are detailed above and in the associated Notice of Proposed 
Forms Revisions. For a large majority of the 644,000 small plans 
subject to annual reporting requirements, or an estimated 549,000 
plans, submission of the Short Form 5500 alone will fully satisfy their 
annual reporting requirements. All of these plans are eligible for the 
waiver of audit requirements, and none are defined benefit pension 
plans. Therefore, for such plans satisfaction of their applicable 
annual reporting requirements is not expected to require the services 
of an IQPA or auditor, but will require the use of a mix of clerical 
and professional administrative skills. For an additional 31,000 small 
defined benefit pension plans that would be eligible to use the 
streamlined Short Form 5500, satisfaction of the reporting requirements 
also will require services of an actuary and submission of Schedule B. 
The remaining 64,000 small plans will not be eligible to use the Short 
Form 5500 and will continue to be required to file the Form 5500 Annual 
Return/Report. Of these, 4,000 are defined benefit plans that must use 
an actuary and file Schedule B, and 32,000 are ineligible for waiver of 
the audit requirement and are required to employ an IQPA and submit an 
IQPA's report. All will require a mix of clerical and professional 
administrative skills to satisfy their reporting requirements.
    Satisfaction of annual reporting requirements under these proposed 
regulations is not expected to require any additional recordkeeping 
that would not otherwise be part of normal business practices.
    Table 5 below compares the Department's estimates of small plans' 
reporting costs under the current requirements with those under the 
proposed requirements for various classes of affected plans. As shown, 
costs under the proposed requirements will be lower on aggregate and 
for most classes of plans. These estimates take account of the quantity 
and mix of clerical and professional skills required to satisfy the 
reporting requirements for various classes of plans.

                  Table 5.--Small Plan Reporting Costs Under Current vs. Proposed Requirements
----------------------------------------------------------------------------------------------------------------
                                                                                  Aggregate cost  Aggregate cost
                                                                                   under current  under proposed
                 Class of plan                           Number affected           requirements    requirements
                                                                                   (In millions)   (In millions)
----------------------------------------------------------------------------------------------------------------
Defined Benefit Pension, Short Form eligible..  31,000..........................          $30.34          $21.24
Defined Benefit Pension, Short Form ineligible  4,000...........................            3.77            3.67
Code Section 403(b)...........................  All of 9,000....................            0.36            1.45
Other Defined Contribution, Short Form          533,000.........................          263.94           87.84
 eligible.
Other Defined Contribution Pension, Short Form  60,000..........................           29.32           26.92
 ineligible.
Funded Welfare................................  All of 7,000....................            3.52            1.24
Other Welfare.................................  None of approximately 6 million.  ..............  ..............
                                               -----------------------------------------------------------------
    Total for All Affected Small Plans........  644,000.........................          331.26          142.35
----------------------------------------------------------------------------------------------------------------

    The Department notes that the estimated reporting costs amount to 
$221 on average for each of the 644,000 small plans subject to annual 
reporting requirements, or just $22 if averaged across all of the 
approximately 6.6 million small plans covered by Title I of ERISA. This 
compares with roughly $4,000 on average for each of the 189,000 
affected large filers.
    (5) The Department is unaware of any relevant federal rules for 
small plans

[[Page 41404]]

that duplicate, overlap, or conflict with these proposed regulations.
    (6) In developing these proposed regulations and the associated 
forms revisions, the Department considered a number of alternative 
provisions directed at small plans. For example, as discussed in the 
Notice of Proposed Forms Revisions published simultaneously with these 
regulations, the ERISA Advisory Council suggested that the Department 
consider exempting welfare plans from reporting requirements, or, 
alternatively, subjecting all welfare plans to new, separately designed 
reporting requirements. The Department opted instead to retain both the 
requirement that small funded welfare plans submit annual reports and 
the exception from annual reporting requirements for other small 
welfare plans. Annual reporting by the relatively small number of small 
funded welfare plans is necessary, in the Department's view, to protect 
ERISA rights in connection with the assets that they hold. A 
requirement that the remaining approximately six million small welfare 
plans report annually is not justified insofar as these plans have no 
assets to protect and insofar as the vast majority of these plans are 
fully insured and therefore separately protected by State oversight of 
the insurance contracts they hold and the insurers that issue them. The 
Department also considered both narrower and broader eligibility 
criteria for use of the Short Form 5500, settling on criteria that 
limit eligibility to plans holding relatively safe and protected 
assets, which nonetheless includes a large majority of small plans. The 
Department also considered the inclusion of more or fewer of the items 
of information formerly collected from small plans in the Form 5500 
Annual Return/Report, retaining only those items it believes to be 
necessary and adequate to the protection of small plan participants' 
ERISA rights.
    (7) The Department invites interested persons to submit comments 
regarding the impact on small plans of these proposed regulations and 
the associated forms revisions, and on the Department's assessment 
thereof. The Department also requests comments on the alternatives it 
considered and its conclusions regarding those alternatives; on any 
additional alternatives it should have considered; on what, if any, 
special problems small plans might encounter if the proposal were to be 
adopted; and what changes, if any, could be made to minimize those 
problems. To avoid duplication of comments, comments submitted in 
response to the Notice of Proposed Form Revisions published 
simultaneously with these proposed regulations will be treated as 
comments on this proposed rulemaking.

Paperwork Reduction Act Statement

    The Department, as part of its continuing efforts to reduce 
paperwork and respondent burden, invites the general public and Federal 
agencies to comment on proposed and/or continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested 
data are provided in the desired format, reporting burden (time and 
financial resources) is minimized, collection instruments are clearly 
understood, and the impact of collection requirements on respondents is 
properly assessed. The Department solicits comments on the information 
collection request (ICR) included in this proposed regulatory action, 
as well as the Notice of Proposed Forms Revisions published 
simultaneously with this Notice. In order to avoid unnecessary 
duplication of public comments, the PRA information published in the 
associated Notice of Proposed Forms Revisions is incorporated herein by 
this reference in its entirety, and comments submitted in response to 
these Federal Register publications will be treated as comments on 
these proposed rules. A copy of the ICR may be obtained by contacting 
the office listed under the heading ``PRA Addressee.''
    The Department has submitted a copy of the proposed information 
collection to OMB, in accordance with 44 U.S.C. 3507(d), for its review 
of the information collection. The Department is particularly 
interested in comments that:
     Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the Agencies, 
including whether the information will have practical utility;
     Evaluate the accuracy of the Agencies' estimate of the 
burden of the proposed collection of information, including the 
validity of the methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    Comments should be sent to the Office of Information and Regulatory 
Affairs, OMB, Room 10235, New Executive Office Building, Washington, DC 
20503; Attention: Desk Officer for the Employee Benefits Security 
Administration, Department of Labor. Although comments may be submitted 
through September 19, 2006, OMB requests that comments be received 
within 30 days of publication of these proposed regulations to ensure 
their consideration.
    PRA Addressee: Written comments regarding only PRA and the ICR 
should be sent to Gerald B. Lindrew, U.S. Department of Labor, EBSA/
OPR, Room N-5718, 200 Constitution Avenue, NW., Washington, DC 20210, 
Telephone: (202) 693-8410; Fax: (202) 219-4745. These are not toll-free 
numbers. Written comments must be submitted on or before September 19, 
2006 to be assured of consideration.

Congressional Review Act

    The notice of proposed rulemaking being issued here is subject to 
the Congressional Review Act provisions of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and, 
if finalized, will be transmitted to the Congress and the Comptroller 
General for review.

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, the proposed rules do not 
include any Federal mandate that may result in expenditures by state, 
local, or tribal governments in the aggregate of more than $100 
million, or increased expenditures by the private sector of more than 
$100 million.

Federalism Statement

    Executive Order 13132 (August 4, 1999) outlines fundamental 
principles of federalism and requires adherence to specific criteria by 
federal agencies in the process of their formulation and implementation 
of policies that have substantial direct effects on the States, the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government. These proposed rules do not have federalism implications 
because they would have no substantial direct effect on the States, on 
the relationship between the national government and the States, or on 
the distribution of power and responsibilities among the various levels 
of government. Section 514 of ERISA provides, with certain exceptions

[[Page 41405]]

specifically enumerated, that the provisions of Titles I and IV of 
ERISA supersede any and all laws of the States as they relate to any 
employee benefit plan covered under ERISA. The requirements implemented 
in these proposed rules do not alter the fundamental provisions of the 
statute with respect to employee benefit plans, and as such would have 
no implications for the States or the relationship or distribution of 
power between the national government and the States.

List of Subjects in 29 CFR Part 2520

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

    In view of the foregoing, the Department of Labor proposes to amend 
29 CFR part 2520 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: 29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134, and 
1135; Secretary of Labor's Order 1-2003, 68 FR 5374 (February 3, 
2003). Sec. 2520.101-2 also issued under 29 U.S.C. 1132, 1181-1183, 
1181 note, 1185, 1185a-b, 1191, and 1191a-c.
    Secs. 2520.102-3, 2520.104b-1, and 2520.104b-3 also issued under 
29 U.S.C. 1003, 1181-1183, 1181 note, 1185, 1185a-b, 1191, and 
1191a-c. Secs. 2520.104b-1 and 2520.107 also issued under 26 U.S.C. 
401 note, 111 Stat. 788.

    2. In Sec.  2520.103-1, revise paragraphs (a)(2) and (c) to read as 
follows:


Sec.  2520.103-1  Contents of the annual report.

    (a) * * *
    (2) Under the authority of subsections 104(a)(2), 104(a)(3) and 110 
of the Act, a simplified report, limited exemption or alternative 
method of compliance is prescribed for employee welfare and pension 
benefit plans, as applicable. A plan filing a simplified report or 
electing the limited exemption or alternative method of compliance 
shall file an annual report containing the information prescribed in 
paragraph (b) or paragraph (c) of this section, as applicable, and 
shall furnish a summary annual report as prescribed in Sec.  2520.104b-
10.
* * * * *
    (c) Contents of the annual report for plans with fewer than 100 
participants. (1) Except as provided in paragraph (c)(2) of this 
section and in paragraph (d) of this section, and in Sec. Sec.  
2520.104-43 and 2520.104a-6, the annual report of an employee benefit 
plan that covers fewer than 100 participants at the beginning of the 
plan year shall include a Form 5500 ``Annual Return/Report of Employee 
Benefit Plan'' and any statements or schedules required to be attached 
to the form, completed in accordance with the instructions for the 
form, including Schedule A (Insurance Information), Schedule 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.
    (2)(i) The annual report of an employee benefit plan that covers 
fewer than 100 participants at the beginning of the plan year and that 
meets the conditions in paragraph (c)(2)(ii) of this section with 
respect to a plan year may, as an alternative to the requirements of 
paragraph (c)(1) of this section, meet its annual reporting 
requirements by filing the Form 5500-SF ``Short Form 5500 Annual 
Return/Report of Employee Benefit Plan'' and any statements or 
schedules required to be attached to the form, including Schedule B 
(Actuarial Information), completed in accordance with the instructions 
for the form. See the instructions for this form.
    (ii) A plan meets the conditions in this paragraph (c)(2)(ii) with 
respect to the year if the plan:
    (A) Does not hold any employer securities at any time during the 
year;
    (B) Satisfies the audit waiver conditions in Sec. Sec.  2520.104-
46(b)(1)(i)(A)(1) and 2520.104-46(b)(1)(i)(B) and (b)(1)(i)(C); and
    (iii) Had at all times during the plan year 100 percent of the 
plan's assets held for investment purposes invested in assets that have 
a readily ascertainable fair market value. For purposes of this 
section, the following shall be treated as assets that have a readily 
ascertainable fair market value: Shares issued by an investment company 
registered under the Investment Company Act of 1940; investment and 
annuity contracts issued by any insurance company, qualified to do 
business under the laws of a State, that provides valuation information 
at least annually to the plan administrator; bank investment contracts 
issued by a bank or similar financial institution, as defined in Sec.  
2550.408b-4(c) of this chapter, that provides valuation information at 
least annually to the plan administrator; securities (except employer 
securities) traded on a public exchange; government securities issued 
by the United States or by a State; cash or cash equivalents held by a 
bank or similar financial institution, as defined in Sec.  2550.408b-
4(c) of this chapter; by an insurance company, qualified to do business 
under the law of a State; by an organization registered as a broker-
dealer under the Securities Exchange Act of 1934; or by any other 
organization authorized to act as a trustee for individual retirement 
accounts under section 408 of the Internal Revenue Code; and any loan 
meeting the requirements of section 408(b)(1) of the Act and the 
regulations issued thereunder.
* * * * *
    3. In Sec.  2520.104-44, remove paragraph (b)(3).
    4. In Sec.  2520.104-46, add a new paragraph (e) and a new appendix 
to the section to read as follows:


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

* * * * *
    (e) Model notice. The appendix to this section contains model 
language for inclusion in the summary annual report to assist plan 
administrators in complying with the requirements of paragraph 
(b)(1)(i)(B) of this section to avail themselves of the waiver of 
examination and report of the independent qualified public accountant 
for employee benefit plans with fewer than 100 participants. Use of the 
model language is not mandatory. In order to use the model language in 
the plan's summary annual report, administrators must, in addition to 
any other information required to be in the summary annual report, 
select among alternative language and add relevant information where 
appropriate in the model language. Items of information that are not 
applicable to a particular plan may be deleted. Use of the model 
language, appropriately modified and supplemented, will be deemed to 
satisfy the notice content requirements of paragraph (b)(1)(i)(B) of 
this section.

Appendix to Sec.  2520.104-46--Model Summary Annual Report Notice (Plan 
Administrators Will Need To Modify the Model To Omit Information That 
Is Not Applicable to the Plan)

    The U.S. Department of Labor's regulations require that an 
independent qualified public accountant audit the plan's financial 
statements unless certain conditions are met for the audit 
requirement to be waived. This plan met the audit waiver conditions 
for the plan year beginning (insert year) and therefore has not had 
an audit performed. Instead, the following information is provided 
to assist you in verifying that the assets reported on the (Form 
5500 or Form

[[Page 41406]]

5500-SF--select as applicable) were actually held by the plan.
    At the end of the (insert year) plan year, the plan had (include 
separate entries for each regulated financial institution holding or 
issuing qualifying plan assets):

[Set forth amounts and names of institutions as applicable where 
indicated]
[(insert $ amount) in assets held by (insert name of bank)],
[(insert $ amount) in securities held by (insert name of registered 
broker-dealer)],
[(insert $ amount) in shares issued by (insert name of registered 
investment company)],
[(insert $ amount) in investment or annuity contract issued by 
(insert name of insurance company)].

    The plan receives year-end statements from these regulated 
financial institutions that confirm the above information. [Insert 
as applicable--The remainder of the plan's assets were (1) 
qualifying employer securities, (2) loans to participants, (3) held 
in individual participant accounts with investments directed by 
participants and beneficiaries and with account statements from 
regulated financial institutions furnished to the participant or 
beneficiary at least annually, or (4) other assets covered by a 
fidelity bond at least equal to the value of the assets and issued 
by an approved surety company.]
    Plan participants and beneficiaries have a right, on request and 
free of charge, to get copies of the financial institution year-end 
statements and evidence of the fidelity bond. If you want to examine 
or get copies of the financial institution year-end statements or 
evidence of the fidelity bond, please contact [insert mailing 
address and any other available way to request copies such as e-mail 
and phone number].
    If you are unable to obtain or examine copies of the regulated 
financial institution statements or evidence of the fidelity bond, 
you may contact the regional office of the U.S. Department of 
Labor's Employee Benefits Security Administration (EBSA) for 
assistance by calling toll-free 1.866.444.EBSA (3272). A listing of 
EBSA regional offices can be found at http://www.dol.gov/ebsa. 

General information regarding the audit waiver conditions applicable 
to the plan can be found on the U.S. Department of Labor Web site at 
http://www.dol.gov/ebsa under the heading ``Frequently Asked 

Questions.''

    5. Revise the Appendix to Sec.  2520.104b-10 to read as follows:


Sec.  2520.104b-10  Summary Annual Report.

* * * * *

 Appendix to Sec.   2520.104b-10.--The Summary Annual Report (SAR) Under ERISA: A Cross-Reference to the Annual
                                                     Report
----------------------------------------------------------------------------------------------------------------
                                        Form 5500--large plan    Form 5500--small plan     Form 5500-SF--filer
               SAR item                    filer line items         filer line items            line items
----------------------------------------------------------------------------------------------------------------
A. Pension Plan:
    1. Funding arrangement...........  Form 5500-9a...........  Same...................  Not applicable.
    2. Total plan expenses...........  Sch. H--2j.............  Sch. I--2j.............  Line 8h.
    3. Administrative expenses.......  Sch. H--2i(5)..........  Sch. I--2h.............  Line 8f.
    4. Benefits paid.................  Sch. H--2e(4)..........  Sch. I--2e.............  Line 8d.
    5. Other expenses................  Sch. H--Subtract the     Sch. I--2i.............  Line 8g.
                                        sum of 2e(4) & 2i(5)
                                        from 2j.
    6. Total participants............  Form 5500--6f            Same...................  Line 5b.
    7. Value of plan assets (net):
        a. End of plan year..........  Sch. H--1l [Col. (b)]..  Sch. I--1c [Col. (b)]..  Line 7a [Col. (b)].
        b. Beginning of plan year....  Sch. H--1l [Col. (a)]..  Sch. I--1c [Col. (a)]..  Line 7a [Col. (a)].
    8. Change in net assets..........  Sch. H--Subtract 1l      Sch. I--Subtract 1c      Line 7c--Subtract Col.
                                        [Col. (a)] from 1l       [Col. (a)] from 1c       (a) from Col. (b).
                                        [Col. (b)].              [Col. (b)].
    9. Total income..................  Sch. H--2d.............  Sch. I--2d.............  Line 8c.
        a. Employer contributions....  Sch. H--2a(1)(A) &       Sch. I--2a(1) & 2b if    Line 8a(1) if
                                        2a(2)--if applicable.    applicable.              applicable.
        b. Employee contributions....  Sch. H--2a(1)(B) &       Sch. I--2a(2) & 2b if    Line 8a(2) if
                                        2a(2) if applicable.     applicable.              applicable.
        c. Gains (losses) from sale    Sch. H--2b(4)(C).......  Not applicable.........  Not applicable.
         of assets.
        d. Earnings from investments.  Sch. H--Subtract the     Sch. I--2c.............  Line 8b.
                                        sum of 2a(3), 2b(4)(C)
                                        and 2c from 2d.
    10. Total insurance premiums.....  Total of all Schs.A--5b  Total of all Schs.A--5b  Not applicable.
    11. Funding deficiency:
        a. Defined benefit plans.....  Sch. B--10.............  Same...................  Same.
        b. Defined contribution plans  Sch. R--6c, if more      Same...................  Line 12c.
                                        than zero.
B. Welfare Plan:
    1. Name of insurance carrier.....  All Schs. A--1(a)......  Same...................  Not applicable.
    2. Total (experience rated and     All Schs. A--Sum of      Same...................  Not applicable.
     non-experienced rated) insurance   8a(4) and 9(a).
     premiums.
    3. Experience rated premiums.....  All Schs. A--8a(4).....  Same...................  Not applicable.
    4. Experience rated claims.......  All Schs. A--8b(4).....  Same...................  Not applicable.
    5. Value of plan assets (net):
        a. End of plan year..........  Sch. H--1l [Col. (b)]..  Sch. I--1c [Col. (b)]..  Line 7c--[Col. (b)].
        b. Beginning of plan year....  Sch. H--1l [Col. (a)]..  Sch. I--1c [Col. (a)]..  Line 7c--[Col. (a)].
    6. Change in net assets..........  Sch. H--Subtract 1l      Sch. I--Subtract 1c      Line 7c--Subtract [Col.
                                        [Col. (a)] from 1l       [Col. (a)] from 1c       (a)] from [Col. (b)].
                                        [Col. (b)].              [Col. (b)].
    7. Total income..................  Sch. H--2d.............  Sch. I--2d.............  Line 8c.
        a. Employer contributions....  Sch. H--2a(1)(A) &       Sch. I--2a(1) & 2b if    Line 8a(1) if
                                        2a(2) if applicable.     applicable.              applicable.
        b. Employee contributions....  Sch. H--2a(1)(B) &       Sch. I--2a(2) & 2b if    Line 8a(2) if
                                        2a(2) if applicable.     applicable.              applicable.
        c. Gains (losses) from sale    Sch. H--2b(4)(C).......   Not applicable........  Not applicable.
         of assets.
        d. Earnings from investments.  Sch. H--Subtract the     Sch. I--2c.............  Line 8b.
                                        sum of 2a(3), 2b(4)(C)
                                        and 2c from 2d.

[[Page 41407]]


    8. Total plan expenses...........   Sch. H--2j............  Sch. I--2j.............  Line 8h.
    9. Administrative expenses.......  Sch. H--2i(5)..........  Sch. I, line 2h........  Line 8f.
    10. Benefits paid................  Sch. H--2e(4)..........  Sch. I--2e.............  Line 8d.
    11. Other expenses...............  Sch. H--Subtract the     Sch. I--2i.............  Line 8g.
                                        sum of 2e(4) & 2i(5)
                                        from 2j.
----------------------------------------------------------------------------------------------------------------


    Signed at Washington, DC, this 13th day of July 2006.
Ann C. Combs,
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 06-6330 Filed 7-20-06; 8:45 am]

BILLING CODE 4510-29-P