[Federal Register Volume 81, Number 140 (Thursday, July 21, 2016)]
[Proposed Rules]
[Pages 47496-47532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14892]
[[Page 47495]]
Vol. 81
Thursday,
No. 140
July 21, 2016
Part II
Department of Labor
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Employee Benefits Security Administration
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29 CFR Parts 2520 and 2590
Annual Reporting and Disclosure; Proposed Rule
Federal Register / Vol. 81 , No. 140 / Thursday, July 21, 2016 /
Proposed Rules
[[Page 47496]]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Parts 2520 and 2590
RIN 1210-AB63
Annual Reporting and Disclosure
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Proposed rule.
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SUMMARY: This document contains proposed amendments to Department of
Labor (DOL) regulations relating to annual reporting requirements under
Part 1 of Subtitle B of Title I of the Employee Retirement Income
Security Act of 1974, as amended (ERISA). The proposed amendments
contained in this document would conform the DOL's reporting
regulations to proposed revisions to the Form 5500 Annual Return/Report
of Employee Benefit Plan and Form 5500-SF Short Form Annual Return/
Report of Small Employee Benefit Plan, which are being published
concurrently in today's Federal Register in a separate Notice of
Proposed Forms Revisions (NPFR) prepared jointly by the Department of
Labor (DOL), the Internal Revenue Service (IRS), and the Pension
Benefit Guaranty Corporation (PBGC) (collectively the Agencies). The
proposed regulation, and related forms revisions, would improve
employee benefit plan reporting for filers, the public, and the
Agencies. The revision is necessary because the annual return/report
forms have not kept pace with market developments and changes in the
laws covering employee benefit plans, presenting problems with outdated
and missing information that negatively impact the Agencies' effective
and efficient protection of employee retirement and health benefits.
The proposed revisions would affect employee pension and welfare
benefit plans, plan sponsors, administrators, and service providers.
DATES: Written comments must be received by the Department of Labor on
or before October 4, 2016.
ADDRESSES: To facilitate the receipt and processing of written comment
letters on the proposed regulation, EBSA encourages interested persons
to submit their comments electronically. You may submit comments,
identified by RIN 1210-AB63, by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow instructions for submitting comments.
Email: [email protected]. Include RIN 1210-AB63 in the subject line of
the message.
Mail: Office of Regulations and Interpretations, Employee Benefits
Security Administration, Attn: RIN 1210-AB63; Annual Reporting and
Disclosure, Room N-5655, U.S. Department of Labor, 200 Constitution
Avenue NW., Washington, DC 20210.
Hand Delivery/Courier: Office of Regulations and Interpretations,
Employee Benefits Security Administration, Attn: RIN 1210-AB63; Annual
Reporting and Disclosure, Room N-5655, U.S. Department of Labor, 200
Constitution Avenue NW., Washington, DC 20210.
Instructions: All comments received must include the agency name
and Regulatory Identifier Number (RIN) for this rulemaking (RIN 1210-
AB63). Persons submitting comments electronically are encouraged not to
submit paper copies. All comments received will be made available to
the public, posted without change to http://www.regulations.gov and
http://www.dol.gov/ebsa, and made available for public inspection at
the Public Disclosure Room, N-1513, Employee Benefits Security
Administration, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington, DC 20210, including any personal information provided.
FOR FURTHER INFORMATION CONTACT: Mara S. Blumenthal, Office of
Regulations and Interpretations, Employee Benefits Security
Administration, U.S. Department of Labor, (202) 693-8523 (not a toll-
free number) for all changes other than group health plan information;
Suzanne Adelman, EBSA, U.S. Department of Labor, 202-693-8383 (not a
toll-free number), for questions relating to the collection of group
health plan information.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
A. Purpose of the Regulatory Action
Under Titles I and IV of ERISA and the Internal Revenue Code
(Code), 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 a Form 5500
Annual Return/Report of Employee Benefit Plan (Form 5500 Annual Return/
Report), or a Form 5500-SF Short Form Annual Return/Report of Small
Employee Benefit Plan (Form 5500-SF) (depending on certain plan
characteristics), together with any required schedules and attachments
(together ``the Form 5500 Annual Return/Report''), in accordance with
their instructions, generally satisfies these annual reporting
requirements. In addition to being an important disclosure document for
plan participants and beneficiaries, the Form 5500 Annual Return/Report
is a critical enforcement, compliance, and research tool for the DOL,
IRS, and the PBGC (together ``Agencies''). It is also an important
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. In the United States, there are an
estimated 2.3 million health plans, a similar number of other welfare
plans, and nearly 681,000 private pension plans. These plans cover
roughly 143 million private sector workers, retirees, and dependents,
and have estimated assets of $8.7 trillion. The Form 5500 Annual
Return/Report is the principal source of information and data
concerning the operations, funding, and investments of more than
806,000 of these pension and welfare benefit plans.
Generally, the Agencies have conducted notice and comment
rulemaking before making significant changes to the forms and
schedules. This proposed revision to the DOL's reporting regulations is
needed to implement the forms revisions proposed in the three-agency
(DOL, IRS, and the PBGC) Notice of Proposed Forms Revisions (NPFR),
which is being published separately in today's Federal Register.
As noted above and discussed in detail below, because the Form 5500
Annual Return/Report has not kept pace with market developments and
changes in the laws covering employee benefit plans, problems with
outdated and missing information negatively impact the Agencies'
effective and efficient protection of employee retirement and group
health benefits. That fact is reflected in the more than 15 reports
that have been issued since the publication of the last major forms
revisions from the Government Accountability Office (GAO), the DOL's
Office of Inspector General (DOL-OIG), the United States Treasury
Inspector General for Tax Administration (the TIGTA), and the ERISA
Advisory Council that all call for expanded annual reporting by
employee benefit plans and improvements in the Form 5500 Annual Return/
Report.\1\ In
[[Page 47497]]
developing these proposed updates to the Form 5500 Annual Return/
Report, the DOL, along with IRS and PBGC, carefully considered those
reports in determining where changes are needed.
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\1\ See, e.g., U.S. Gov't Accountability Office, GAO-10-54,
Private Pensions: Additional Changes Could Improve Employee Benefit
Plan Financial Reporting (2009) (available at www.gao.gov/assets/300/298052.pdf); U.S. Gov't Accountability Office, GAO-14-441,
Private Pensions: Targeted Revisions Could Improve Usefulness of
Form 5500 Information (2014) (available at www.gao.gov/products/GAO-14-441); 2013 ERISA Advisory Council Report: Private Sector Pension
De-risking and Participant Protections, Dep't of Labor, www.dol.gov/ebsa/publications/2013ACreport2.html); Dep't of Labor Office Of
Inspector Gen., 05-14-003-12-12, EBSA Could Improve Its Usage of
Form 5500 Data (2014) (available at www.oig.dol.gov/public/reports/oa/2014/05-14-003-12-121.pdf); U.S. Gov't Accountability Office,
GAO-14-92, Private Pensions: Clarity of Required Reports and
Disclosures Could Be Improved (2013) (available at www.gao.gov/assets/660/659211.pdf); U.S. Gov't Accountability Office, GAO-14-92,
Private Pensions: Clarity Of Required Reports And Disclosures Could
Be Improved, Report to Congressional Requesters (2013) (available at
www.gao.gov/assets/660/659211.pdf); U.S. Dep't of Labor Office of
Inspector Gen., 09-13-001-12-121, Employee Benefits Security
Administration Needs to Provide Additional Guidance And Oversight to
ERISA Plans Holding Hard-to-Value Alternative Investments (2013)
(available at www.oig.dol.gov/public/reports/oa/2013/09-13-001-12-121.pdf); U.S. Gov't Accountability Office, GAO-12-665, Private
Sector Pensions: Federal Agencies Should Collect Data and Coordinate
Oversight of Multiple Employer Plans (2012) (available at
www.gao.gov/assets/650/648285.pdf); U.S. Dep't of Labor Office Of
Inspector Gen., 09-12-002-12-121, Changes Are Still Needed In The
ERISA Audit Process To Increase Protections For Employee Benefit
Plan Participants (2012) (available at www.oig.dol.gov/public/reports/oa/2012/09-12-002-12-121.pdf); U.S. Gov't Accountability
Office, GAO-12-325, 401(K) Plans: Increased Educational Outreach and
Broader Oversight May Help Reduce Plan Fees (2012) (available at
www.gao.gov/products/GAO-12-325); U.S. Gov't Accountability Office,
GAO-08-692, Defined Benefit Plans: Guidance Needed to Better Inform
Plans of the Challenges and Risks of Investing in Hedge Funds and
Private Equity (2012) (available at www.gao.gov/products/GAO-08-692); Treasury Inspector Gen. for Tax Administration, The Employee
Plans Function Should Continue Its Efforts to Obtain Needed
Retirement Plan Information (2011) (available at www.treasury.gov/tigta/auditreports/2011reports/201110108fr.pdf); 2011 ERISA Advisory
Council Report: Hedge Funds and Private Equity Investments, Dep't of
Labor, www.dol.gov/ebsa/publications/2011ACreport3.html); 2013 ERISA
Advisory Council Report: Locating Missing and Lost Participants,
Dep't of Labor, www.dol.gov/ebsa/publications/2013ACreport3.html#2;
2010 ERISA Advisory Council Report: Employee Benefit Plan Auditing
and Financial Reporting Models, Dep't of Labor, www.dol.gov/ebsa/publications/2010ACreport2.html; 2008 ERISA Advisory Council Report:
Working Group on Hard-to-Value Assets and Target Date Funds, Dep't
of Labor, www.dol.gov/ebsa/publications/2008ACreport1.html.
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In addition, a significant update being made to the Form 5500
Annual Return/Report is the introduction of basic reporting
requirements for all plans that provide group health benefits that have
fewer than 100 participants and are covered by Title I of ERISA, most
of which are currently exempt from reporting requirements, and the
addition of a new schedule (Schedule J) proposed to be required for all
group health plans. This reflects a new emphasis on transparency under
the Affordable Care Act \2\ and a desire to offer plan sponsors the
opportunity to satisfy certain Affordable Care Act reporting
requirements addressed in this proposal by a more robust Form 5500
Annual Return/Report filing for those group health plans currently
required to file and by elimination of the current exemption for plans
that provide group health benefits that have fewer than 100
participants that are fully insured, unfunded, or a combination. Once
finalized, these proposed changes will result in annual return/report
forms that are a more effective policy, enforcement, and research tool,
and one that will increase transparency, accountability, and confidence
in the employee benefit plan system.
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\2\ The Patient Protection and Affordable Care Act, Public Law
111-148, was enacted on March 23, 2010, and the Health Care and
Education Reconciliation Act of 2010, Public Law 111-152, was
enacted on March 30, 2010. These statutes generally are collectively
known as the ``Affordable Care Act.''
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The Agencies' proposed changes to the Form 5500 Annual Return/
Report also should be viewed in light of the fact that the last two
major revisions of the Form 5500 Annual Return/Report \3\ occurred in
1999 and 2009 in connection with a major shift from a paper-based
filing system to the current internet-based wholly electronic filing
and electronic data processing system (EFAST and now EFAST2), which is
operated by a private sector contractor. For the last two major form
revision cycles, the Agencies were focused on moving filers to new
technologies for filing Form 5500 Annual Return/Report data. In
recognition of the burden and challenges that filers would face in
migrating to new filing technologies, the Agencies' generally deferred
proposing major form changes that would add substantial new burdens. In
fact, by deferring our current proposals until now, the new EFAST2
capabilities are making more feasible and efficient processing of both
the existing and the expanded data we are proposing to collect.
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\3\ The Agencies' last tri-agency major revision to the Form
5500 Annual Return/Report series was effective for the 2009 plan
year forms. Before that, the last major revision was effective for
the 1999 plan year forms and was implemented together with the
initial implementation of EFAST. In interim years, the Agencies have
made other focused changes, which are set forth annually in the
``Changes to Note'' section in the instructions.
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B. Summary of the Major Revisions of the Regulatory Action
The proposed forms revisions and the DOL implementing regulations
are intended to address changes in applicable laws and the employee
benefit plan and financial markets, and corresponding shifts in agency
priorities and needs since the last major revision. The proposed
revisions are also expected ultimately to make filing and processing
more efficient and accurate and to restore a greater level of
transparency in the employee benefit plan market.\4\ The proposed forms
revisions fall under the following general categories:
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\4\ In addition, this rulemaking and forms revisions are being
coordinated generally with a re-bid and updating of the ERISA Filing
Acceptance System (EFAST2)--the wholly electronic Form 5500 Annual
Return/Report filing and processing system. Unlike the 1999 and 2009
forms revisions, the re-bid of EFAST2 does not involve major changes
in the EFAST2 key system requirements, capabilities, and functions.
Rather, although there are some changes to the system, the re-bid
process is largely being undertaken in response to Federal
Acquisition Regulation (FAR) requirements on periodic re-bidding of
longer term contracts. Under these circumstances, there may be
opportunities to implement various form changes either before or
after the re-bid EFAST2 contract is awarded. The timing of the re-
bid of EFAST2 and implementation of form changes may also be
affected by whether funds necessary for the re-bid or form
implementation are appropriated as part of the Agencies' respective
budgets. Accordingly, although the overall objective is to implement
these proposed form changes as part of a re-bid EFAST2 contract,
rulemaking and budget issues may require the Agencies to consider a
more staged approach.
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1. Modernize Financial and Investment Reporting by Pension Plans
A key component of the proposal would expand and modernize
financial and investment information reported by pension plans.
Reporting on the financial operations and integrity of U.S. private
pension plans (both defined benefit and defined contribution) is
critical given the ongoing importance of such plans to the retirement
security of America's workforce. Moreover, improved transparency of
financial products and investments acquired by plans is critical to the
ability of the Agencies to fulfill their statutory oversight role. It
is also important for ongoing monitoring of retirement plans by
employers, plans, participants and beneficiaries, and policy makers.
These proposed changes to financial reporting are specifically designed
to improve reporting of alternative investments, hard-to-value assets,
and investments through collective investment vehicles and participant-
directed brokerage accounts.
An overriding objective of these proposed revisions to the
financial
[[Page 47498]]
information collected as part of the annual return/report is to present
plan financial and balance sheet information, including the currently
required schedules of assets, in a way that better reflects the
investment portfolios and asset management practices of employee
benefit plans. The basic objective of ERISA's mandatory financial
reporting is to provide information about the reporting entity for the
Agencies' enforcement, research, and policy formulation programs; for
other federal agencies, Congress, and the private sector to assist them
in assessing employee benefit, tax, and economic trends and policies;
and for plan participants and beneficiaries and the general public to
understand and monitor better the activities and investments of
employee benefit plans. As reflected in the various reports from the
GAO, the DOL-OIG, the ERISA Advisory Council, and the TIGTA, the
current information collected on the Form 5500 Annual Return/Report and
Form 5500-SF is insufficient to satisfy those objectives.
The financial statements contained in the current Schedule H (Large
Plan Financial Information) and Schedule I (Small Plan Financial
Information) are based on data elements that have remained largely
unchanged since the Form 5500 Annual Return/Report was established in
1975. Over the past four decades, the U.S. private pension system has
shifted from defined benefit (defined benefit or DB) pension plans
toward defined contribution (defined contribution or DC) pension plans,
often participant-directed 401(k)-type DC pension plans. The financing
of retirement benefits has changed dramatically coincident with the
shift from DB to DC pension plans. In 1978, when legislation was
enacted authorizing 401(k) plans that allow employees to contribute to
their own retirement plan on a pre-tax basis, participants contributed
only 29 percent of the contributions to DC pension plans and only 11
percent of total contributions to both DB and DC pension plans. ``In
the years following 1978, employee contributions to DC pension plans
steadily rose to a peak of approximately 60 percent in 1999, where it
has remained.'' See Dep't of Labor, Private Pension Plan Bulletin
Abstract of 2012 Form 5500 Annual Reports, at 1 (2015). Simultaneously,
the number of single-employer DB pension plans has decreased from
92,000 in 1990 to just under 29,000 single-employer pension plans in
2009. See U.S. Gov't Accountability Office, GAO-09-291, Defined Benefit
Pensions: Survey Results of the Nation's Largest Private Defined
Benefit Plan Sponsors Highlights (2009) (available at http://www.gao.gov/new.items/d09291.pdf).
The shift from DB pension plans to DC pension plans--and the
corresponding increase of participants' own contributions to those
plans as opposed to employer contributions--has led to increased
responsibility for participants to manage their own retirement savings,
which includes having to select among investment options in their
retirement plans. See Private Pension Plan Bulletin Abstract Of 2012
Form 5500 Annual Reports, at 2 (Of the 516,000 section 401(k)-type
plans in 2012, 87.8 percent allowed participants to direct investment
of all of their assets, and 3.1 percent allowed participants to direct
investment of a portion of their assets.) The need for more relevant
and comparable financial information is not limited to 401(k) and other
DC pension plans; it also extends to DB pension plans. Reports cited
above from GAO, the DOL-OIG, the TIGTA, and the ERISA Advisory Council
also have focused on the need for increased transparency and
accountability generally in connection with employee benefit plan
investments in hard-to-value and alternative assets, as well as assets
held through pooled investment vehicles.
Further, the Agencies need better information to effectively
oversee and enforce existing rules and regulations. For example, as
part of the 1999 and 2009 forms revisions, the Agencies stopped
collecting a variety of information regarding ESOPs. ESOPs, however,
continue to be a significant enforcement focus and concern for both DOL
and the Department of Treasury (Treasury)/IRS. Under the proposal,
ESOPs would be required to again report information, on the Schedule E,
about their employer stock acquisitions. Plan investment in hard-to-
value and other alternative investments, such as derivatives, limited
partnerships, hedge funds, private equity, and real estate, was
highlighted as an oversight risk by both GAO and the DOL-OIG. Plans
invested in derivatives, limited partnerships, hedge funds, private
equity, real estate, and other alternative investments would be
required under the proposal to identify such investments specifically.
Having plans and direct filing entities (DFEs) report this information
would be a significant improvement; the Agencies would no longer be
limited to identifying issues involving investments in derivatives and
other hard-to-value assets by opening investigations on a plan-by-plan
basis. For example, regulators would be able to search the data base
for particular investments or managers where there were indications
that there were problems with such investment or manager for all plans
that made such investments. The improved financial transparency in the
proposed revisions to the Form 5500 Annual Return/Report data
collection in general would better enable public and private data users
to identify patterns and trends in plan investments and behavior.
For defined contribution pension plans, especially participant-
directed plans, the proposal also would provide better information on
employee participation rates in 401(k)-type plans and more relevant
information on the types of investment alternatives available in such
plans (including information on each designated investment alternative
in the plan, information on qualified default investment alternatives,
and information on whether the investment alternatives are actively
managed or passively managed index funds). As Form 5500 Annual Return/
Report information is required by Title I of ERISA to be publicly
available, not only would expanded data collection assist in the
Agencies' research and policymaking objectives, public access to this
information would enable interested private sector and other
governmental stakeholders to perform data-based research or help plan
sponsors, fiduciaries, and participants and beneficiaries better
understand their plan and plan investments. For example, it would be
more feasible to compare performance of plans based on types of
investments, and get information on how certain plan investment options
and structures might correlate to participation, overall performance,
or best preparation of workers for retirement.
2. Support Oversight of Group Health Plans and Ongoing Implementation
of the Affordable Care Act
The proposed forms revisions and DOL implementing regulations would
expand Form 5500 reporting by group health plans \5\ by eliminating
obsolete
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exemptions for certain plans from Form 5500 reporting. Specifically,
most private employer-sponsored group health plans with fewer than 100
participants that are fully insured, unfunded, or a combination of the
two, currently do not file the Form 5500 Annual Return/Report under the
terms of the current DOL exemptions. As a result, for policy
formulation, research, and regulatory impact analyses, the DOL must
rely on surveys, instead of Form 5500 Annual Return/Report data, to
generate even basic estimates of the size of the ERISA group health
plan universe that is a major part of the nation's health care delivery
system. The current lack of information collected on the Form 5500
Annual Return/Report from group health plans impairs the effectiveness
of EBSA's ability to develop health care regulations and complicates
the DOL's ability to enforce such regulations and educate plan
administrators regarding compliance.
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\5\ Under the proposed changes, all ``group health plans'' that
meet the definition in 733(a) of the Act, including plans that claim
``grandfathered'' status under 29 CFR 2950.715-1251, are required to
file some or all of the Form 5500 Annual Return/Report and
applicable schedules, including the Schedule J, regardless of
whether such plans are exempt from certain market reform
requirements under ERISA Sec. 732(a) (exemption for certain small
group health plans that have less than two participants who are
current employees) or ERISA Sec. 733(c) (group health plans
consisting solely of excepted benefits). Employee welfare benefit
plans as defined in ERISA Sec. 3(1) that do not meet the definition
of ``group health plan'' under 733 of the Act (i.e., they do not
provide benefits for medical care) are not subject to the proposed
enhanced reporting requirements applicable to group health plans.
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In addition, section 1253 of the Affordable Care Act requires the
Secretary of Labor to prepare an annual report that includes certain
general information on self-insured group health plans using data
collected from the Form 5500 Annual Return/Report (the ``Self-Insured
Health Plan Report''). Current Form 5500 Annual Return/Report data
provides the basis only for an incomplete assessment of self-insured
plans. For example, information about the amount of outstanding claims
for a self-insured plan, a proposed new data element on the Schedule J,
would be a critical flag that would identify the need for further
inquiry or investigation of a group health plan that may be unable to
pay outstanding claims. Early intervention by EBSA could prevent a
participant from facing bankruptcy over unpaid medical expenses that
otherwise would have been covered had the group health plan been
properly funded.
We expect more group health plan filings will help the DOL allocate
enforcement resources and streamline enforcement actions. For example,
these additional filings will enable the DOL to correlate information
reported by different group health plans to help identify widespread
noncompliance perpetuated by a common service provider rather than
relying on multiple investigations of client plans to detect a pattern
of non-compliance by a single service provider. Obtaining a correction
by going directly to the service provider makes the correction process
more efficient for the service provider and the Department and results
in uniform and efficient corrective action for participating plans.
EBSA anticipates that Form 5500 Annual Return/Report data may similarly
be used in future versions of the biennial Paul Wellstone and Pete
Domenici Mental Health Parity and Addiction Equity Act (MHPAEA) Report
to Congress on the compliance of group health plans and health
insurance coverage offered in connection with such plans with the
requirements of MHPAEA. The proposed changes to group health plan
reporting thus are important to the government's ability to accomplish
oversight obligations under the Affordable Care Act and other federal
laws governing group health plans, to more effectively monitor health
policy issues as they pertain to ERISA-covered plans, and to provide
Congress with accurate information about self-insured plans and whether
the plan is complying with the protections of MHPAEA.
3. Reporting To Satisfy Public Health Service Act Sections 2715A and
2717
Sections 2715A and 2717 of the Public Health Service Act (PHS Act),
as added by the Affordable Care Act and incorporated into ERISA section
715,\6\ include important new reporting requirements for group health
plans and health insurance issuers in the group and individual markets.
Specifically, section 2715A of the PHS Act incorporates the
transparency provisions of section 1311(e)(3) of the Affordable Care
Act to require non-grandfathered group health plans and health
insurance issuers offering non-grandfathered group or individual health
insurance coverage to make available to the DOL, the Department of
Health and Human Services (HHS), Treasury, State insurance
commissioner, and the public a host of information on health plan
enrollment and claims.\7\ This includes: (1) Claims payment policies
and practices; (2) periodic financial disclosures; (3) data on
enrollment and disenrollment; (4) data on the number of denied claims;
(5) data on rating practices; (6) information on cost-sharing and
payments with respect to any out-of-network coverage; (7) information
on enrollee and participation rights; and (8) other information as
determined by the Secretary. Moreover, section 2717 of the PHS Act
generally requires non-grandfathered group health plans and health
insurance issuers offering non-grandfathered group or individual health
insurance coverage to report annually to the DOL, HHS and the Treasury
and to enrollees under the plan whether the benefits under the plan:
(A) Improve health outcomes through the implementation of activities
such as quality reporting, effective case management, care
coordination, chronic disease management, and medication and care
compliance initiatives, including through the use of the medical homes
model as defined for purposes of section 3602 of the Affordable Care
Act, for treatment or services under the plan or coverage; (B)
implement activities to prevent hospital readmissions through a
comprehensive program for hospital discharge that includes patient-
centered education and counseling, comprehensive discharge planning,
and post discharge reinforcement by an appropriate health care
professional; (C) implement activities to improve patient safety and
reduce medical errors through the appropriate use of best clinical
practices, evidence based medicine, and health information technology
under the plan or coverage; and (D) implement wellness and health
promotion activities.
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\6\ Sections 2715A and 2717 of the PHS Act are also incorporated
into section 9815(a)(1) of the Code.
\7\ Information required under sections 2715A and 2717 of the
PHS Act that is provided as part of a Form 5500 Annual Return/Report
would be made available to the public and to the plan's participants
and beneficiaries. Section 104(b)(4) of ERISA requires the plan
administrator, on written request of a participant or beneficiary,
to furnish among other documents, a copy of the latest annual
report. See also 29 CFR 2520.104b-1(b)(2). The DOL's regulation at
29 CFR 2520.104b-30 provides that the plan administrator of an
employee benefit plan may impose a reasonable charge that is not to
exceed 25 cents per page to cover the cost of furnishing the latest
annual report, but also provides that participants and beneficiaries
must be provided at no charge a copy of the statement of the assets
and liabilities of the plan and accompanying notes, and the
statement of income and expenses of the plan and accompanying notes.
See also 29 CFR 2520.104b-10(d)(3) and (4).
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These regulations propose conforming amendments in 29 CFR 2590.715-
2715A and 29 CFR 2590.715-2717 to clarify that compliance with the
reporting requirements in 29 CFR 2520.103-1 (including filing any
required schedules to the annual report) by plans subject to ERISA
would satisfy the reporting requirements of PHS Act sections 2715A and
2717, incorporated in ERISA through ERISA section 715(a)(1).\8\ As
explained in FAQs issued
[[Page 47500]]
August 11, 2015,\9\ HHS proposed an information collection for public
comment in connection with the transparency provisions of section
1311(e)(3) of the Affordable Care Act. The proposed data collection
would collect certain information from Qualified Health Plan (QHP)
issuers in Federally-facilitated Exchanges and State-based Exchanges
that use the federal eligibility and enrollment platform. The HHS
proposal explained that other reporting requirements would be proposed
at a later time, through a separate rulemaking with respect to non-
Exchange coverage, including those that extend to health insurance
issuers offering non-grandfathered group or individual health insurance
coverage outside of the Exchanges and non-grandfathered group health
plans (including large group and self-insured health plans).\10\
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\8\ The Treasury Department and the IRS intend to publish
proposed regulations in 26 CFR 54.9815-2715A and 54.9815-2717
clarifying that group health plans required to file an annual report
pursuant to section 104 of ERISA that comply with the reporting
requirements in 29 CFR 2520.103-1 (including filing any required
schedules to the annual report) would satisfy the reporting
requirements of sections 2715A and 2717 of the PHS Act, as
incorporated in the Code. Group health plans that are not required
to file an annual report pursuant to section 104 of ERISA but that
are subject to sections 2715A and 2717 of the PHS Act as
incorporated in the Code, will not be required to do any reporting
to comply with sections 2715A and 2717 of the PHS Act, as
incorporated in the Code, unless and until the Treasury Department
and the IRS issue subsequent further guidance or rulemaking
regarding any such reporting by such plans.
\9\ See FAQs about Affordable Care Act Implementation (Part
XXVIII), available at http://www.dol.gov/ebsa/faqs/faq-aca28.html
and https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/ACA-FAQ-Part-XXVIII-transparency-reporting-final-8-11-15.pdf.
\10\ Nonfederal governmental plans (as defined in PHS Act
section 2791(d)(8)(C)) and health insurance issuers (as defined in
PHS Act section 2791(b)(2) and ERISA section 733(b)(2)) are not
required to file annual reports pursuant to ERISA sections 103 or
104. Accordingly, any reporting required of such plans and issuers
to satisfy PHS Act sections 2715A and 2717 will be addressed
separately by HHS in future rulemakings and/or guidance.
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This rulemaking proposes transparency and quality reporting for
non-grandfathered group health plans under PHS Act sections 2715A and
2717, as incorporated in ERISA. It takes into account differences in
markets and other relevant factors to streamline reporting under
multiple reporting provisions and reduce unnecessary duplication. The
DOL is proposing to collect and provide high-value data to
participants, beneficiaries, and regulators, such as information about
benefits and plan design characteristics, funding, grandfathered plan
status, rebates received by the plan (such as medical loss ratio
rebates), service provider information (including information regarding
any third party administrators, pharmacy benefit managers, mental
health benefit managers, and independent review organizations),
information on any stop loss insurance, claims processing and payment
information (including number of claims filed, paid, appealed and
denied), wellness program information, and other compliance
information. In addition to improving DOL's oversight and enforcement
activities, the collection of high-value data will lead to greater
transparency for consumers, which may assist them in making a decision
whether to elect the coverage or opt for another plan such as through
their spouse's employer, with the caveat that these data will be
collected a number of months after the end of the plan year they
describe and thus will not be timely for use in concurrent oversight,
enforcement, or consumer choice activities. The DOL may propose
collecting additional data in the future. The DOL requests comments
regarding other plan characteristics that may be helpful for
participants to have information on in evaluating their plan. Further,
as noted above, this document includes proposed conforming amendments
in 29 CFR 2590.715-2715A and 29 CFR 2590.715-2717 to clarify that
compliance with the proposed annual reporting requirements by plans
subject to ERISA that provide group health benefits would satisfy the
ACA reporting requirements under PHS Act sections 2715A and 2717
incorporated in ERISA through ERISA section 715(a)(1). The Department
is specifically seeking public comments on those conforming amendments
and the proposed annual reporting requirements for plans that provide
group health benefits, including the new Schedule J, in light of the
Supreme Court's recent decision in Gobeille v. Liberty Mutual Insurance
Co., 136 S. Ct. 936 (2016).
4. Modernize Data Collection and Usability
This project would standardize and structure the Form 5500 Annual
Return/Report to make key retirement and health and welfare benefit
data, including information on assets held for investment, more
available and usable in the electronic filing and data environment.
Modernization is consistent with the Administration's ``Smart
Disclosure'' effort. Executive Office of the President of the United
States, Nat'l Science and Technology Council, Smart Disclosure and
Consumer Decision-making: Report of the Task Force on Smart Disclosure
(2013). The proposed changes would enable private sector data users to
develop more individualized tools for employers to evaluate both their
retirement and welfare plans and for employees to manage their
retirement savings and welfare plan choices.
5. Updating and Improving Reporting of Service Provider Fee and Expense
Information
The DOL has been engaged in a long term initiative focused on
transparency and oversight of service provider and investment fees and
expenses. The fee initiative has focused on reporting indirect
compensation received by service providers (2009 Form 5500 Annual
Return/Report revisions), disclosures about service provider
compensation to plan fiduciaries (DOL's regulation, effective in 2012,
at 29 CFR 2550.408b-2), and plan disclosures to participants and
beneficiaries particularly in 401(k)-type plans (DOL's regulation,
effective in 2012, at 29 CFR 2550.404a-5).
The fee disclosure regulations were finalized after the publication
of the 2009 forms changes. The 2009 indirect compensation reporting
requirements permitted filers to disclose rather than report most
indirect compensation. This was in response to commenters concerns
about potentially inconsistent requirements in Form 5500 reporting and
disclosure under the then proposed disclosure regulations. Accordingly,
the 21st Century initiative includes proposed revisions that are
designed to harmonize Form 5500 reporting requirements with the now
final disclosure regulations, especially the ERISA section 408b-2
regulation. The GAO, in particular, recommended that the DOL require
plans to report all indirect compensation received by certain of their
service providers and to harmonize the ERISA section 408b-2 regulation
disclosure and annual reporting requirements. U.S. Gov't Accountability
Office, GAO-14-441, Private Pensions: Targeted Revisions Could Improve
Usefulness of Form 5500 Information (2014) (available at www.gao.gov/products/GAO-14-441).
A key purpose of the required fee disclosures in the ERISA section
408b-2 regulation is to help make sure that pension plan fiduciaries
can more effectively negotiate service provider fees based on a better
understanding of compensation that the service provider expects to
receive, including from third-party sources that might represent a
conflict of interest. We believe that annually reporting compensation
received by a service provider and its sources on the Form 5500 Annual
Return/Report will provide a powerful tool and economic basis for
improved evaluation of investment, recordkeeping, and administrative
service arrangements. We have already
[[Page 47501]]
seen innovative uses of Form 5500 Annual Return/Report data by private
sector companies that have created tools for evaluating and
benchmarking employee benefit plans. Further, service provider failures
to disclose indirect compensation as required under the ERISA section
408b-2 regulation have resulted in EBSA obtaining corrective monetary
recoveries to plans. Comparing disclosures of anticipated compensation
under the ERISA section 408b-2 regulation to compensation received as
reported on the Form 5500 Annual Return/Report may uncover disparities
between anticipated and actual compensation, which may provide the
basis for improved targeting of our enforcement actions.
6. Improving Employee Benefit Plan General Compliance With ERISA and
the Code
The Form 5500 Annual Return/Report and related financial audit
requirements historically have served to establish discipline for plan
fiduciaries by requiring an annual examination of the employee benefit
plan's financial and administrative operations. The proposed forms
revisions and DOL implementing regulations would add selected new
questions regarding plan operations, service provider relationships,
and financial management of plans. These questions are intended to
compel fiduciaries to evaluate plan compliance with important
requirements under ERISA and the Code and to provide the Agencies with
improved tools to focus oversight and enforcement resources. The
proposed regulations would also update the requirements for
certifications for limited scope audits under 29 CFR 2520.103-8.
C. Costs and Benefits
The regulatory impact analysis includes a qualitative discussion of
the benefits associated with the proposed rules' five primary
objectives. Under the current regulations and forms, the Form 5500
Annual Return/Report annually collects data from approximately 816,000
large and small plan filers--pension and all types of welfare plans,
including group health--and DFEs with an aggregate annual cost of
$488.1 million. The Form 5500 Annual Return/Report is a central part of
the Agencies' enforcement programs, but the benefits of an updated Form
5500 Annual Return/Report would extend beyond the value of enhanced
enforcement. A modernized Form 5500 Annual Return/Report that is more
aligned with current investment practices and reflects the requirements
of current law also has benefits for plan sponsors, plan participants,
Congress, academics, and others, as explained in more detail below.
As with the current reporting scheme, the proposed revisions are
crafted to limit burden increases for small plans, both pension and
welfare, including group health plans. The burden increase for small
pension plans that are eligible to file the Form 5500-SF is much less
than it is for those pension plans filing the Form 5500 Annual Return/
Report that have complex portfolios that include alternative and hard-
to-value assets or are employee stock ownership plans, which plans are
of greater concern with respect to retirement security of their
participants. Similarly, the burden increase for fully insured welfare
plans that provide group health benefits with fewer than 100
participants, is much less than it is for welfare plans that provide
group health benefits and are fully or partially self-insured, which
are at greater risk for non-payment of benefit claims. As is discussed
in more detail below, the burden increase for small pension plans that
are invested in simple, Form 5500-SF eligible portfolios is very
modest, and the changes that apply to those plans (which will mostly
apply to all filers) will provide much needed information about the
operations, compliance, and asset allocations of such plans. Similarly,
welfare plans that provide group health benefits with fewer than 100
participants and that are fully insured, which are currently exempt
from filing any Form 5500 Annual Return/Report, would file limited
identifying and coverage information. The changes were intentionally
limited in order that the burden would be as minimal as possible, while
still getting the crucial information about that significant component
of the nation's healthcare delivery system and reinforcing for the
fiduciaries responsible for many of those plans the need to satisfy
important consumer protections required by Title I of ERISA and the
Affordable Care Act-related health care benefits. The proposed changes
involve only a nominal burden increase for welfare plans other than
group health.
Under the proposed regulations and revised forms, the Form 5500
Annual Return/Report would collect data from approximately 2.97 million
filers with an aggregate annual cost of $817.0 million. New reporting
requirements for the 2.15 million welfare plans that provide group
health benefits that we estimate are currently covered under Title I of
ERISA, but exempt under current Form 5500 annual reporting rules,
represent over 73 percent of the increased burden for the entire
proposal. That increase is largely due to the number of new filers and
not the per plan cost. Other than the initial filing year burden for
learning the new reporting requirements, the burden per plan for even
these new filers, almost all of which are fully insured plans with
fewer than 100 participants, is very limited because they are only
required to provide registration-type and other nominal benefit
coverage information.
This expansion in the number of first-time filers that are plans
that provide group health benefits that have fewer than 100
participants represents new data on group health care issues that is
otherwise unavailable or not gathered in a way that is readily usable
for ERISA compliance, policy, and enforcement purposes. From a
compliance perspective, requiring reporting will be useful to educate
plan sponsors and fiduciaries of their obligations with respect to
group health plans. Getting first time information on the full breadth
of plans providing health benefits that are subject to ERISA will be
key data for policy-making regarding such plans and their participants.
From an enforcement perspective, data analysis could lead to detection
and intervention in a distressed health plan, which could help minimize
financial harm suffered by participants when medical claims are unpaid
by such plans. Medical bills contribute to a large and increasing share
of personal bankruptcies in the United States.\11\ Moreover, the
potential burden for new filers is expected to be overcome by
satisfying, to some extent, data collections required by Congress in
the Affordable Care Act. Sections 2715A and 2717 of the PHS Act, as
added by the Affordable Care Act, significantly expand reporting
requirements for group health plans subject to ERISA. EBSA is
coordinating with HHS on using the Form 5500 Annual Return/Report as an
alternative mechanism to satisfy these reporting requirements.\12\
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\11\ David U. Himmelstein, M.D., Deborah Thorne, Ph.D.,
Elizabeth Warren, JD, and Steffie Woolhandler: The American Journal
of Medicine, Medical Bankruptcy in the United States, 2007: Results
of a National Study. Available online at http://www.amjmed.com/article/S0002-9343(09)00404-5/abstract?cc=y=.
\12\ Section 2715A of the PHS Act extends the transparency
reporting provisions set forth in section 1311(e)(3) of the
Affordable Care Act (applicable to issuers of ``qualified health
plans'' offered on Exchanges) to non-grandfathered group health
plans and non-grandfathered group or individual health insurance
coverage offered through or outside of Exchanges. As more fully
described on pages 13-14 herein, section 2717 of the PHS Act
generally requires non-grandfathered group health plans and health
insurance issuers offering non-grandfathered group or individual
health insurance coverage to submit annual reports to the DOL, HHS
and the Treasury regarding quality of care programs offered by the
plan.
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[[Page 47502]]
Revisions to the financial schedules (Schedule H and related
investment asset reporting changes) and service provider reporting
(Schedule C changes) impact predominantly large plans with complex
investment portfolios (often involving alternate investments, hard-to-
value assets and employer securities). These changes comprise the
second and third largest shares of the burden increase, respectively,
adding $57.6 million and $12.9 million. Small pension plans that are
subject to expanded reporting under these proposed revisions are a
small percentage of total small pension plan filers and the additional
burdens are generally limited to those plans that choose to invest in
alternative and hard-to-value assets, which present more risk and
demand more transparency.
Revisions to Schedule D and DFE reporting represent the largest
burden reduction within the proposed changes. These changes affect all
DFEs and those plans that invest in DFEs and reduce aggregate burden by
$10.1 million.
In addition, it is important to note that the total burden
associated with the Form 5500 Annual Return/Report has risen from
$327.98 million to $488.1 million since the last rulemaking in November
2007 primarily due to the increase in wage rates and the number of plan
filers over the last eight years under the current rule. In other
words, approximately 90 percent of the $160.1 million increase to the
baseline burden since the last RIA was prepared is simply due to
changes in the broader economy over the past decade, not this
rulemaking.
Estimated Burden Change
Estimated Total Burden Change
------------------------------------------------------------------------
Annual costs Annual burden hours
(millions) \13\
------------------------------------------------------------------------
Total for current reporting $488.1 4.4 million.
requirements.
Change due to proposed GHP 241.6 2.2 million.
requirements.
Change due to all other Proposed 87.2 798,000.
Requirements.
Total for Proposed Reporting 817.0 7.2 million.
Requirements.
Increase in baseline since 2007 127.0 0.
due to update in wage rates.
Increase in baseline since 2007 16.9 149,000.
due to update in number of
plans (not including plans
subject to new GHP reporting).
------------------------------------------------------------------------
Estimated Burden Change by Type of Filer
---------------------------------------------------------------------------
\13\ The Burden Hours column shows the amount of time necessary
to fulfill filing requirements, whether that burden is incurred by
the plans themselves or by outside service providers hired by the
plans. The Cost column shows the monetized version of those burden
hours.
----------------------------------------------------------------------------------------------------------------
Aggregate
Number of Number of Aggregate annual cost Aggregate
filers under filers under annual cost under annual cost
Type of filer current proposed under current proposed change
(thousands) (thousands) requirements requirements (millions)
(millions) (millions)
----------------------------------------------------------------------------------------------------------------
Form 5500 Large Plans........... 148.5 148.5 $252.4 $309.3 $56.9
Pension/Large............... 75.1 75.1 141.2 174.6 33.5
Welfare/Large Health........ 47.9 47.9 91.7 114.2 22.5
Welfare/Large Non-Health.... 25.6 25.6 19.6 20.5 1.0
Form 5500 Small Pension and Non- 29.7 29.7 14.4 38.3 23.9
Health Plans...................
Pension ESOP................ 3.8 3.8 1.8 5.8 4.1
Pension Non-ESOP............ 22.6 22.6 11.1 29.9 18.8
Welfare/Non-Health.......... 3.3 3.3 1.5 2.5 1.0
Form 5500-SF Small Pension and 622.4 622.4 205.8 227.3 21.5
Non-Health Plans...............
Pension..................... 621.8 621.8 205.6 227.0 21.4
Non-Health Welfare.......... 0.7 0.7 0.2 0.2 0.0
Form 5500 Small Health.......... 6.2 2,158.0 4.1 227.9 223.86
Fully Insured Health........ 0.0 1,869.0 0.0 69.6 69.6
Other Health................ 6.2 289.0 4.1 158.2 154.2
DFEs............................ 9.4 8.9 11.4 14.2 2.8
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Overall Total............... 816.3 2,967.5 488.1 817.0 328.8
----------------------------------------------------------------------------------------------------------------
Note: Some displayed numbers do not sum up to the totals due to rounding.
Large plans--100 participants or more.
Small plans--generally fewer than 100 participants.
Estimated Burden Change by Form Revision
[[Page 47503]]
----------------------------------------------------------------------------------------------------------------
Filers under
Change in Change in Filers under proposed Annual cost
Revisions annual costs annual burden current requirements per affected
(millions) hours requirements (thousands) filer
(thousands) (thousands) \14\
----------------------------------------------------------------------------------------------------------------
Changes in Schedule H (Including $57.6 535.4 115.1 114.6 $502
changes to Schedules of Assets
and Reportable Transactions)
and Eliminate Schedule I.......
Schedule C...................... 12.9 116.6 82.4 100.2 128
DFE Reporting Changes (Including -10.1 -94.2 61.1 8.9 -1,137
changes to Schedule D).........
Schedule E...................... 2.5 22.0 0.0 6.7 374
Completion of lines 1-5 on Form 69.6 623.0 0.0 1,869 37
5500 and lines 1-8 on Schedule
J by fully insured GHPs with
fewer than 100 participants....
Completion of Form 5500 by GHPs 39.0 349.1 54.1 336.9 116
with fewer than 100
participants that are unfunded,
combination unfunded/fully
insured, or funded with a trust
and GHPs with 100 or more
participants...................
Completion of Schedule J by GHPs 133.0 1,179.2 0.0 336.9 395
with fewer than 100
participants that are unfunded,
combination unfunded/fully
insured, or funded with a trust
and GHPs with 100 or more
participants...................
All Other Revisions............. 24.4 217.9 1,076.7 1,024.2 24
----------------------------------------------------------------------------------------------------------------
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\14\ The elimination of the concept of Master Trust Investment
Account reporting and requiring reporting by a master trust instead,
whose burden change is accounted for in the DFE Reporting Changes
row, results in a reduction in the number of schedules attached.
These reductions are reflected in the rows specific to the schedule
affected.
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II. Discussion of the Proposed Revisions to 29 CFR Part 2520
ERISA section 103 broadly sets out annual financial reporting
requirements for employee benefit plans. The Form 5500 Annual Return/
Report and the DOL's related regulations generally are promulgated
under the ERISA provisions authorizing limited exemptions to these
requirements 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. The forms, instructions, and related
regulations are also promulgated under the DOL's general regulatory
authority in ERISA sections 109 and 505.
The forms, schedules, and instructions, in addition to providing an
alternative method of compliance under ERISA section 110 for the
mandatory reporting requirements under section 103, also serve to help
the DOL carry out its statutory directives under sections 506 and 513
of ERISA. Specifically, section 506(a) of ERISA authorizes the
Secretary of Labor to coordinate with other Agencies to avoid
unnecessary expense and duplication of functions among Government
agencies; the Form 5500 Annual Return/Report is designed to
simultaneously satisfy annual reporting requirements for each of the
three Agencies and help the Agencies more effectively and efficiently
(from both an Agency and a public perspective) enforce the provisions
of ERISA and the Code. Section 506(b) gives the DOL responsibility for
detecting and investigating civil and criminal violations of Title I of
ERISA. The Form 5500 Annual Return/Report is one of the important tools
the DOL uses to effectuate its responsibility to detect and investigate
such violations. Section 513(b)(2) of ERISA specifically directs DOL to
undertake research studies relating to pension plans, including but not
limited to (A) the effects of this subchapter upon the provisions and
costs of pension plans, (B) the role of private pensions in meeting the
economic security needs of the Nation, and (C) the operation of private
pension plans including types and levels of benefits, degree of
reciprocity or portability, and financial and actuarial characteristics
and practices, and methods of encouraging the growth of the private
pension system. The Form 5500 Annual Return/Report is the most
important overall tool DOL has to fulfill this statutory imperative,
and the changes in the proposal are essential for required research, as
well as enforcement.
The proposed changes to the Form 5500 Annual Return/Report and
regulations are designed to: (1) Modernize financial information filed
regarding plans; (2) harmonize information on fees and expenses that
plans pay to service providers with the information that service
providers disclose to plans under 29 CFR 2550.408b-2; (3) enhance
mineability of data filed on the Form 5500 Annual Return/Report; (4)
require reporting by all plans covered by Title I of ERISA that provide
health benefits, including adding a new Schedule J (Group Health Plan
Information); and (5) focus filers on compliance with certain ERISA and
Code provisions through new questions on plan operations, service
provider relationships, and financial management. If adopted, the
changes generally would apply for plan years beginning on or after
January 1, 2019. See the regulatory impact analysis in this document
for a discussion of how the proposed amendments and the proposed form
revision address these goals. These revisions are being proposed in
conjunction with recompeting the contract for operation of the ERISA
Filing and Acceptance System (EFAST2), which is expected to begin
processing Plan Year 2019 forms, beginning January 1, 2020. Certain
changes may be made earlier, particularly those changes collecting
information under the Code or Title IV of ERISA that do not require
amendment to DOL regulations to implement (but not those related to
group health plans). The Notice of Proposed Forms Revisions published
concurrently in today's Federal Register sets forth a comprehensive
discussion of form and instruction changes that relate to this proposed
regulation.
1. Section 2520.103-1
Section 2520.103-1 generally describes the content of the Form 5500
Annual Return/Report as a limited
[[Page 47504]]
exemption and alternative method of compliance for ERISA-covered
employee benefit plans to satisfy annual reporting requirements under
Title I. To accommodate the form, schedule, and instruction changes in
the Notice of Proposed Forms Revisions, the proposed regulatory
amendments in this document would update form and schedule references
in Sec. 2520.103-1. The proposal would also require all plans that
provide group health benefits, regardless of size, to file the Form
5500 Annual Return/Report in accordance with the instructions. Group
health plans, regardless of size, would not be eligible to file the
Form 5500-SF.\15\ The proposal would also require pension benefit plans
with fewer than 100 participants that are required to file the Form
5500 Annual Return/Report to file the Schedule C (Service Provider
Information). It would also generally require both large and small
employee stock ownership plans to file the Schedule E (ESOP
Information). Under the proposal, only DFEs would be required to
complete the Schedule D to report participating plan information; plans
would no longer be required to file Schedule D because they would be
reporting detailed information about the collective investment vehicles
in which they invest, including DFEs, on the Schedule of Assets Held
for Investment and the Schedule of Assets Disposed of During Plan Year.
In order to improve the transparency of reporting for plans that
participate in a master trust, the proposal would require that master
trusts operate either on a calendar year basis or on the same fiscal
year as all the plans that participate in the master trust. In general,
a master trust is a trust maintained by a bank or similar institution
to hold the assets of more than one plan sponsored by a single employer
or by a group of employers under common control.
---------------------------------------------------------------------------
\15\ The details of the limited reporting that would be required
for small fully insured group health plans would be set forth in the
instructions.
---------------------------------------------------------------------------
2. Section 2520.103-2
Section 2520.103-2 describes the content of the Form 5500 Annual
Return/Report for a group insurance arrangement (GIA) that files an
annual report under Sec. 2520.104-43. The amendments proposed in this
document include the requirement to file the proposed new Schedule J.
Group health plans that are part of a GIA would continue to be exempt
from filing a Form 5500 Annual Return/Report under 29 CFR 2520.104-43.
For plans to be eligible for this exemption, the GIA would have to file
a separate Schedule J for each group health plan participating in the
GIA.
3. Section 2520.103-3, 2520.103-4, and 2520.103-1(e)
Section 2520.103-3 provides an exemption for employee benefit plans
from certain annual reporting requirements for plan assets held in a
common collective trust (CCT) maintained by a bank, trust company, or
similar institution. Section 2520.103-4 provides a similar exemption
for plan assets held in a pooled separate account (PSA) maintained by
an insurance carrier. Section 2520.103-1(e) provides for special
reporting rules for plans that participate in a master trust. The
Notice of Proposed Forms Revisions would alter the annual reporting
requirements for plans investing in CCTs, PSAs and master trusts in
significant ways to increase the transparency of plan investments in
such pooled investment vehicles. The DOL proposes revising language to
29 CFR 2520.103-3, 29 CFR 2520.103-4, and 29 CFR 103-1(e) to reflect
those changes.
4. Section 2520.103-6
Section 2520.103-6 sets forth the contents of the Schedule of
Reportable Transactions that is part of the Form 5500 Annual Return/
Report. The Schedule of Reportable Transactions is required to be filed
by plans and DFEs that file their own Form 5500 Annual Return/Report.
This schedule is used to report, subject to conditions and exceptions,
individual transactions or series of transactions that involve more
than five percent of the current value of the assets of the plan or
DFE. The existing rules require the schedule to include the name of
each party to a ``reportable transaction.'' The form and instructions
changes being published concurrently with this document include certain
additions and clarifications of the content of the Schedule of
Reportable Transactions designed to improve the information regarding
parties involved in these significant plan transactions or series of
transactions. 29 CFR 2520.103-6(d)(1) sets forth the content
requirements for the Schedule of Reportable Transactions. Rather than
list all the schedules' content requirements, the proposed amendment to
paragraph (d)(1) would simply reference the schedules' contents in the
relevant Form 5500 Annual Return/Report instructions.
5. Section 2520.103-8
Section 2520.103-8 implements the limited-scope audit exemption
described in ERISA section 103(a)(3)(c). Specifically, this exemption
allows a plan to exclude from the examination and report of an
independent qualified public accountant (IQPA) any statement or
information regarding plan assets held by banks, similar institutions,
or insurance carriers if the statement or information is prepared and
certified by the bank, similar institution, or insurance carrier. The
GAO and the DOL's Inspector General (DOL-OIG) have recommended that the
Department revise section 2520.103-8 to improve the information being
reported by plan administrators electing a limited scope audit. The DOL
agrees that better information is needed by plan administrators in
connection with limited scope audits. To address concerns it has
observed, as well as to respond to the GAO and the DOL-OIG
recommendations,\16\ the DOL proposes amending section 2520.103-8.
Currently, section 2520.103-8 requires the bank or insurance company to
certify the accuracy and completeness of the information being provided
by a written declaration which is signed by a person authorized to
represent the bank or insurance carrier. The DOL proposes to amend the
requirements under section 2520.103-8 to require that the
certification:
---------------------------------------------------------------------------
\16\ The Agencies discuss various GAO and DOL-OIG
recommendations with respect to the Form 5500 Annual Return/Report
and the steps the Agencies are taking that are consistent with the
recommendations in the Notice of Proposed Forms Revisions published
today in the Federal Register.
---------------------------------------------------------------------------
(1) Appear on a separate document from the list of plan assets
covered by the certification;
(2) Identify the bank or insurance company holding those plan
assets that are the subject of the certification;
(3) Describe the manner in which the bank or insurance company is
holding the assets covered by the certification;
(4) State whether the bank or insurance company is providing
current value information regarding the assets covered by the
certification, and if so, state that the assets for which current value
is being certified are separately identified in the list of assets
covered by the certification;
(5) If current value is not being certified for all of the assets
covered by the certification, include a caution that the certification
is not certifying current value information and the asset values
provided by the bank or insurance company may not be suitable for use
in satisfying the plan's obligation to report current value information
on the Form 5500 Annual Return/Report; and
(6) If the certification is being provided by an agent on behalf of
the bank or insurance company, a statement
[[Page 47505]]
certifying that the person providing the certification is an authorized
agent acting on behalf of the bank or insurance company and affirming
that the bank or insurance company is taking responsibility for the
accuracy and completeness of the certification and the underlying
records used as a basis for the information being certified.
6. Section 2520.103-10
Section 2520.103-10 identifies the financial schedules that are
required to be included as part of the Form 5500 Annual Return/Report,
which include the ``Schedule of Assets Held for Investment'' and
``Schedule of Assets Acquired and Disposed within the Plan Year.''
Paragraph (b)(1)(i) of Sec. 2520.103-10 sets forth the content
requirements for the Schedule of Assets Held for Investment. The Notice
of Proposed Forms Revisions proposes certain additions and
clarifications to the content of the Schedule of Assets Held for
Investment that are designed to improve the information regarding
parties and assets involved in these significant plan investments.
Rather than list all the required contents of this schedule, the
proposed amendment to paragraph (b)(1)(i) of Sec. 2520.103-10 would
simply reference the contents of the schedule listed in the relevant
Form 5500 Annual Return/Report instructions.
Paragraph (b)(2)(i) of Sec. 2520.103-10 sets forth the content
requirements for the ``Schedule of Assets Acquired and Disposed of
During the Plan Year.'' This proposed amendment reflects the Agencies'
proposal to revise and rename the current ``Schedule of Assets Acquired
and Disposed of Within the Plan Year.'' Filers would be required to
report information on the disposal of certain assets, regardless of
when the assets were acquired. The Notice of Proposed Forms Revisions
also includes certain proposed additions and clarifications of the
content of the Schedule of Assets Disposed of During the Plan Year that
are designed to improve the information regarding parties and assets
involved in these plan transactions. Rather than list the required
contents of the Schedule of Assets Disposed of During the Plan Year,
the proposed amendment to paragraph (b)(2)(i) of Sec. 2520.103-10
would reference the contents of the schedule listed in the relevant
Form 5500 Annual Return/Report instructions.
7. Section 2520.104-20 and 2520.104-26
Section 2520.104-20 provides an exemption from certain annual
reporting and disclosure provisions of ERISA for certain welfare plans
that cover fewer than 100 participants at the beginning of the plan
year and for which benefits are paid exclusively from the general
assets of the employer or employee organization sponsoring the plan,
exclusively through insurance, or a combination of both. An expansion
of the annual reporting of information regarding plans that provide
group health benefits is described in detail in the Notice of Proposed
Forms Revisions. To implement those changes, the DOL proposes
eliminating the existing regulatory exemption for welfare plans that
provide group health benefits (the exemption will continue to apply to
other small welfare plans). Thus, small plans that provide group health
benefits that are unfunded, or a combination of unfunded and fully
insured, will be required to file an annual return/report, including
the new Schedule J, in accordance with the requirements in the proposed
instructions. Under the proposal, small fully insured plans will only
be required to answer basic identifying and plan characteristic
information on the Form 5500 and limited health plan benefit,
insurance, and participant information on the Schedule J. Similarly,
the limited exception in Sec. 2520.104-26 for certain unfunded dues-
financed welfare plans maintained by employee organizations would be
amended to further limit the exemption to those unfunded dues-financed
welfare plans that do not provide health benefits.
8. 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
Summary Annual Report (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, the DOL is updating its cross-reference guide to
correspond to the line items of the Form 5500 Annual Return/Report and
Form 5500-SF. The cross-reference guide has also been updated to
reflect that defined benefit pension plans that furnish an annual
funding notice to participants and beneficiaries, pursuant to 29 CFR
2520.101-4, are not required to furnish a SAR. This update reflects
statutory changes enacted as part of the Pension Protection Act of 2006
extending the annual funding notice requirements of section 101(f) of
ERISA. The cross-reference guide, as before, would continue to be an
appendix to 29 CFR 2520.104b-10.
9. 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.
III. Regulatory Impact Analysis
Executive Order 12866 and 13563 Statement
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, and public
health and safety effects; distributive impacts; and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, reducing costs, harmonizing rules, and promoting flexibility.
Under Executive Order 12866, it must be determined whether a
regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and review by the Office of
Management and Budget (OMB). Section 3(f) of Executive Order 12866
defines a ``significant regulatory action'' as an action that is likely
to result in a rule's (1) having an annual effect on the economy of
$100 million or more, or adversely and materially affecting a sector of
the economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or tribal governments or communities
(also referred to as ``economically significant''); (2) creating
serious inconsistency or otherwise interfering with an action taken or
planned by another agency; (3) materially altering the budgetary
impacts of entitlement grants, user fees, or loan programs, or the
rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive Order.
Pursuant to the terms of the Executive Order, it has been
determined that this regulatory action is likely to have an annual
effect on the economy of $100 million or more. Therefore, this action
is being treated as ``economically significant'' and subject to OMB
review under section 3(f)(1) of Executive Order 12866. The DOL
accordingly has undertaken to assess the costs and
[[Page 47506]]
benefits of this regulatory action in satisfaction of the applicable
requirements of the Executive Order and provides herein a summary
discussion of its assessment.
Table 1--Accounting Statement: Estimated Costs From Current Reporting Requirements to 2019 Reporting Requirements
[In millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimates Units
---------------------------------------------------------------------------------------------------------------
Category Primary Discount rate
estimate Low estimate High estimate Year dollar (percent) Period covered
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits:
Annualized Monetized................ .............. .............. .............. .............. .............. ..............................
($millions/year).................... .............. .............. .............. .............. ..............
Annualized Quantified............... .............. .............. .............. .............. .............. ..............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Qualitative............................. The proposal pursues five main objectives: (1) Improve reliability of reporting and transparency of financial
products and investments acquired by plans, especially alternative investments, hard-to-value assets, and
investments through collective investment vehicles; foster ongoing monitoring of retirement plans by
employers, plans, participants and beneficiaries, and policymakers; and better leverage the ability of the
Agencies to fulfill their statutory oversight role. (2) Establish better compliance awareness and education,
provide critical data for Agency oversight, collect information needed for Congressionally mandated reports on
group health plans, and satisfy certain reporting requirements under sections 2715A and 2717 of the PHS Act as
added by the Affordable Care Act and incorporated into ERISA section 715. (3) Standardize and structure the
Form 5500 Annual Return/Report to make key retirement and health and welfare benefit data, including
information on assets held for investment, more available and usable in the electronic filing and data
environment, which, consistent with the Administration's ``Smart Disclosure'' effort, to enable private sector
data users to develop more individualized tools for employers to evaluate their retirement plans and for
employees to manage their retirement savings. (4) By harmonizing reporting on Schedule C of the Form 5500
Annual Return/Report with the now final disclosure requirements in DOL's regulation at 29 CFR 2550.408b-2,
provide a powerful tool and economic basis for improved evaluation of investment, recordkeeping, and
administrative service arrangements, including potential innovative uses of Form 5500 Annual Return/Report
data by private sector companies that have created tools for evaluating and benchmarking employee benefit
plans, provide tools to benefit participants where failures to disclose indirect compensation received by a
service provider have resulted in corrective monetary recoveries to plans, as well as minimize filer confusion
with the harmonization of reporting and disclosure requirements. (5) Enhance reporting on plan compliance to
improve plan operations, protect participants and beneficiaries and their retirement benefits, and educate and
provide annual discipline for plan fiduciaries.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs:
Annualized Monetized................ 372.6 .............. .............. 2016 7 2019 and later.
($millions/year).................... 366.2 .............. .............. 2016 3 2019 and later.
Annualized Quantified............... .............. .............. .............. .............. .............. ..............................
Qualitative......................... .............. .............. .............. .............. .............. ..............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Background and Need for Regulatory Action
The Form 5500 Annual Return/Report is the principal source of
information and data available to the Agencies concerning the
operations, funding, and investments of pension and welfare benefit
plans covered by ERISA and the Code. Accordingly, the Form 5500 Annual
Return/Report is essential to each Agency's enforcement, research, and
policy formulation programs and is 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
Form 5500 Annual Return/Report also serves as the primary means by
which the operations of plans can be monitored by plan participants and
beneficiaries and the general public.
As discussed in the Notice of Proposed Forms Revisions published
concurrently with this document and below, the DOL has received several
reports from the GAO, the DOL-OIG, and the ERISA Advisory Council
indicating the need for substantive changes to annual reporting forms
and regulations. TIGTA has also suggested to the IRS that substantive
changes are needed. In response to these reports, the continued shift
from DB to DC plans, and legislative and regulatory changes that have
been issued since the last major revision to the Form 5500 Annual
Return/Report, the DOL has determined that the substantial revisions to
the reporting scheme discussed earlier in this preamble and in the
Notice of Proposed Forms Revisions, published concurrently, are
necessary and appropriate. These changes will ensure that the Agencies,
plan participants and beneficiaries and the general public can monitor
the operations of employee benefit plans. With their help, the Form
5500 Annual Return/Report will continue to serve its essential
functions.
As described earlier in this document, the proposed revisions to
the Form 5500 Annual Return/Report reflect priorities of and efforts by
the Agencies to improve the quality of the information collected, while
limiting wherever possible, especially for small pension plans invested
in easy to value assets and plans that provide group health benefits
that have fewer than 100
[[Page 47507]]
participants that are fully insured, the overall burden of the
statutory reporting requirements and the forms. To accomplish this
goal, the Agencies have pursued five objectives. The need for
regulatory action to achieve these objectives is discussed below.
(1) Modernizing financial information.
Modernizing the Schedule H Balance Sheet and Income Statement: The
financial statements contained in the current Schedule H (Large Plan
Financial Information) and Schedule I (Small Plan Financial
Information) are based on data elements that have remained largely
unchanged since the Form 5500 Annual Return/Report was established in
1975. Many investments in alternative and hard-to-value assets and
those held through collective investment funds that are frequently held
by plans and the investment industry today were not as prevalent in
1975. Thus, they do not fit squarely into any of the existing Schedule
H reporting categories. Further, some of these investments in
alternative and hard-to-value assets, including those held through
collective investment funds, are sufficiently complex that plan
administrators and plan accountants may not completely understand how
they fit into the balance sheet reporting on the Form 5500 Annual
Return/Report. This results in inconsistent financial reporting by
filers because certain types of investments may arguably fall into one
or more categories. For example, a ``hedge'' fund could potentially be
reported as a limited partnership or some other type of collective
investment entity, or could be reported in a different reporting
category based on the primary assets held through a particular type of
collective investment vehicle.
Additionally, many filers simply report investments that do not
readily fit into one of the existing categories in ``Other.'' For
example, large retirement plans reported having $153 billion in assets
that they categorized as ``Other'' on the Schedule H balance sheet for
2013. DFEs reported an additional approximately $407 billion in assets
as ``Other'' for the 2013 plan year. In order to determine why there is
a substantial amount in ``Other,'' the Agencies now have to rely on the
current, unstructured Schedule H Line 4i Schedules of Assets, which
might not specifically indicate the necessary details, or the Agencies
would need to contact the filer for the information. The types of
alternative and hard-to-value assets that might be reported in
``Other'' include: Options, index futures, state and municipal
securities, hedge funds, and private equity. Some of these asset types
can be fairly complex and merit more rather than less transparency in
order to determine the overall financial health of the plan. The
inability to distinguish these types of assets on the Form 5500 Annual
Return/Report reduces the form's usefulness for policy analysis and
research as well for monitoring plans for enforcement purposes.
A recent GAO report stated, for example, that, ``while hedge funds
and private equity have very different risk, return, and disclosure
considerations from state and municipal securities, all of these
investments could be included in the ``other plan asset'' category.''
\17\ GAO also noted that the plan asset categories on the Schedule H
are not representative of current plan investments, and provide little
insight into the investments themselves, the level of associated risk,
or structures of the investments.\18\ The DOL-OIG also recommended that
the Agencies revise the Form 5500 Annual Return/Report to improve
reporting of hard-to-value assets and alternative investments.\19\
Based on their own assessment and experience in research and
enforcement and the use of the Form 5500 Annual Return/Report to
support these critical agency functions and responsibilities, as well
as in response to these recommendations, as discussed in detail earlier
in this document, the Agencies are proposing to make changes to the
Schedule H balance sheet and income statement.
---------------------------------------------------------------------------
\17\ GAO, Private Pensions: Targeted Revisions Could Improve
Usefulness of Form 5500 Information, at 12.
\18\ Id. at 11-12.
\19\ EBSA Needs to Provide Additional Guidance and Oversight to
ERISA Plans Holding Hard-To-Value Alternative Investments, at 4, 18,
and 19.
---------------------------------------------------------------------------
Modernizing the Schedule H, Line 4i Schedules of Assets: As
discussed in detail in the Notice of Proposed Forms Revisions published
simultaneously with this document, the Agencies are proposing
structural, data element and instruction changes to the current
Schedule H, Line 4i(1) Schedule of Assets Held for Investment and Line
4i(2) Schedule of Assets Acquired and Disposed of Within Year. These
schedules are filed by plans required to file the Schedule H and by
certain DFEs. The Schedules of Assets are a central element of the
financial disclosure structure of ERISA. They are the only place on the
Form 5500 Annual Return/Report where plans are required to list
individual plan investments identified by major characteristics, such
as issue, maturity date, interest rate, cost and current value. As
such, they are the only part of the Form 5500 Annual Return/Report that
can be used to evaluate the year-to-year performance, liquidity, and
risk characteristics of a plan's individual investments.
The current reported information, however, suffers from several
shortcomings. First, this information is not reported in a data-
capturable format. Only an image or picture of the attachments that are
currently filed as non-standard attachments to filers' electronic Form
5500 Annual Return/Report filings is available through the EFAST2
public disclosure function. Second, the Line 4i Schedules of Assets are
not always found in the same place in each annual return/report. For
example, the Line 4i Schedules of Assets are often incorporated in the
larger audit report of the plan's IQPA that itself is filed as a
nonstandard attachment to the Form 5500 Annual Return/Report. Third,
the schedules do not require a standardized method for identifying and
describing assets on the Line 4i Schedules. Therefore, under the
current reporting rules, the same stock or mutual fund may be
identified with various different names or abbreviations.
The creation of more detailed and structured Schedules of Assets is
a specific recommendation of the DOL-OIG and the GAO.\20\ The proposed
changes to the Schedules of Assets are designed to remedy the
shortcomings described above. In addition, data capturability of the
Line 4i Schedules of Assets will make it much easier and more efficient
to monitor plan holdings as computer programs can read and analyze the
data much more efficiently. It will allow the Agencies and the
interested public to monitor a larger number of pension plans and their
asset allocations. The existence of a group of private companies that
are transforming the Line 4i Schedule of Assets Held for Investment of
the larger pension plans into data-capturable information and using it
to compare plan investment menus and investment allocations is a clear
indication that plans sponsors and their service providers also are
interested in having access to these data. For example, one of these
companies sent a letter to DOL stating that they believe that the
information on the Form 5500 Annual Return/Report is very useful in
``helping the agency understand the performance and design of
retirement plans in the market place'' and that the data availability
fosters ``third party data collection and
[[Page 47508]]
evaluation efforts that in turn help protect retirement plan
participants.'' \21\ Plan sponsors can use this information to see how
their investment menus compare to similarly situated plans and service
providers often use this information to identify plans with
underperforming investments in order to attract new business. This can
lead to more competition and improved plan performance, which will
ultimately benefit participants.
---------------------------------------------------------------------------
\20\ See EBSA Needs to Provide Additional Guidance and Oversight
to ERISA Plans Holding Hard-to-Value Alternative Investments, at 17;
Private Pensions: Targeted Revisions Could Improve Usefulness of
Form 5500 Information, at 37.
\21\ See August 23, 2010 Comment Letter from Ryan Alfred,
President, BrightScope, Inc. Re: Proposed Extension of Information
Collection, Form 5500 http://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201009-1210-002).
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Changes to DFE Reporting: Under the current reporting rules, DFEs
are permitted, or in some cases required, to file their own Form 5500
Annual Return/Report. Generally, pension plans that invest in DFEs only
are required to report their interest in the DFE but do not have to
report detailed information regarding the underlying investments in the
DFE. Such plans are required to file a Schedule D on which the plans
identify each DFE in which they invest and the year-end values of the
plans' interests. Although DFEs file their own Form 5500 Annual Return/
Report, only Master Trust Investment Accounts (MTIAs) and entities
meeting the conditions of DOL regulation 29 CFR 103-12 (103-12 IEs) are
required to include as part of their own Form 5500 Annual Return/
Report, detailed asset holdings on the Schedule H, Line 4i Schedules of
Assets. Insurance company pooled separate accounts (PSAs) and bank
common/collective trusts (CCTs), which together account for 32 percent
of large plans' reported DFE holdings, do not report such information,
nor are the investing plans required to report it, although the
information is required by regulation to be provided by PSAs and CCTs
to investing plans on an annual basis.
The Agencies have encountered, and researchers have reported to the
DOL,\22\ difficulties matching plans' investments in DFEs reported by
investing plans and DFEs in which the plans and other DFEs are
participating. Some of this stems from incomplete, unreliable, or
inconsistent data on Schedule D filings. For example, for 2013, about
57 percent of plans and 17 percent of DFEs that filed a Schedule D and
reported non-zero amounts of interest in DFEs on Schedule H have at
least one discrepancy in reporting of more than $1,000 between the
value of the investment in a DFE on their Schedule D and their Schedule
H. There might be some legitimate reasons for these discrepancies, e.g.
different plan year dates, but these discrepancies make it difficult to
verify filing accuracy. Another more troubling issue is that there are
more than 7,000 plan filings for 2013 that report investments in DFEs
that cannot be directly linked to any applicable DFE filings. This
problem primarily involves CCTs and PSAs. Investments in these unlinked
DFEs account for more than $382 billion in assets. A serious
consequence of not being able to link these plan filings and assets to
DFE filings is that the Agencies and participants do not get
information on their plan investments and thus are not able to monitor
these investments.
---------------------------------------------------------------------------
\22\ See ``Invisible Pension Investments,'' Peter J. Wiedenbeck,
Rachael K. Hinkle & Andrew D. Martin (http://sites.lsa.umich.edu/admart/wp-content/uploads/sites/127/2014/08/vatr13.pdf).
---------------------------------------------------------------------------
GAO has recommended that the Agencies take steps to address the
problem of incomplete or inaccurate matching between plan and DFE
filings.\23\ Therefore, as discussed in detail earlier in this
document, the Agencies are proposing to revise the reporting structure
of both Schedule H and the Line 4i Schedules of Assets, with
corresponding changes to Schedule D, that are intended to ensure that
the Agencies, plan fiduciaries, plan service providers, and other users
of data have the tools to create a more complete picture of plans'
investment in pooled investment vehicles.
---------------------------------------------------------------------------
\23\ See, GAO Private Pensions: Targeted Revisions Could Improve
Usefulness of Form 5500, at 14-15.
---------------------------------------------------------------------------
Changes to Financial Information Reporting for Small Plans: Small
pension plans that are invested in ``eligible'' plan assets and
otherwise meet certain requirements are eligible to file Form 5500-SF,
which was established in part to comply with provisions of the PPA
requiring a simplified form of reporting for plans with fewer than 25
participants.\24\ Currently, the Form 5500-SF does not require filers
to breakout assets on the balance sheet into specific categories. Small
plans that are not eligible to file the Form 5500-SF because they are
invested in hard-to-value and alternative investments currently file
Schedule I, but the Schedule I does not require small plan filers to
provide detailed plan asset information and does not provide
significantly more useful financial information than the Form 5500-SF
with respect to alternative and hard-to-value assets.
---------------------------------------------------------------------------
\24\ See section 1103(b) of the Pension Protection Act of 1996,
Public Law 109-280, 120 Stat. 780 (2006).
---------------------------------------------------------------------------
The lack of specific questions on the investment activity of small
pension plans, which comprise over 80 percent of filers, impairs the
usefulness of the Form 5500 Annual Return/Report as a tool to obtain a
meaningful picture of small plan investments, especially investments in
hard-to-value and alternative investments. As the GAO has noted, the
limited financial information provided on the Schedule I creates a
challenge for participants, beneficiaries, oversight agencies,
researchers, and other users of the Form 5500 Annual Return/Report or
Form 5500 Annual Return/Report data.\25\ Therefore, as discussed in
detail in the Notice of Proposed Forms Revisions published today, under
the proposal, Form 5500-SF filers would be required to provide a modest
additional breakout of plan investments on the balance sheet. The
proposal also would eliminate the Schedule I for small plans that are
not eligible to file the Form 5500-SF, predominantly because they are
invested in hard-to-value and alternative investments, including
employer securities. Under the proposal, such plans instead would be
required to complete Schedule H and the Line 4i Schedules of Assets.
These changes are designed to ensure that the Agencies are able to
collect critical information regarding small plan investments in hard-
to-value and alternative investments.
---------------------------------------------------------------------------
\25\ GAO Targeted Revisions Could Improve Usefulness of Form
5500 Information, at 18.
---------------------------------------------------------------------------
Although the proposed elimination of Schedule I and the addition of
basic investment category information to the Form 5500-SF balance sheet
would result in additional reporting for those small plans invested in
hard-to-value and alternative investments, those small plans with
simple investment portfolios would not see a significant increase in
their annual reporting burden. In light of changes in the financial
environment and increasing concern about investments in hard-to-value
assets and alternative investments, however, the Agencies believe that
requiring the more detailed financial information regarding hard-to-
value investments on the Schedule H is important for regulatory,
enforcement, and disclosure purposes for those small plans with more
complex portfolios that include hard-to-value or alternative
investments. The inherent increased risk posed by hard-to-value or
alternative investments affects participants in small plans as well as
large plans, but without these proposed revisions, the participants in
small plans are left without the protection afforded participants in
large plans that comes from the reporting that large plans are already
required to do. Although such small plans would be
[[Page 47509]]
required to complete the Schedule H instead of the Schedule I,
including the Schedule H Line 4i(1) and 4i(2) Schedules of Assets,
eligible small plans, as under the current rules, would still be
eligible for a waiver of the annual examination and report of an IQPA
under 29 CFR 2520.104-46, and the number count required to determine
eligibility would be changed from the number of participants at the
beginning of the plan year to the number of participants with account
balances at the beginning of the plan year.
(2) Updating fee and expense information on plan service providers
with a focus on harmonizing annual reporting requirements on Schedule C
with DOL's final disclosure requirements at 29 CFR 2550.408b-2.
The current rules for reporting indirect compensation on the
Schedule C as part of the Form 5500 Annual Return/Report, including the
limited reporting option for ``eligible indirect compensation,'' were
implemented starting with the 2009 forms.\26\ Those changes were part
of a three-pronged regulatory initiative that included the DOL's
regulations under 29 CFR 2550.408b-2 and participant-level disclosure
regulations under 29 CFR 2550.404a-5. At the time the 2009 Schedule C
rules were finalized, neither the ERISA section 408b-2 regulation nor
the ERISA section 404a-5 regulation had been promulgated. Some elements
of the 2009 Schedule C, for example, the eligible indirect compensation
provisions, were adopted in light of the fact that it was not certain
at the time what the ERISA section 408b-2 final rule would require.
Those provisions were also meant to respond to concerns from the
regulated community, especially large plan service providers, about
having to create two different record-keeping systems to meet the
various requirements of the Form 5500 Annual Return/Report and
disclosures required under 408b-2 should the later promulgated
provisions differ from the Form 5500 reporting requirements on indirect
compensation.
---------------------------------------------------------------------------
\26\ See 72 FR 74731 (Nov. 16, 2007).
---------------------------------------------------------------------------
Now that EBSA has promulgated the ERISA sections 408b-2 and 404a-5
final regulations, there is a need to harmonize fee reporting under the
Schedule C and ERISA section 408b-2 regulations to: (1) Make it easier
to understand the disclosure and reporting rules regarding indirect
compensation; (2) improve quality of data by minimizing any filer
confusion that might result from differences in the two requirements
and having all the compensation required to be disclosed to be reported
on the Schedule C; (3) reduce burden by synchronizing the record-
keeping that would be required for ERISA section 408b-2 regulations
before-the-fact disclosure with Schedule C's after-the-fact reporting;
and (4) make the information easier to understand for end users of the
forms by bringing consistency between the service provider fees
disclosed to the plan fiduciaries and the service provider fees
reported to the Agencies and made public. In this regard, a recent GAO
report stated that some filers advised that there was confusion over
what Schedule C requires to be reported, including in comparison to
what is required under the ERISA section 408b-2 regulations disclosure
scheme.\27\ Therefore, as discussed in detail earlier in this document,
the Agencies are proposing various changes to the Schedule C to better
harmonize it with the disclosure requirements under the final ERISA
section 408b-2 regulation. Among other changes, the Agencies are
proposing to eliminate the concept of ``eligible indirect
compensation'' on Schedule C in part because ``eligible indirect
compensation'' was created prior to the finalization of ERISA section
408b-2 rules to address concerns about possible future inconsistencies
that are no longer applicable. Instead of being able to rely on the
construct of ``eligible indirect compensation'' to report only the name
of the person providing the disclosures to the plan administrator, the
proposal would require filers to report all types of compensation for
ERISA section 408b-2 ``covered'' service providers. This change will
also help address concerns raised by other data sources on service
provider compensation about the completeness of Schedule C compensation
data. A recent survey by Deloitte Consulting LLP for the Investment
Company Institute reported fees paid by 401(k) plans that greatly
exceeded fees reported on the Schedule C at every asset level.\28\
---------------------------------------------------------------------------
\27\ See GAO Targeted Revisions Could Improve Usefulness of Form
5500 Information, at 22.
\28\ Deloitte Consulting LLP (2014, August). Inside the
Structure of Defined Contribution/401(k) Plan Fees, 2013: A Study
Assessing the Mechanics of the `all-in' Fee. (Available at https://www.ici.org/pdf/rpt_14_dc_401k_fee_study.pdf).
---------------------------------------------------------------------------
The proposed forms revisions, and implementing DOL regulations,
would also require small pension plans that are not eligible to file
the Form 5500-SF and welfare plans that are funded with a trust with
fewer than 100 participants to file the Schedule C. Currently, only
large pension plans and large welfare plans that are not unfunded or
insured (e.g., funded using a trust) must file the Schedule C, thus
excluding almost 90 percent of current pension plan filers and over 80
percent of current welfare plan filers from having to disclose service
provider fees. The DOL recognizes the burdens small plans face in
complying with reporting obligations, but must weigh them against the
market efficiencies that can be gained through improved transparency
and fee disclosure. The DOL therefore proposes to require small pension
plans to file Schedule C only if they do not meet the eligibility
conditions for filing the Form 5500-SF, which predominantly are those
pension plans that are invested in alternative or hard-to-value assets.
The DOL proposes to require welfare plans that offer group health
benefits with fewer than 100 participants to file Schedule C only if
they are not unfunded or insured (e.g., funded with a trust), because
those plans are most likely to experience financial difficulties.
Defined contribution pension plan Form 5500-SF filers, as well as
defined contribution pension plan Form 5500 Annual Return/Report filers
required to complete the Schedule H, would also have to attach the
comparison chart that is required to be furnished to participants under
the DOL's regulation at 29 CFR 2550.404a-5. Although the comparison
chart would not be attached in a ``structured'' format, it would
provide, with a minimal burden increase, a picture of the investment
earnings and fees for defined contribution pension plans, which
constitute the majority of small plan filers.
Requiring those small pension plans that are not eligible to file
the Form 5500-SF and welfare plans that include group health benefits
with fewer than 100 participants that are not unfunded or insured
(e.g., funded with a trust) to complete the Schedule C as part of their
Form 5500 Annual Return/Report filing, and requiring Form 5500-SF
defined contribution pension plan filers to include the 404a-5
comparison chart should address some of the GAO's concerns that service
provider fee information is incomplete because plans with fewer than
100 participants are not currently required to file information about
indirect compensation received by the plans' service providers.\29\
Both the proposed Schedule C information for small plans not eligible
to file the Form 5500-SF and the 404a-5 information would also enable
sponsors of small plans to more easily compare fee information between
their plans and increase competition for these services.
[[Page 47510]]
In addition, financial information reporting could be better aligned
with recently adopted disclosure rules to ensure that all fees are
reported by the plans.\30\
---------------------------------------------------------------------------
\29\ See GAO Targeted Revisions Could Improve Usefulness of Form
5500 Information, at 25.
\30\ Id. at 50.
---------------------------------------------------------------------------
(3) Enhancing usability of data filed on the annual return/report.
E-filing, as well as advances in information technology, have
changed both the regulated community's and government's ability to use
the Form 5500 Annual Return/Report data. The government can now provide
the data in a much more timely and comprehensive manner. As a result,
the Form 5500 Annual Return/Report data sets are posted on the
Internet, updated monthly, and the images of the individual filings and
attachments are made available at no cost to the requester.\31\ This
has allowed the public as well as the Agencies to monitor plan
investments and trends more efficiently. Several private companies have
started to build data sets and applications using the Form 5500 Annual
Return/Report data to compare plans and service providers and make
these services available to plan sponsors and service providers. These
developments can lead to better review of plan investments and
increased competition, ultimately benefiting plans and participants.
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\31\ Requests for individual filings and attachments are
available at no cost to the requester. Bulk requests are available
at a minimal cost to the requester. See Guide to Submitting Requests
Under the Freedom of Information Act, Section VIII (http://www.dol.gov/dol/foia/guide6.htm).
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The usefulness of the Form 5500 Annual Return/Report data for
comprehensive plan monitoring is dependent on comparable data being
available for all or most plans and on the data being available in
data-capturable formats. The current financial reporting structures and
requirements, however, do not allow the data to be utilized to the
fullest extent. As stated above, the Schedule H Line 4i, Schedules of
Assets, and the Line 4j, Schedule of Reportable Transactions, as well
as other attachments to various schedules (including Schedules MB and
SB) are not filed in a standardized electronic format and therefore
cannot be searched and analyzed electronically. As a result, the
Agencies, other governmental users, including policymakers, and the
public have difficulty accessing and making most effective use of key
information about pension plan investments.
The proposed requirement for filers to complete a standardized
Schedule H Line 4i(1), Schedule of Assets Held for Investment and Line
4i(2) Schedule of Assets Disposed of by End of Plan Year, in a data-
capturable format would address some of the critical gaps in available
data on pension plan investing, which accounts for over $7.87 trillion
of United States savings. The Agencies' proposal to standardize the
Schedule H, Line 4i Schedules of Investments also is responsive to the
DOL-OIG's recommendation that the Agencies create a searchable
reporting format for the Schedule H, Line 4i Schedules of Assets and
otherwise increase the accessibility of Form 5500 Annual Return/Report
data, particularly information on hard-to value assets and multiple-
employer plans.\32\
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\32\ See EBSA Needs to Provide Additional Guidance and Oversight
to ERISA Plans Holding Hard-to-Value Alternative Investments, at 17;
see also GAO Private Pensions: Targeted Revisions Could Improve
Usefulness of Form 5500 Information, at 37; GAO, Federal Agencies
Should Collect Data and Coordinate Oversight of Multiple Employer
Plans, at 30.
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In addition, this proposal would enhance the usability of data by
replacing some of the attachments to the various schedules (including
some attachments to Schedules MB and SB) \33\ with text fields and
having filers report required information in text fields on the face of
the forms and on schedules instead of requiring this information to be
filed as non-standard attachments. The Agencies took into account the
size and complexity of the attachments in determining which should be
text fields and which should continue to be attachments, despite the
overarching goal of improving data usability for the complete form. In
a few cases, especially for detailed actuarial charts, the Agencies
determined that requiring standardized attachments or requiring the
information to be provided on the face of the forms and schedules could
potentially be overly difficult, costly, and complex, and therefore the
costs would outweigh the benefits.
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\33\ The proposed Schedule E, which is based in large part on
the Schedule E from 2008 and earlier, would use text fields rather
than attachments for some of the previously asked questions.
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Further improvements would be realized from the proposal's
requirement that other currently unstructured data or new elements
would also be collected as structured data. These include the lists of
employers participating in multiple-employer and controlled group plans
required to be attached to the Form 5500 Annual Return/Report or Form
5500-SF; the Schedule H, Line 4a Schedule of Delinquent Contributions,
and Schedule H, Line 4j Schedule of Reportable Transactions. Having
information on delinquent participant contributions and reportable
transactions in a ``structured'' data format would benefit the Agencies
by allowing them to identify common types of violations across plans,
more quickly respond to any identified issues, and better determine
areas where more enforcement and encouragement of compliance and
education is needed. Having this data reported in a structured format
would also benefit the Agencies and the general public by identifying
the universe of employers that participate in multiple-employer and
controlled group plans and allowing them to quickly identify plan
sponsors that might be affected by adverse market conditions or
financial distress.
In summary, advances and developments in technology allow data
users to run increasingly sophisticated analyses using the existing
Form 5500 Annual Return/Report data, but this is dependent on the
availability of these data in a data-capturable format. In addition to
researchers interested in studying trends in the employee benefits
industry, some companies have reached out to the DOL to request that
Form 5500 Annual Return/Report data be collected in a more standardized
and consistent format.\34\ If these data were available in such a
format, researchers, businesses and plan professionals could use the
data more efficiently to inform employers and participants on plan
structures, operations, and finances. Particularly important in a
constrained federal budgetary environment, such data will allow EBSA's
enforcement staff to monitor many more employee benefit plans in a
systematic and efficient way, producing more fruitful investigations
and reducing the inefficiencies and disruptions resulting from
unnecessary investigations.
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\34\ See August 23, 2010 Comment Letter from BrightScope Re:
Proposed Extension of Information Collection, Form 5500 (http://
www.dol.gov/EBSA).
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(4) Requiring reporting by all group health plans covered by Title
I of ERISA, including adding a new Schedule J (Group Health Plan
Information).
The enactment of the Affordable Care Act expanded DOL's already
growing oversight and regulatory responsibilities with respect to the
provision of group health benefits to workers in private sector
employer-sponsored group health plans. Generally most welfare plans
that include group health benefits that have fewer than 100
participants do not currently file the Form 5500 Annual Return/Report.
The current regulation exempts small plans from the requirement to file
if they are unfunded, fully insured or combination unfunded/fully
insured.\35\ The current lack of information collected on the Form 5500
[[Page 47511]]
Annual Return/Report from group health plans diminishes the
effectiveness of EBSA's ability to develop health care regulations and
complicates the DOL's ability to enforce such regulations and educate
plan administrators regarding compliance. Congress, DOL, other
governmental users, private researchers, service providers, and other
members of the regulated community currently are not able to
confidently estimate even the most basic information regarding group
health plans, such as the total number of plans that exist or trends
that are occurring in the marketplace.
---------------------------------------------------------------------------
\35\ 29 CFR 2520.104-20.
---------------------------------------------------------------------------
The Affordable Care Act requires the Secretary of Labor to provide
Congress with an annual report containing general information on self-
insured employee health benefit plans and financial information
regarding employers that sponsor such plans. This ``Annual Report on
Self-Insured Group Health Plans,'' by the terms of the statute, must
use data from the Form 5500 Annual Return/Report. However, as noted
above, those small plans that are self-insured and do not use a trust
are not required to file the Form 5500 Annual Return/Report with the
DOL and the Form 5500 Annual Return/Report only collects limited
information from self-insured plans that do file.\36\ Also, as the 2015
Report states, ``health benefits may be reported together with certain
other benefits, such as disability or life insurance benefits, on a
single Form 5500 Annual Return/Report. This makes it difficult to
distinguish how the different benefits are financed.'' \37\ To fulfill
its responsibility to Congress, the DOL has developed an algorithm to
try to infer the funding method for plans that file. This methodology,
however, may not accurately identify self-insured plans and can only
draw information from the Form 5500 Annual Returns/Reports filed, which
are a limited sample, and the methodology may compromise the validity
of any conclusions drawn from the report and any resulting policy
prescriptions.
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\36\ Only a little over 20,000 self-insured and approximately
4,000 mixed self-insured health plans file annually with the DOL
under the current reporting scheme. See ``Report to Congress: Annual
Report on Self-Insured Group Health Plans,'' March 2015, page iii
(available at http://www.dol.gov/ebsa/pdf/ACAReportToCongress2015.pdf).
\37\ Id. at v.
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In addition, sections 2715A and 2717 of the PHS Act, as added by
the Affordable Care Act and incorporated into ERISA section 715,
include important new reporting requirements for group health plans
subject to ERISA. Specifically, section 2715A of the PHS Act
incorporates the transparency provisions of section 1311(e)(3) of the
Affordable Care Act to require non-grandfathered group health plans and
health insurance issuers offering non-grandfathered group or individual
health insurance coverage to make available to the public, and the
government a host of information on health plan enrollment and claims,
including: (1) Claims payment policies and procedures; (2) periodic
financial disclosures; (3) data on enrollment and disenrollment; (4)
data on the number of denied claims; (5) data on rating practices; (6)
information on cost-sharing and payments with respect to any out-of-
network coverage; (7) information on enrollee and participant rights;
and (8) other information as determined by the Secretary. Moreover,
section 2717 of the PHS Act generally requires non-grandfathered group
health plans and health insurance issuers offering non-grandfathered
group or individual health insurance coverage to report annually
whether the benefits under the plan: (A) Improve health outcomes
through the implementation of activities such as quality reporting,
effective case management, care coordination, chronic disease
management, and medication and care compliance initiatives, including
through the use of the medical homes model as defined for purposes of
section 3602 of the Affordable Care Act, for treatment or services
under the plan or coverage; (B) implement activities to prevent
hospital readmissions through a comprehensive program for hospital
discharge that includes patient-centered education and counseling,
comprehensive discharge planning, and post discharge reinforcement by
an appropriate health care professional; (C) implement activities to
improve patient safety and reduce medical errors through the
appropriate use of best clinical practices, evidence based medicine,
and health information technology under the plan or coverage; and (D)
implement wellness and health promotion activities.
These regulations propose conforming amendments in 29 CFR 2590.715-
2715A and 29 CFR 2590.715-2717 to clarify that compliance with the
reporting requirements in 29 CFR 2520.103-1 (including filing any
required schedules to the annual report) by plans subject to ERISA
would satisfy the reporting requirements of PHS Act section 2715A and
2717,\38\ incorporated in ERISA through ERISA section 715(a)(1).\39\ As
explained in FAQs issued August 11, 2015,\40\ HHS proposed an
information collection for public comment in connection with the
transparency provisions of section 1311(e)(3) of the Affordable Care
Act. The proposed data collection would collect certain information
from Qualified Health Plan (QHP) issuers in Federally-facilitated
Exchanges and State-based Exchanges using the federal eligibility and
enrollment platform. The HHS proposal explained that other reporting
requirements would be proposed at a later time, through a separate
rulemaking with respect to non-Exchange coverage, including those that
extend to health insurance issuers offering non-grandfathered group and
individual health insurance coverage outside of Exchanges and non-
grandfathered group health plans (including large group and self-
insured health plans).
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\38\ The Treasury Department and the IRS intend to publish
proposed regulations in 26 CFR 54.9815-2715A and 54.9815-2717
clarifying that group health plans required to file an annual report
pursuant to section 104 of ERISA that comply with the reporting
requirements in 29 CFR 2520.103-1 (including filing any required
schedules to the annual report) would satisfy the reporting
requirements of sections 2715A and 2717 of the PHS Act, as
incorporated in the Code. Group health plans that are not required
to file an annual report pursuant to section 104 of ERISA but that
are subject to sections 2715A and 2717 of the PHS Act as
incorporated in the Code, will not be required to do any reporting
to comply with sections 2715A and 2717 of the PHS Act, as
incorporated in the Code, unless and until the Treasury Department
and the IRS issue subsequent further guidance or rulemaking
regarding any such reporting by such plans.
\39\ Nonfederal governmental plans (as defined in PHS Act
section 2791(d)(8)(C)) and health insurance issuers (as defined in
PHS Act section 2791(b)(2) and ERISA section 733(b)(2)) are not
required to file annual reports pursuant to ERISA section 103.
Accordingly, any reporting required of such plans and issuers to
satisfy PHS Act sections 2715A and 2717 will be addressed separately
by HHS in future rulemakings and/or guidance.
\40\ See FAQs about Affordable Care Act Implementation (Part
XXVIII), available at www.dol.gov/ebsa/faqs/faq-aca28.html and
www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/ACA-FAQ-Part-XXVIII-transparency-reporting-final-8-11-15.pdf.
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This rulemaking proposes transparency and quality reporting for
non-grandfathered group health plans under PHS Act sections 2715A and
2717, as incorporated in ERISA. It takes into account differences in
markets and other relevant factors and reduces unnecessary duplication.
The DOL is proposing to collect and provide high-value data to
participants, beneficiaries, and regulators, such as information about
benefits and plan design characteristics, funding, grandfathered plan
status, rebates received by the plan (such as medical loss ratio
rebates), service provider information (including information regarding
any third party administrators, pharmacy benefit managers, mental
health benefit
[[Page 47512]]
managers, and independent review organizations), information on any
stop loss insurance, claims processing and payment information
(including number of claims filed, paid, appealed and denied), wellness
program information, and other compliance information. The collection
of high-value data will lead to greater transparency for consumers and
assist in their decision-making process.
As discussed in detail in the Notice of Proposed Form Revision, the
proposal would make significant changes to group health plan reporting.
First, the proposal would add a new Schedule J (Group Health Plan
Information). Plans that provide group health benefits that have 100 or
more participants, all of which are currently required to file a Form
5500 Annual Return/Report, would have to include the new Schedule J in
their annual report, with the remaining reporting requirements
generally unchanged, except as proposed to be changed for all filers.
Plans that provide group health benefits with fewer than 100
participants that are funded using a trust would generally be required
to report the same information as plans that provide group health
benefits with 100 or more participants that are funded using a trust;
they would no longer be permitted to file the Form 5500-SF. Although
this would require such plans to complete the Schedule C and the
Schedule H, for plans with simple investments, there should only be a
modest burden increase over completing the Form 5500-SF. Small welfare
plans funded with a trust that are invested in assets that are not
``eligible plan assets'' for purposes of Form 5500-SF filing, are
already required to file the Form 5500 Annual Return/Report, along with
the Schedule I, and if applicable, Schedule A.
Group health plans that have fewer than 100 participants currently
exempt from filing an annual report under 29 CFR 2520.104-20 because
they are completely unfunded or combination unfunded/fully insured now
would be required to file a Form 5500, a Schedule J, and, if
applicable, a Schedule A. Plans that are unfunded pay some or all of
their benefits out of the plan sponsors' general assets, which exempts
them from state insurance regulation, making the DOL their sole
regulatory agency. Because such small plans are not currently required
to file the Form 5500 Annual Return/Report, there is no comprehensive
and direct source of data about the number and characteristics of these
plans. Further, because these plans are small, they are more
susceptible to financial difficulties. Because of these concerns, the
DOL believes that it is important to have more detailed benefit,
financial, and compliance information for ``unfunded'' plans that are
self-insured or partially self-insured than for those small plans that
are fully insured. These plans would be required under the proposal to
file the complete Form 5500 and Schedule J and, if applicable, Schedule
A.
Plans that provide group health benefits that have fewer than 100
participants that are fully insured would be required to answer only
limited questions on both the Form 5500 and Schedule J, and would not
be required to file any other schedules or attachments. Collecting this
limited data on fully insured plans providing group health benefits
that have fewer than 100 participants would give the DOL basic
information to identify health insurance plans they regulate and allow
them to better monitor plan trends and activities, but minimize the
reporting burden from more detailed reporting that is more generally
required on the Form 5500, Schedule A, Schedule J, and any other
applicable schedules that comprise the Form 5500 Annual Return/Report.
(5) Improving compliance under ERISA and the Code through selected
new questions regarding plan operations, service provider
relationships, and financial management of the plan.
In an era of limited financial resources, the Agencies must pursue
new and creative ways to maximize the efficacy of their enforcement
budgets. Improving compliance under ERISA and the Code reduces the need
for costly enforcement actions. Focusing filer compliance through
selected new questions regarding plan operations, service provider
relationships, and financial management of the plan under ERISA and the
Code can also have the effect of allowing the Agencies' enforcement
staff to work more efficiently, and therefore better protect plan
participants and beneficiaries.
Analysis of Benefits and Costs
The DOL believes that the benefits to be derived from this
proposal, including the amendments to the reporting regulations and the
forms revisions, would justify their costs. The DOL further believes
that these revisions to the existing reporting requirements will
enhance protection of ERISA rights by improving the effectiveness of
enforcement actions and by improving the quality of data used for
research and policymaking purposes. The DOL conducted a detailed
assessment of the costs and benefits of these changes.
Benefits
As stated previously, the proposal pursues five main objectives.
The various changes to the forms, schedules, instructions, and DOL
regulatory exemptions and requirements are together intended to
integrate these various objectives, and all of the other goals together
are proposed with the intention of supporting the move towards fuller
transparency and data mineability overall. Fuller transparency could
increase participant trust levels, which could encourage pension plan
participants to increase their retirement savings and welfare plan
participants to use benefits when needed, resulting in strengthened
retirement security and improved public health. The benefits of each of
the five main objectives are discussed below.
(1) Modernizing financial information.
As stated previously, the financial information, particularly the
asset/liability statement, contained in the current Schedule H (Large
Plan Financial Information), Schedule I (Small Plan Financial
Information), as well as the more recently established Form 5500-SF, is
based on data elements that have remained largely unchanged since the
Form 5500 Annual Return/Report was established in 1975. Many
investments in alternative and hard-to-value assets and held in
collective investment funds do not fit squarely into any of the
existing reporting categories on Schedule H. As discussed previously,
the GAO has expressed concerns that many investments with widely
varying risk, return, and disclosure considerations are often reported
in the catch-all ``other plan asset'' category.\41\ GAO also noted that
the plan asset categories on the Schedule H are not representative of
current plan investments, and provide little insight into the
investments themselves, the level of associated risk, or structures of
the investments.\42\ The DOL-OIG also recommended that the Agencies
revise the Form 5500 Annual Return/Report to improve reporting of hard-
to-value assets and alternative investments.\43\
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\41\ GAO Targeted Revisions Could Improve Usefulness of Form
5500 Information, at 12.
\42\ Id. at 11-12.
\43\ EBSA Needs to Provide Additional Guidance and Oversight to
ERISA Plans Holding Hard-To-Value Alternative Investments,
Department of Labor Office of Inspector General Report Number: 09-
13-001-12-121 at 4, 18, and 19.
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As part of their overall evaluation of how best to restructure
financial reporting to maximize usable data while limiting burden
increases, the Agencies also concluded that research and
[[Page 47513]]
enforcement efforts could be enhanced by updating the asset reporting
categories and by standardizing Schedule H Line 4i attachments.
Accordingly, the changes the Agencies are proposing to make to the
asset breakouts on the balance sheet and income statement components of
Schedule H would make the asset reporting more consistent with the
current financial marketplace and enable the Agencies, plan sponsors,
and participants and beneficiaries to develop a more accurate and
detailed picture of the types of assets held by plans, including hard-
to-value assets and alternative investments and investment held through
collective investment vehicles. The proposed changes take into account
many of the sophisticated and complex investments that do not fit
neatly into any of the existing program categories, which would lead to
consistent reporting by filers and more transparency by limiting the
consolidation of many diverse investments into the catch-all ``Other''
category on the balance sheet on the Schedule H.
The Agencies also opted to revise the Schedule H Line 4i Schedules
of Assets attachment into two, distinct structured data attachments.
Doing so will produce more consistent data, reduce confusion over the
proper format to provide required data, and enable data mineability.
Moreover, as discussed in detail earlier in this document and the
Notice of Proposed Forms Revisions published simultaneously, the
structural, data element and instruction changes to the Schedule H,
Line 4i Schedule of Assets Held for Investment the Agencies are
proposing will allow the Form 5500 Annual Return/Report to be better
used as a tool to evaluate the year-to-year performance of a plan's
individual investments. The creation of more detailed and structured
Schedule H, Line 4i Schedules of Assets is a specific recommendation of
the DOL-OIG and the GAO.\44\ The proposed changes to the Schedule H
Line 4i Schedules of Assets, in addition to better meeting the needs of
the Agencies, other government users, and other end users of the data,
should also serve to address the shortcomings identified in these
reports.
---------------------------------------------------------------------------
\44\ See EBSA Needs to Provide Additional Guidance and Oversight
to ERISA Plans Holding Hard-to-Value Alternative Investments, at 17;
Private Pensions: Targeted Revisions Could Improve Usefulness of
Form 5500 Information, at 37.
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The proposed changes made to DFE reporting would ensure that the
Agencies, plan fiduciaries, plan service providers, and other users of
data have the tools to create a more complete picture of plans'
investments in pooled investment vehicles. Similarly, the proposed
changes to the financial information reported by small plans would
improve the utility of the Form 5500 Annual Return/Report as a tool to
obtain a meaningful picture of small plan investments in hard-to-value
and alternative investments as suggested by GAO and other government
oversight and advisory bodies.\45\
---------------------------------------------------------------------------
\45\ Id.
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Although these changes would result in additional reporting for
certain small plans, the Agencies do not expect that small plans with
simple investment portfolios would experience a significant increase in
their annual reporting burden. Small plans with complex portfolios that
include hard-to-value or alternative investments should have more
transparent financial statements which may require somewhat more
complex financial reporting obligations. In light of changes in the
financial environment and increasing concern about investments in hard-
to-value assets and alternative investments, the Agencies believe that
requiring separate financial information regarding hard-to-value
investments is important for regulatory, enforcement, and disclosure
purposes.\46\
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\46\ Although such small plans would be required to complete the
Schedule H instead of the Schedule I, including the Schedule H Line
4i(1) and 4i(2) Schedules of Assets, eligible small plans, as they
can under the current rules, would still be eligible for a waiver of
the annual examination and report of an IQPA under 29 CFR 2520.104-
46.
---------------------------------------------------------------------------
A major overriding objective of these proposed forms revisions is
to modernize the Form 5500 Annual Return/Report information collection
so that the presentation of plan trust financial and balance sheet
information is a more transparent and detailed reflection of the
investment portfolios and asset management practices of employee
benefit plans. The basic objective of general financial reporting is to
provide information about the reporting entity for the Agencies'
enforcement, research, and policy formulation programs, for other
federal agencies, Congress, and the private sector in assessing
employee benefit, tax, and economic trends and policies; and for plan
participants and beneficiaries and the general public in monitoring
employee benefit plans. Modernizing the financial reporting instruments
will bring greater transparency to plan transactions, which will
enhance the efficiency of the Agencies' enforcement efforts.
Specifically, the Agencies will be better able to target their
enforcement efforts, which will reduce the number of investigations
involving plans that are not engaging in problematic activities.
Additionally, ERISA Section 513(a) authorizes and directs the
Secretary of Labor and EBSA to conduct a robust research program on
employee benefits. The Form 5500 Annual Return/Report is one of the
leading sources of data used in this research program. Modernizing the
financial information reported on the Form 5500 Annual Return/Report
will improve the quality of the research conducted by internal and
external researchers. This improved research will, in turn, improve the
quality of policy decisions made by DOL and other governmental
policymakers that rely on the Form 5500 Annual Return/Report data.
(2) Updating fee and expense information on plan service providers
with a focus on harmonizing annual reporting requirements on Schedule C
with DOL's final disclosure requirements at 29 CFR 2550.408b-2.
As previously discussed, the proposal would harmonize the Schedule
C rules with the DOL's regulations at 29 CFR 2550.408b-2. The Agencies
believe that requiring reporting of all indirect compensation (rather
than continuing the exemption from reporting for ``eligible indirect
compensation''), but limiting indirect compensation reporting to the
service providers and types of compensation that are required to be
disclosed under the ERISA section 408b-2 regulation will provide a
particular benefit to plan record keepers. The information required to
be reported would be an after the fact reporting of fees that should
have been disclosed in advance under the ERISA section 408b-2
regulation. Because the ERISA section 408b-2 regulation requires
covered service providers to provide plan administrators the
information they need to satisfy their Form 5500 Annual Return/Report
obligations with respect to compensation information, the additional
burden should be limited to entering the data on the Form 5500 Annual
Return/Report.\47\
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\47\ See 29 CFR 2550.408b-2(c)(iv).
---------------------------------------------------------------------------
Currently, given that some significant component of indirect
compensation is not reported because it is permitted to be treated as
``eligible indirect compensation,'' and the fact that some filers
report formulas instead of dollar amounts, the Agencies and public only
have limited information regarding the total compensation that service
providers receive and that affects plans' finances and potentially
involves conflicts of interests among service providers. Almost 90
percent of 2013
[[Page 47514]]
Schedule C filers reported at least one service provider receiving some
amount of eligible indirect compensation, and nearly 70 percent of 2013
Schedule C filers reported at least one provider receiving only
eligible indirect compensation. Filers identifying at least one service
provider as receiving some amount of eligible indirect compensation on
their Schedules C, according to the overall Form 5500 data, report
holding roughly two-thirds of all pension assets. Thus, the limited
``eligible indirect compensation'' reporting impacts the data relating
to service provider fees in connection with the servicing and
management of a significant amount of assets. In addition, analysis of
these data also indicates that almost 50 percent of Schedule C filers
report at least one service provider who provides a formula instead of
an explicit or estimated amount of compensation. These filers report
holding almost 40 percent of all pension assets. Providing only a
formula without an actual or estimated dollar amount of the
compensation makes it very hard for plan sponsors or participants to
identify the exact amount of compensation.
The proposed rules and the subsequent reported information would
make it possible to get a much better understanding on the fees that
were transferred between service providers in the form of indirect
compensation, therefore allowing plan sponsors and participants to
assess the fees that they are incurring. The Agencies anticipate that
the increased transparency under the proposal would likely lead to
increased competition in the service provider market.
Aligning the Schedule C with ERISA section 408b-2 disclosure should
benefit the regulated community by clarifying and streamlining the
information reported on the Schedule C, which should reduce filer
confusion, and in turn reduce any filer burden caused by the confusion.
The updated service provider information will also improve targeting in
the Agencies' enforcement efforts, be a resource for independent
researchers to identify fee trends, and help policymakers identify
opportunities to make regulatory adjustments.
The proposed rule would also require small pension plans that are
not eligible to file the Form 5500-SF and welfare plans that provide
group health benefits that are not unfunded or insured (e.g., funded
using a trust) and have fewer than 100 participants to file Schedule C.
Currently, only large plans (for welfare plans, only large plans that
are not unfunded or insured) must file a Schedule C, thus a large
portion of plans do not disclose service provider compensation, except
total administrative expenses, which includes direct compensation to
service providers.\48\ The Agencies believe that the ideal solution for
enforcement, research, policymaking, and participant monitoring
purposes would be for all indirect compensation to be required to be
reported, but recognize the burdens small plans face in complying with
disclosure obligations. The Agencies therefore propose to require small
pension plans to file Schedule C only if they do not meet the
eligibility conditions for filing the Form 5500-SF, which generally
would be those pension plans that are invested in alternative or hard-
to-value assets. The Agencies propose to require welfare plans that
offer group health benefits with fewer than 100 participants to file
Schedule C only if they are funded using a trust. This makes the
reporting requirements consistent with those for other welfare plans
that are funded using a trust that are required to file the Form 5500.
Self-insured plans are more susceptible to experience financial
difficulties than fully insured plans. Requiring these small plans to
file a Schedule C would address some of the GAO's concerns that not all
critical information on indirect compensation is being reported to the
Agencies.\49\
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\48\ ``Direct'' compensation is included as an administrative
expense item on both the Form 5500-SF and on Schedule H, but it is a
total and is not linked to payments to specific service provider.
Because it is not a ``balance sheet'' item, indirect compensation is
not reported as part of the financial statements.
\49\ See GAO Targeted Revisions Could Improve Usefulness of Form
5500 Information at 25-26 (``Given these various exceptions to fee
reporting requirements, Schedule C may not provide participants, the
government, or the public with information about a significant
portion of plan expenses and limits the ability to identify fees
that may be questionable.'')
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(3) Enhancing mineability of the data filed on the Form 5500 Annual
Return/Report.
As stated previously, a key component of the proposal is to make it
easier and more efficient to use the data from the Form 5500 Annual
Return/Report for research, policy analysis, and enforcement purposes.
The primary way the Agencies propose to enhance the mineability of Form
5500 Annual Return/Report data is by structuring and standardizing the
questions on the forms and schedules and structuring certain
information currently required to be reported in the form of a
nonstandard attachment to the filing. This will improve the integrity
of the collected data and allow the Agencies and others to compare,
aggregate, and analyze these data.
The Agencies have identified a number of areas where the current
method of reporting information impedes data usability and are
proposing several changes to facilitate the efficient use of Form 5500
Annual Return/Report data. Data from Schedule H Line 4i (Schedule of
Assets), for example, is currently not available in a standardized
electronic format and would be very useful for monitoring the
performance of plan investments. The proposed rules would require the
Schedule H Line 4i, Schedules of Assets, to be filed in a standardized
electronic format, which will allow them to be searched and matched to
performance data through common software programs. As a result, the
Agencies and the public would have much less difficulty accessing key
information about the plan's investments. Additional improvements in
data mineability and plan monitoring also would be realized from the
proposal's requirement that other currently unstructured data or new
elements also be collected as structured data under the proposal,
including the lists of employers participating in multiple-employer and
controlled group plans required to be attached to the Form 5500 Annual
Return/Report or Form 5500-SF, the Schedule H, Line 4a Schedule of
Delinquent Contributions, and Schedule H Line 4j Schedule of Reportable
Transactions.
Data mineability also would be improved by the proposal's
requirement that some data would be reported as text fields instead of
as attachments. This would increase the accessibility of data. Similar
to the proposed specific data elements for the Schedule H Line 4i
Schedules, which replace a suggested format for an unstructured
attachment, the Agencies believe, based on their own use of the data to
support the research, policy, and oversight efforts of the Agencies,
and input from other end users, that data mineability will be enhanced
by requiring the use of text fields on the face of the schedules
instead of having information filed as non-standard attachments.
Another limitation on data mineability and usability of the current
Form 5500 Annual Return/Report is that actuarial information is
reported in the form of PDF attachments to the Schedules MB and SB,
rather than on the face of the actuarial schedules. Therefore, as
discussed above, the proposal would expand data elements on actuarial
schedules including information previously reported on unstructured
attachments. If questions are directly answered on structured forms and
schedules, like the Form 5500
[[Page 47515]]
Annual Return/Report and the listed schedules (as opposed to non-
standard attachments) the data are ``machine-readable'' in the 5500
data base, and computer programs can be written to read the data sets
created by DOL. This would make more readily searchable and usable
actuarial information essential to the Agencies' enforcement efforts
and in their ability to target plans with likely compliance issues.
Furthermore, the availability of the data would enhance the ability of
private-sector auditors using the information to validate a plan
actuary's calculations. The data would also provide new opportunities
for research. There is no source of system-wide data on defined benefit
pension plan participants with age, service, and average benefit
levels. The availability of such data would allow for more refined
projections of future coverage and benefits adequacy for plan
participants and beneficiaries. As more of these data are collected
over the years, trends in plan coverages and benefits could more easily
be analyzed and identified.
The proposed rules make an additional change to reporting
requirements that is expected to make filing some of the plan
characteristics easier and more reliable. Instead of having to report
all applicable plan characteristic codes under one line item, the
proposal would ask for this information grouped by topic. Currently,
some filers report an incomplete picture of their plan characteristics.
For example, some filers have characteristics that should warrant
supplying five or more codes, but instead they only supply two or
three. It is expected that the new questions will be easier for filers
to respond to and that the data reported will be more accurate.
In summary, these improvements in data mineability will make it
more efficient to conduct Form 5500 Annual Return/Report data analysis
and to use the data to monitor plans, and identify trends.
(4) Requiring reporting by all group health plans covered by Title
I of ERISA, including adding a new Schedule J (Group Health Plan
Information).
As discussed above, the proposal would eliminate the current
exemption from reporting for certain group health plans covered by
Title I of ERISA so that all group health plans covered by Title I of
ERISA will be required to file a Form 5500 Annual Return/Report.
Currently, generally most plans that provide group health benefits with
fewer than 100 participants that meet the conditions of existing
regulations are exempt from filing the Form 5500 Annual Return/Report,
because they are unfunded, fully insured, or a combination of unfunded/
fully insured. Requiring such plans to file would fill an information
gap, which would allow the DOL to effectively meet its statutory
obligation to enforce the ERISA requirements that apply to group health
plans. Currently, the DOL must rely on complaints from plan
participants as its primary source to uncover ERISA violations in small
plans that are exempt from annual reporting. Eliminating this exemption
would provide the DOL with the information necessary to be more
proactive and systematic in identifying violations and in providing
compliance assistance. The DOL would be able to track total health plan
counts and coordinate its enforcement efforts relating to plans
providing benefits through common issuers. For example, fully-insured
plans using the same insurance provider often contain provisions that
are similar. By requiring plans providing group health benefits, that
are unfunded, fully insured, or combination unfunded/fully insured and
have fewer than 100 participants to identify themselves and the
insurance carrier through which they are insured, the DOL should be
able to better determine which plans might be affected by noncompliant
plan provisions. The DOL also could better coordinate its enforcement
efforts with affected service providers and other Federal and State
agencies.
This information also would enhance the DOL's ability to develop
health care regulations, conduct policy analysis and research with
respect to participant trends, and comply with the Affordable Care Act
requirement to report to Congress annually regarding self-insured
plans.
(5) Improving compliance under ERISA and the Code through selected
new questions regarding plan operations, service provider
relationships, and financial management of the plan.
Improving compliance under ERISA and the Code through selected new
questions will bring two main benefits. First, these compliance
questions will serve as a form of education for plan administrators and
a self-compliance check. The Agencies believe that the new compliance
questions under the proposal, as is true of the existing compliance
questions, would help plan administrators better understand and monitor
required plan behavior and would remind plan administrators to comply
with requirements under ERISA and the Code, and thus will improve
protections for participants and beneficiaries.
Second, these compliance questions will allow the Agencies, with
their limited enforcement budgets, to engage in more sophisticated
targeting and compliance assistance. Improvements in data management
technology now enable the Agencies to create plan risk profiles to
improve the effectiveness of investigations. These compliance
questions, including questions on audit and oversight requirements,
nondiscrimination, administrative expenses, participant contributions,
and automatic enrollment, will improve the risk profiles, which will
further enable the Agencies to use their enforcement resources in the
most efficient way possible.
Costs
The costs for plans to satisfy their annual reporting obligations
would increase under these proposed regulations relative to the current
regime.\50\ As shown in Table 2 below, the aggregate annual cost of
such reporting under the current regulations and forms is estimated to
be $488.1 million annually, shared across the 816,000 filers subject to
the filing requirement. The DOL estimates that the regulations and
forms revisions proposed today will impose an annual burden of $817.0
million on 2.97 million filers, for a total increase of $328.8 million
annually.
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\50\ The DOL believes that the annual cost burden on filers
would be higher still in the absence of the proposed regulations
enabling use of the Form 5500 Annual Return/Report in lieu of the
statutory requirements. Without the Form 5500 Annual Return/Report,
filers would not have the benefits of any regulatory exceptions,
simplified reporting, or alternative methods of compliance, and
standardized and electronic filing methods.
[[Page 47516]]
Table 2--Summary of Annual Costs: Current Requirements vs. Proposed
Requirements
------------------------------------------------------------------------
Total annual
Total annual costs burden hours
(millions) (thousands)
------------------------------------------------------------------------
Current reporting requirements.. $488.1 4,378.5
Change due to Revisions......... 328.8 2,949.0
Proposed Reporting Requirements. 817.0 7,327.5
------------------------------------------------------------------------
Because this proposal makes substantial changes to the requirements
currently in effect, filers also will experience some one-time
transition costs. The DOL estimates that plans will require twice as
long to supply the new data elements during the first year, relative to
subsequent years, and will therefore encounter one-time transition
costs of $328.8 million.
The DOL has analyzed the cost impact of the individual revisions.
In doing so, the DOL took account of the fact that various types of
plans would be affected by more than one revision and that the sequence
of multiple revisions would create an interaction in the cumulative
burden on those plans. For example, nearly all pension plans that are
required to file the Form 5500 and related schedules, including ESOPs,
would be affected by the changes to the Schedule H. ESOPs, however,
would be affected not only by the proposed Schedule H changes, but also
by the proposed restoration of Schedule E. The DOL quantified the
individual revisions as described below and shown in Table 3.
(1) Revised financial reporting on the Schedule H and elimination
of the Schedule I.
Revising the Schedule H, including the revisions to the Schedule H
Line 4i Schedules of Assets, and eliminating the Schedule I will
increase net costs. The DOL estimates that the net effect of these
changes will be to increase the total burden by 535,400 hours. These
changes, in conjunction with revisions to the reporting requirements
for DFEs, discussed below, will decrease the number of filers reporting
on Schedule H and/or Schedule I from 115,100 to 114,600. Applying an
hourly labor rate of $114.95 for service providers and $98.25 for plan
sponsors, the DOL estimates that this revision will increase the
aggregate annual reporting cost by an estimated $57.6 million.\51\
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\51\ The appropriateness of the labor rates used in the
calculations and assumptions are discussed in the Technical
Appendix, which can be accessed at the DOL's Web site at
www.dol.gov/ebsa.
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(2) Required reporting by all group health plans covered by Title I
of ERISA, including addition of a new Schedule J (Group Health Plan
Information).
Currently, about 54,000 welfare plans that provide group health
benefits file the Form 5500 Annual Return/Report and applicable
schedules. Of these 54,000 filers, approximately 48,000 are welfare
plans that provide group health benefits with 100 or more participants
and the rest are welfare plans that provide group health benefits with
fewer than 100 participants. We estimate that this proposed change will
increase the number of welfare plan with group health benefit filers to
approximately 2.2 million. Of these 2.2 million welfare plans with
group health benefits, 1.9 million welfare plans with group health
benefits are expected to be fully insured plans with fewer than 100
participants, while 289,000 welfare plans with group health benefits
are expected to be unfunded, combination unfunded/fully insured, or
funded with a trust with fewer than 100 participants, and approximately
48,000 welfare plans with group health benefits are expected to have
100 or more participants.
The 1.9 million plans that provide group health benefits, have
fewer than 100 participants, and are fully insured would be required to
complete lines 1-5 on Form 5500 and lines 1-8 on Schedule J. The
289,000 plans that provide group health benefits, have fewer than 100
participants, and are unfunded, combination unfunded/fully insured, or
funded with a trust would be required to file a Form 5500, Schedule J,
and Schedule A, if applicable, and if they were already required to
file a Form 5500 Annual Return/Report (i.e., funded with a trust), they
would be required to attach any other applicable schedules. The 48,000
plans that provide group health benefits and have 100 or more
participants that already are required to file a Form 5500 Annual
Return/Report would be required to attach a Schedule J in addition to
any other forms and schedules that they are currently required to
submit.
The DOL estimates that requiring plans that provide group health
benefits, have fewer than 100 participants, and are fully insured to
complete only lines 1-5 of the Form 5500 and lines 1-8 of the Schedule
J will increase total burden by 623,000 hours and increase the
aggregate annual reporting cost by $69.6 million. Requiring all other
plans that provide group health benefits and have fewer than 100
participants (unfunded, combination unfunded/fully insured, or funded
with a trust) and all plans that provide group health benefits and have
100 or more participants to file a Form 5500 Annual Return/Report,
Schedule J, and any other required schedules and attachments will
increase the total burden by 349,100 hours for the Form 5500 Annual
Return/Report and 1.2 million hours for the Schedule J. The aggregate
annual reporting cost associated with requiring all other group health
plans with fewer than 100 participants (unfunded, combination unfunded/
fully insured, or funded with a trust) and all group health plans with
100 or more participants to file a Form 5500 Annual Return/Report,
Schedule J, and any other required schedules and attachments is $39.0
million for the Form 5500 Annual Return/Report and $133.0 million for
the Schedule J.
Based on the foregoing, the DOL estimates that, in total, group
health plan annual reporting burden will increase by approximately 2.2
million hours and the aggregate annual reporting cost will increase by
$241.6 million.
(3) Restored Schedule E.
Approximately 6,700 employee stock ownership plans (ESOPs) will be
subject to increased reporting on the restored Schedule E. As discussed
above, the Schedule E is intended to provide increased reporting
related to areas of concern specific to ESOPs. The DOL estimates that
the restored Schedule E will add approximately 22,000 hours of burden
and an additional $2.5 million of aggregate annual reporting cost.
(4) Revised Schedule C.
As discussed above, Schedule C revisions are intended to harmonize
the Schedule C reporting of indirect compensation with the disclosures
required under the DOL's final rules on service provider compensation
at 29 CFR 2550.408b-2, expand the Schedule C reporting requirement to
all pension plans required to file the Form 5500 regardless of size,
expand the Schedule C reporting requirement to welfare plans that offer
group health benefits with fewer than 100 participants if they are
[[Page 47517]]
funded with a trust, clarify the indirect compensation reporting
requirements, and improve the information plan officials receive
regarding amounts received by plan service providers. The expanded
reporting requirements are expected to increase the number of Schedule
C filers from approximately 82,400 to approximately 100,200. Reporting
burden for Schedule C filers is expected to increase by 116,600 hours,
i.e. roughly an hour per filer, which will produce an additional $12.9
million of annual aggregate reporting cost. Of this $12.9 million
increase, $5.3 million is borne by existing filers and is attributable
to eliminating the ``eligible indirect compensation'' reporting relief;
\52\ $7.2 million is borne by filers newly required to attach a
Schedule C; \53\ and $0.4 million is borne by existing filers and is
attributable to all other changes to the Schedule C.\54\
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\52\ As discussed previously, the DOL is eliminating the limited
reporting option for ``eligible indirect compensation.'' The DOL
believes that many of the costs associated with gathering and
organizing data necessary for expanded service provider reporting,
to the extent that the information was not already required to be
provided to and kept by the plan administrator for ``eligible
indirect compensation'' that did not have to be reported, have
already been accounted for as part of the RIA for the ERISA section
408b-2 rule. Therefore, these costs reflect only the incremental
increase of reporting service provider compensation to the Agencies.
Under the proposal, indirect compensation reporting would be limited
to the types of service providers and compensation under ERISA
section 408b-2, in contrast to all service providers currently
having to report on the Schedule C receipt of indirect compensation.
\53\ For new filers, this includes the costs of all other
changes to the Schedule C.
\54\ Costs may not add up to the total due to rounding.
---------------------------------------------------------------------------
As indicated in the regulatory impact analysis in the final
publication of the regulation at 29 CFR 2550.408b-2, the DOL believes
that more transparency of service provider compensation serves to
discourage harmful conflicts, reduce information gaps, improve
fiduciary decision-making about plan services, enhance value for plan
participants, and increase the DOL's ability to redress abuses
committed by service providers. 77 FR 5632, 5650 (Feb. 3, 2012). As is
true with the improved disclosure required under the DOL's regulation
at 29 CFR 2550.404a-5, increased transparency and ability to compare
fees (and, on the improved balance sheet and schedules of assets) are
expected to reduce participants' time otherwise used for searching for
fee and other investment information and to produce substantial
additional benefits, in the form of improved investment decisions,
although the DOL has not been able to quantify this effect. 75 FR
64910, 64928 (Oct. 20, 2010).
(5) Changes to reporting requirements and methods for direct filing
entities (DFEs), added compliance questions, and all other changes.
As discussed earlier in the preamble, the rule proposes to make
several changes to the DFE filing requirements. For example, the
Agencies propose eliminating the concept of Master Trust Investment
Accounts (MTIA) reporting and require reporting by a master trust
instead. The proposal also would change the filing requirements for a
CCT or PSA in which the plan invests by requiring the plan to report
the interests in the CCT or PSA on the Schedule H balance sheet (Part
I, Line 1b) regardless of whether the PSA or CCT in which the plan
invests files a Form 5500 Annual Return/Report as a DFE, changing how
assets held through DFEs are reported on the proposed Schedule H Line
4i(1) Schedule of Assets Held for Investment, and eliminate the
requirement for plans to file the Schedule D, since the DFE information
that had been on Schedule D would now be on plans' Schedule H Line
4i(1) Schedule of Assets Held for Investment. The net effect of these
changes to DFE reporting is to reduce the number of Schedule D filers
from 61,100 to 8,900, with smaller reductions in the filing of other
schedules discussed elsewhere. Reporting burden associated with DFEs is
expected to fall by 94,200 hours, which will produce a $10.1 million
reduction in aggregate reporting cost.
Additionally, the DOL proposes a series of compliance questions
primarily on the Form 5500, Form 5500-SF, and Schedule R. Other
miscellaneous changes throughout the forms and schedules include
requiring new information on employer matching contributions, employee
participation rates and plan design for defined contribution plans, and
changes to the reporting on Schedule G.
Some of these compliance questions and other miscellaneous changes
add burden, while others reduce burden. Together, the DOL estimates
that the net effect of these various changes would add approximately
219,300 hours of aggregate reporting burden, which will produce an
additional $21.5 million in aggregate reporting cost. In combination
with the changes to DFE reporting discussed above, these changes will
reduce the aggregate number of forms and schedules filed by 52,500.
Table 3 contains a summary of the changes in costs, expressed both
in dollars and in hours, allocated to the changes outlined above and
the number of affected filings.
Table 3--Summary of Changes to the Reporting Requirements
----------------------------------------------------------------------------------------------------------------
Number of
Number of filers under [Delta] Cost
Change in Change in filers under proposed per affected
Revisions costs burden hours current requirements filer by
(millions) (thousands) requirements (thousands) proposed
(thousands) \55\ requirements
----------------------------------------------------------------------------------------------------------------
Elimination of Schedule I & $57.6 535.4 115.1 114.6 $502
Change in Schedule H...........
Schedule C...................... 12.9 116.6 82.4 100.2 128
DFE Reporting Changes (Including -10.1 -94.2 61.1 8.9 -1,137
changes to Schedule D).........
Schedule E...................... 2.5 22.0 0.0 6.7 374
Completion of lines 1-5 on Form 69.6 623.0 0.0 1,869 37
5500 and lines 1-8 on Schedule
J by fully insured GHPs with
fewer than 100 participants....
Completion of Form 5500 by GHPs 39.0 349.1 54.1 336.9 116
with fewer than 100
participants that are unfunded,
combination unfunded/fully
insured, or funded with a trust
and GHPs with 100 or more
participants...................
Completion of Schedule J by GHPs 133.0 1,179.2 0.0 336.9 395
with fewer than 100
participants that are unfunded,
combination unfunded/fully
insured, or funded with a trust
and GHPs with 100 or more
participants...................
[[Page 47518]]
All Other Revisions \56\........ 24.4 217.9 1,076.7 1,024.2 24
-------------------------------------------------------------------------------
Total (Unique Filers)....... 328.8 2,949.0 816.3 2,967.5 111
----------------------------------------------------------------------------------------------------------------
The proposal does not otherwise alter reporting costs. With the
exception of most welfare plans that provide group health benefits,
plans currently exempt from annual reporting requirements (such as
certain simplified employee pensions (SEPs) and small unfunded, fully
insured, or combination unfunded/fully insured welfare plans that do
not provide group health benefits) would remain exempt. Also, plans
eligible for limited reporting options (such as certain IRA-based
pension plans) would continue to be eligible. The revised Form 5500
Annual Return/Report would retain the structure that is familiar to
individual and corporate taxpayers--the form would continue to contain
basic identifying information, participant counts, and plan
characteristics, along with a checklist of the schedules being filed.
---------------------------------------------------------------------------
\55\ The proposed change eliminating the concept of MTIA
reporting and requiring reporting by a master trust instead, whose
burden change is taken into account in the DFE Reporting Changes
row, produces a reduction in the number of schedules included in
filings. The change in the number of schedules filed is taken into
accounted in the row specific to the schedule affected.
\56\ The number of filers in this row exceeds the total number
of filers because an individual filer counts more than once when it
is affected by more than one revision included in the ``All Other
Revisions'' category.
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Assumptions, Methodology, and Uncertainty
The cost and burden associated with the annual reporting
requirement for any given plan will depend upon the specific
information that must be provided, given the plan's characteristics,
practices, operations, and other factors. For example, a small, single-
employer defined contribution pension plan eligible to file the Form
5500-SF should incur far lower costs than a large, multiemployer
defined benefit pension plan that holds multiple insurance contracts,
engages in reportable transactions, and has many service providers that
each received over $5,000 in compensation. The DOL separately
considered the cost to different types of plans in arriving at its
aggregate cost estimates. The DOL's basis for these estimates is
described below.
Assumptions Underlying this Analysis: The DOL's analysis assumes
that all benefits and costs will be realized in the first year of the
reporting cycle to which the changes apply and within each year
thereafter. This assumption is premised on the requirement that each
plan will be required to file the Form 5500 Annual Return/Report. The
DOL has used a ``status quo'' baseline for this analysis, assuming that
the world absent the proposed regulations will resemble the
present.\57\
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\57\ Further detail can be found in the Technical Appendix,
which can be accessed at www.dol.gov/ebsa.
---------------------------------------------------------------------------
Methodology: Mathematica Policy Research, Inc. (MPR) developed the
underlying cost data, which has been used by the Agencies in estimating
burden related to the Form 5500 Annual Return/Report since 1999. See 65
FR 21068, 21077-78 (Apr. 19, 2000); Borden, William S., Estimates of
the Burden for Filing Form 5500: The Change in Burden from the 1997 to
the 1999 Forms, Mathematica Policy Research, submitted to DOL May 25,
1999.\58\ The cost information was derived from surveys of filers and
their service providers, as modified due to comments, which were used
to measure the unit cost burden of providing various types of
information. The DOL has adjusted these unit costs since 1999 to
account for changes to the forms and schedules and increases in the
cost of labor and service providers since MPR developed the initial
data.
---------------------------------------------------------------------------
\58\ The MPR report can be accessed at the DOL's Web site at
www.dol.gov/ebsa.
---------------------------------------------------------------------------
For this forms revision, the DOL used the adjusted MPR unit cost
data for pension and non-health welfare plans. The DOL developed the
unit cost data for group health plans using the best available data. To
develop unit costs for DFEs, the DOL created weighted averages of the
unit costs for plans.
To obtain filer counts for pension plans, non-health welfare plans,
and DFEs, the DOL used historical counts of Form 5500 Annual Return/
Report filers tabulated by type and reported characteristics. For
counts of group health plan filers, the DOL used data from the Medical
Expenditure Panel Survey, Insurance Component (MEPS-IC) and Census of
Business data.
The MEPS-IC is an annual survey of establishments collected by the
Agency for Healthcare Research and Quality (AHRQ) about employer
sponsored health insurance. AHRQ uses two sources to draw their data:
(1) A random sample, from the Census Bureau, of private-sector business
establishments with annual payroll greater than zero; and (2) a list of
employers or other insurance providers identified by the Medical
Expenditure Panel Survey, Household Component respondents who report
having private health insurance. In 2013, approximately 39,000 private-
sector establishments were surveyed.
In 2003, DOL began using the MEPS-IC as a basis for estimating the
number of health plans. The number of plans was based on the share of
the total number of establishments that offer health insurance by size.
DOL then attempted to correct for establishments that offer multiple
health plans by making a reasonable assumption that the share of
establishments that reported that they ``offer 2 or more plans''
offered two distinct plans. Finally, DOL attempted to control for
multiple establishments covered by the same plan sponsor by using the
Census of Business ratio of establishment-to-firms and dividing the
total number of establishment plans by this ratio to produce an
estimate of the number of health ``plans'' which has been consistently
around 2.5 million over the years.
The DOL modeled its approach to calculating burden on the approach
used during the 2009 forms revision. Aggregate burden estimates were
produced in both revisions by multiplying the unit cost measures by the
filer count estimates. The methodology is described in broad terms
below.\59\
---------------------------------------------------------------------------
\59\ Further details about the approach are explained in the
Technical Appendix, which can be accessed at the DOL's Web site at
www.dol.gov/ebsa.
---------------------------------------------------------------------------
[[Page 47519]]
To estimate aggregate burdens, types of plans with similar
reporting requirements were grouped together in various groups and
subgroups. As shown in Table 4 below, calculations of aggregate cost
were prepared for each of the various subgroups both under requirements
in effect prior to this action and under the forms as revised. Table 4
also shows the number of plans within each subgroup affected by the
revisions. The universe of filers was divided into four basic types:
Defined benefit pension plans, defined contribution pension plans,
welfare plans, and DFEs. For the plans, each of these major plan types
was further subdivided into multiemployer and single-employer
plans.\60\ Since the filing requirements differ substantially for small
and large plans, the plan types were also divided by plan size. For
large plans (100 or more participants), the defined benefit plans were
further divided between very large (1,000 or more participants) and
other large plans (at least 100 participants, but fewer than 1,000
participants). Small plans (less than 100 participants) were divided
similarly, except that they were divided into Form 5500-SF eligible and
Form 5500-SF ineligible plans, as applicable. Welfare plans were
divided into group health plans and plans that do not provide any group
health benefits, while plans that provide group health benefits and
have fewer than 100 participants were divided into fully insured group
health plans and unfunded, combination unfunded/fully insured plans, or
funded with a trust group health plans. DFEs were divided into Master
Trusts/MTIAs, CCTs, PSAs, 103-12 IEs, and GIAs. For each of these sets
of respondents, burden hours per respondent were estimated for the Form
5500 Annual Return/Report itself and up to seven schedules or the Form
5500-SF (and the Schedule SB, for Form 5500-SF eligible defined benefit
pension plans).
---------------------------------------------------------------------------
\60\ For purposes of this analysis, multiple employer plans were
treated as single employer plans.
---------------------------------------------------------------------------
We also separately estimated the costs for each of the forms and
for each schedule that is part of the Form 5500 Annual Return/Report.
When items on a 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 how many items are required by
each agency. The burden associated with reading the instructions for
each item also is tallied and allocated accordingly.
The reporting burden for each type of plan is estimated in light of
the circumstances that are known to apply or that are generally
expected to apply to such plans, including plan size, funding method,
usual investment structures, and the specific items and schedules such
plans ordinarily complete. For example, under the proposal, a small,
fully insured group health plan would be required to file only basic
questions on the Form 5500 and the proposed Schedule J. By contrast, a
large single-employer defined benefit pension plan that is intended to
be tax-qualified that has insurance products among its investments and
whose service providers received compensation above the Schedule C
reporting thresholds would be required to submit an annual report
completing almost all the line items of the Form 5500, plus Schedule A
(Insurance Information), Schedule SB (Single-Employer Defined Benefit
Plan Actuarial Information), Schedule C (Service Provider Information),
possibly the Schedule G (Financial Transaction Schedules), Schedule H
(Financial Information), and Schedule R (Retirement Plan Information),
and would be required to submit an IQPA report. In this way, the
Agencies intend meaningfully to estimate the relative burdens placed on
different categories of filers.
Burden estimates were adjusted for the proposed revisions to each
schedule, including items added or deleted in each schedule and items
moved from one schedule to another.
The DOL has not attributed a recordkeeping burden to the 5500 Forms
in this analysis or in the Paperwork Reduction Act analysis because it
believes that plan administrators' practice of keeping financial
records necessary to complete the 5500 Forms arises from usual and
customary management practices that would be used by any financial
entity and does not result from ERISA or Code annual reporting and
filing requirements.
The aggregate baseline burden is the sum of the burden per form and
schedule as filed prior to this action multiplied by the estimated
aggregate number of forms and schedules filed.\61\ The DOL estimated
the burden impact of changes in the numbers of filings and of changes
made to the form and the various schedules. The burden estimates use
data from the Form 5500 Annual Return/Report for plan year 2013, which
is the most recent year for which complete data is available. The
Overall Total line in Table 4 shows that the aggregate cost under the
current and proposed requirements, respectively, add up to $488.1
million and $817.0 million.
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\61\ Some filers are eligible to file the Form 5500-SF, but
choose to file a Form 5500 and attach Schedule I and/or other
schedules because they find it less burdensome to do so in their
particular situation. In an effort to be conservative in estimating
burden, counts of these filings are adjusted to reflect what they
would have filed if they had chosen to file the Form 5500-SF.
Table 4--Number of Affected Filers and Costs Under Prior and New Requirements
----------------------------------------------------------------------------------------------------------------
Aggregate
Number of Number of Aggregate annual cost
filers under filers under annual cost under
Type of filer current proposed under current proposed
requirements requirements requirements requirements
(thousands) (thousands) (millions) (millions)
--------------------------------------------------------------------------------------------------
Overall Total..................... 816.3 2,967.5 $488.1 $817.0
Large Plans....................... 148.5 148.5 252.4 309.3
DB/ME/100-1,000 LARGE (Non- 0.5 0.5 1.6 1.9
ESOP)........................
DB/ME/1,000+ LARGE (Non-ESOP). 0.8 0.8 2.8 3.1
DB/SE/100-1,000 LARGE (Non- 4.8 4.8 13.0 15.2
ESOP)........................
DB/SE/1,000+ LARGE (Non-ESOP). 2.8 2.8 8.5 9.6
DC/ME/LARGE (100+ 1.1 1.1 2.1 2.5
Participants) (Non-ESOP).....
DC/SE/LARGE (100+ Partic.) 2.9 2.9 4.0 6.4
(ESOP).......................
DC/SE/LARGE (100+ Partic.) 62.2 62.2 109.2 135.9
(Non-ESOP)...................
Welfare/LARGE (Health)........ 47.9 47.9 91.7 114.2
[[Page 47520]]
Welfare/ME/LARGE (Non-Health). 0.8 0.8 1.1 1.4
Welfare/SE/LARGE (Non-Health). 24.8 24.8 18.5 19.1
Small Plans Eligible for 5500-SF.. 622.4 622.4 205.8 227.3
DB/Eligible for 5500-SF/SMALL 41.1 41.1 37.6 39.0
(Non-ESOP)...................
DC/Eligible for 5500-SF/SMALL 580.7 580.7 168.0 188.0
(Non-ESOP)...................
Welfare/Eligible for 5500-SF/ 0.7 0.7 0.2 0.2
SMALL (Non-Health)...........
Small Plans Not Eligible for 5500- 35.9 2,187.7 18.4 266.1
SF...............................
DB/ME/Not Eligible for 5500-SF/ 0.05 0.05 0.06 0.1
SMALL (Non-ESOP).............
DB/SE/Not Eligible for 5500-SF/ 0.9 0.9 1.0 1.8
SMALL (Non-ESOP).............
DC/ME/Not Eligible for 5500-SF/ 0.001 0.001 0.0004 0.002
SMALL (ESOP).................
DC/ME/Not Eligible for 5500-SF/ 0.1 0.1 0.1 0.2
SMALL (Non-ESOP).............
DC/SE/Not Eligible for 5500-SF/ 3.8 3.8 1.8 5.8
SMALL (ESOP).................
DC/SE/Not Eligible for 5500-SF/ 21.5 21.5 10.0 27.9
SMALL (Non-ESOP).............
Welfare/Not Eligible for 5500- 0.0 1,869.0 0.0 69.6
SF/SMALL (Fully Insured
Health)......................
Welfare/Not Eligible for 5500- 6.2 289.0 4.1 158.2
SF/SMALL (Unfunded,
Combination Unfunded/Fully
Insured, or Funded with a
Trust Health)................
Welfare/ME/Not Eligible for 0.1 0.1 0.1 0.2
5500-SF/SMALL (Non-Health)...
Welfare/SE/Not Eligible for 3.2 3.2 1.5 2.4
5500-SF/SMALL (Non-Health)...
DFEs.............................. 9.4 8.9 11.4 14.2
Master Trust Investment 1.6 1.0 2.7 2.2
Accounts and Master Trusts...
Common Collective Trusts...... 4.0 4.0 4.3 6.0
Pooled Separate Accounts...... 3.2 3.2 3.3 4.7
103-12 Investment Entities.... 0.5 0.5 0.7 0.9
Group Insurance Arrangements.. 0.1 0.1 0.4 0.4
----------------------------------------------------------------------------------------------------------------
Note: Some displayed numbers do not sum up to the totals due to rounding.
DB--defined benefit plans.
DC--defined contribution plans.
SE--single-employer plans.
ME--multiemployer plans.
Large plans--100 participants or more.
Small plans--generally fewer than 100 participants.
Uncertainty Within Estimates: Because the DOL has access to the
historical Form 5500 Annual Return/Report filing information, the DOL
has good data for the number of pension plans, large welfare plans,
including group health plan filers that file the various schedules, and
DFEs, and the types of plans those filers represent. However, there is
some uncertainty regarding the number of welfare plans that provide
group health benefits and have fewer than 100 participants filing.
There is also some uncertainty in the unit cost estimates.
There are two main issues with the methodology for counting welfare
plans that provide group health benefits. First, MEPS does not
differentiate between establishments offering single or multiemployer
plans, which implies EBSA over-counts health plans (i.e., a firm
offering health insurance is counted as providing benefits to their
employees when in fact one multiemployer plan may cover several firms).
Second, MEPS-IC respondents that ``offer 2 or more plans'' are
generally referencing plan types (i.e. HMO vs PPO) or types of
employees (part-time plan vs executive plan) which would likely be
included on a single Form 5500 Annual Return/Report with a single plan
number on the form, which again would over-count the EBSA estimate.
With regard to the unit cost estimates, the DOL has no direct
measure for the unit costs and uses a proxy adapted from the MPR model,
which was developed in the late 1990s. In addition, some uncertainty is
inherent in any proposed revision to the existing form, and the level
of uncertainty increases where the proposal adds a new requirement,
such as the proposed new group health plan filing requirements, rather
than revising, deleting, or moving existing items from one schedule to
another.
Regulatory Alternatives
Executive Order 12866 directs federal agencies promulgating
regulations to evaluate regulatory alternatives. The DOL and the other
Agencies have done so in the process of developing this proposal. The
following summarizes major alternatives considered, but not proposed.
(1) Alternative approaches for modernizing financial information
besides revising the Schedule H and eliminating the Schedule I.
Most of the changes that are being proposed to modernize the
financial information that is reported on the form respond to
recommendations from GAO, DOL-OIG, TIGTA, ERISA Advisory Council and
other advisory groups. Early in the regulatory process, the Agencies
considered revising the Schedule I instead of eliminating it, but the
Agencies determined that reporting on alternative and hard-to-value
assets, which is not required on the current Schedule I, is just as
vital for enforcement purposes for small plans as for large plans.
Adding reporting on alternative and hard-to-value assets to the
financial statement on Schedule I in a meaningful way would have made
Schedule H and Schedule I substantially similar. Therefore, to best
effectuate the goal of providing more transparency on plan investments
in alternative and hard-to-value assets, which is important for
understanding the risks to participants in small plans as well as
large, the Agencies concluded that eliminating the Schedule I and
requiring small plans with alternative and hard-
[[Page 47521]]
to-value assets to file the Schedule H was the most appropriate
alternative.
(2) Alternative approaches for group health plan reporting.
In addition to the proposed annual reporting regime described in
detail earlier in this preamble, the DOL considered a variety of other
reporting options for group health plans. Among the options considered
were (a) using existing IRS data or entering into a data sharing
agreement with HHS; (b) requiring all group health plans, including
small, fully insured plans to file a complete Form 5500 and Schedule J,
along with the other schedules required to be filed currently by group
health plans that are not exempt from filing under the existing
regulations; and (c) requiring small, fully insured plans to file a
Form 5500 and Schedule J every second or third year and requiring those
plans to file a registration form in all other years, similar to the
Form 5500-C/R structure used prior to 1999.
In an effort to minimize burden and reporting duplication, the DOL
reviewed existing IRS health plan data to determine if any of these
data would be usable. The DOL concluded that all data collected by the
IRS about health plans, such as premium information, minimum essential
coverage information, and information on the number of employees
covered, is collected specifically to assess Affordable Care Act-
related excise taxes and penalties and is subject to a higher threshold
for information sharing than most other data collected by federal
agencies. Therefore, the DOL concluded that its enforcement,
policymaking, and research needs would not rise to the threshold to
enable the IRS to share data. The DOL also consulted with HHS to
determine whether any of their data might be appropriate; however, HHS
does not collect any data on the ``plan'' level, which is the level of
detail needed by the DOL to inform oversight, Congressional reporting,
and policy obligations under Title I of ERISA.
The DOL considered requiring welfare plans that offer group health
benefits with fewer than 100 participants that are fully insured to
file the complete Form 5500 and Schedule J, as would now be required of
welfare plans that offer group health benefits with fewer than 100
participants that are unfunded, combination unfunded/fully insured, or
funded with a trust. The DOL also considered requiring welfare plans
that offer group health benefits with fewer than 100 participants that
are fully insured to attach a Schedule A (in addition to the Form 5500
and Schedule J). The DOL decided against both of these options after
weighing the benefits of getting additional data and the likely
burdens. DOL also took into account that that the data of most benefit
is the proposed new reporting to provide identity, number, and basic
funding and benefit structures and types for these plans, which is
currently unavailable due to the Form 5500 filing exemption from filing
for these plans. More information than that would provide the DOL with
somewhat more robust data, but it would not merit the burden of
requiring the estimated nearly 2 million small, fully insured plans to
report such information, particularly since much of the information is
directed towards pension plans and welfare plans that are funded with a
trust. For comparison, the DOL estimates that a plan that provides
group health benefits with fewer than 100 participants filing a
complete Form 5500 Annual Return/Report and a complete Schedule J will
incur 5 hours and 14 minutes of burden, while one with fewer than 100
participants answering only limited questions on the Form 5500 and
Schedule J will incur only 30 minutes of burden. If the DOL were to
require these plans to file a complete Form 5500 and a complete
Schedule J, then each of the estimated 2 million welfare plans that
offer group health benefits with fewer than 100 participants that are
fully insured would incur an additional 4 hours and 44 minutes of
burden, at an additional aggregate annual reporting cost of $927.6
million. Attaching a Schedule A requires 2 hours and 45 minutes of
burden for welfare plans that offer group health benefits with fewer
than 100 participants. If the DOL were to require welfare plans that
offer group health benefits with fewer than 100 participants that are
fully insured to attach Schedule A, the additional aggregate annual
reporting cost would be $583.4 million. The DOL concluded that
requiring these fully insured plans to file a complete Form 5500 and
Schedule J, as well as potentially Schedule A would grant the DOL
slightly more robust data in a significantly more burdensome fashion
compared with the chosen option.
The DOL decided, however, that plans that provide group health
benefits and have fewer than 100 participants that are not fully
insured, i.e., some or all of the funding comes from the general assets
of the employer or funded through a trust, would have to complete the
full Form 5500 Annual Return/Report and the full Schedule J, as well as
the Schedule A, if applicable. The filings for plans that provide group
health benefits and have fewer than 100 participants that are unfunded,
combination unfunded/fully insured, or funded with a trust would
generally be similar to those for plans that provide group health
benefits and have 100 or more participants that are funded in the same
way. Group health plans that are unfunded, combination unfunded/fully
insured, or funded with a trust, by definition, are fully or partially
self-insured, and the DOL believes that the additional Schedule J
information, in particular, is important for the DOL's role with regard
to oversight and to development of the self-insured report.
Relatedly, the DOL also considered not requiring plans that provide
group health benefits and have fewer than 100 participants that are
funded with a trust to file the more detailed financial and service
provider information required of large plans that are funded with a
trust, in particular the Schedule C and Schedule H. Small welfare plans
that provide group health benefits that are funded with a trust are
already filing either the Form 5500-SF or the Form 5500 Annual Return/
Report and the Schedule I. If a small welfare plan funded with a trust
is required to file a Form M-1 or is invested in alternative or hard-
to-value assets, it currently would have to file the Form 5500 with a
Schedule I, and, if applicable, Schedule A. As with small pension plans
required to file the Form 5500 Annual Return/Report, in general, the
proposal would have plans that provide group health benefits and have
fewer than 100 participants that are funded using a trust file in the
same manner as plans that provide group health benefits that have 100
or more participants that are funded using a trust.
With respect to requiring filing of the Schedule C by plans that
provide group health benefits and have fewer than 100 participants that
are currently not subject to any filing requirement (i.e., unfunded,
fully insured, or combination unfunded/fully insured), the Agencies
took into account that the existing 408b-2 regulation only applies to
pension plans. Large welfare plans that are funded with a trust are
already required to file a Schedule C with service provider
compensation information, and the difference in information reporting
should not be significant. Moreover, small plans that are funded with a
trust would already be required to keep as part of their records
information on direct compensation, because direct expenses are
reported as administrative expenses of the plan. With respect to
indirect compensation, given that the class of service providers for
whom indirect compensation must be reported is
[[Page 47522]]
limited to those identified in 408b-2, a small plan should not have
many service providers that would be required to be reported, and so
the burden should be minimal. Just as the Agencies believe that it is
important to have improved information on small pension plans that
invest in alternative and hard-to-value assets, so too, they believe
that is important to have the information for small welfare plans that
are funded with a trust that invest in such assets. To the extent that
small plans funded with a trust are the plans most likely to experience
financial difficulties, having this information should help the
Agencies and participants and beneficiaries better monitor the
financial stability. Additionally, the Form 5500 Annual Return/Report
together with the proposed Schedule J would give basic contribution,
claims, benefit structure, and group health compliance information. For
these reasons, the DOL concluded that the burden of requiring plans
that provide group health benefits and have fewer than 100
participants, other than those funded with a trust, to also file the
Schedule C and Schedule H would outweigh the benefits of requiring that
these schedules be filed; therefore, those plans are not required to do
so.
Finally, the DOL considered requiring small, fully insured plans to
file a Form 5500 Annual Return/Report and Schedule J every second or
third year and requiring those same plans to file a registration form
in alternate years. This option was ruled out due to public comments
made during the 1999 Form 5500 Annual Return/Report revisions. Prior to
the 1999 revisions, some filers were eligible to file the Form 5500-C/
R, which included robust reporting during one year and more limited
reporting during the second and third years of a three year cycle.
Commenters responding to the proposed 1999 revisions were supportive of
the DOL's plan to eliminate Form 5500-C/R, and accordingly eliminate
the multi-year cycle of reporting, because they felt that it was
difficult to keep track of the schedule.\62\ In an effort to take those
comments into account, the DOL decided not to propose a reporting
scheme for small, fully insured group health plans that required filing
a registration statement in certain years and more expansive
information in other years because DOL thought it would likely be
confusing, lead to filer error, and inconsistent reporting. The
proposal to have the currently exempt plans that provide group health
benefits with fewer than 100 participants complete some or all of the
Form 5500 Annual Return/Report and Schedule J was designed to get the
minimal amount of information needed for research, policy, and
oversight purposes, with the simplest and least amount of reporting.
---------------------------------------------------------------------------
\62\ See 65 FR 5026.
---------------------------------------------------------------------------
(3) Alternative approaches for ESOP-specific reporting.
In addition to the proposed restoration of the Schedule E, the
Agencies also considered whether to add only certain additional ESOP
questions to existing schedules, such as the Schedule R, which
currently has ESOP questions that were moved to the Schedule R from the
Schedule E when the Schedule E was eliminated for 2009 and later
filings. As discussed above, before 2009, the Schedule E (ESOP Annual
Information) was an IRS-only component of the Form 5500 Annual Return/
Report used to collect data on ESOPs. As with other ``IRS-only''
schedules that were part of the Form 5500 Annual Return/Report, when
the DOL mandated electronic filing of the Form 5500 Annual Return/
Report as part of EFAST2, the Schedule E was removed from the Form 5500
Annual Return/Report in 2009 due to the statutory limits on the IRS's
authority to mandate electronic filing of such information.
The DOL believes that many of the ESOP questions that were
eliminated in 2009 because they were ``IRS-only'' are useful for DOL's
enforcement and research programs of DOL, as well as for participants
and beneficiaries in ESOPs. In addition, several new questions have
been included to provide a more comprehensive view of ESOPs. With the
increase in ESOP-specific questions, the use of a single schedule for
all ESOP questions would be a more effective and efficient information
collection tool for the Agencies than having some questions on the
Schedule R and some questions on the Schedule E.
(4) Alternative approaches for service provider reporting.
Most of the changes that are being proposed to revise the service
provider information that is reported on the form respond to
recommendations from GAO, DOL-OIG, TIGTA, and other advisory groups. As
discussed previously, the Agencies evaluated whether to require welfare
plans that offer group health benefits with fewer than 100 participants
to complete the Schedule C. The Agencies also evaluated whether or not
to require small pension plans that are required to file the Form 5500
Annual Return/Report to complete the Schedule C, but decided that due
to the importance of the information for participants and
beneficiaries, plan officials responsible for understanding
compensation arrangements, and the Agencies, the benefit outweighed the
burden. Because the majority of pension plan filers are small plans
that are eligible to file the Form 5500-SF, the Agencies considered
whether to add questions to the Form 5500-SF requiring filers to
provide indirect compensation information. The Agencies determined that
to minimize burden, rather than adding new questions that were a subset
or total of those on the Schedule C, they would simply require defined
contribution pension plan Form 5500-SF filers to file the comparison
chart under the DOL's regulation at 29 CFR 404a-5. This would provide
some information (though not in the form of structured data) regarding
service provider compensation with only minimal burden.
(5) Alternative approaches for DFE reporting.
Most of the changes that are being proposed to revise DFE reporting
respond to recommendations from GAO, DOL-OIG, TIGTA, and others. The
Agencies considered a variety of alternative ways to improve DFE
reporting. Included in those alternatives was expanding Schedule D
reporting to require plans to provide the date of the most recent Form
5500 Annual Return/Report filing of the DFEs in which a plan or
investing DFE was invested. The Agencies also considered having both
plans and CCTs, PSAs, and 103-12 IEs identify on the Schedule H, Line
4i Schedules of Assets the underlying assets of those DFEs. To minimize
burden and duplicative reporting, the Agencies instead chose to
eliminate the requirement for plans to complete the Schedule D, and
have plans and filing DFE's identify on the plan or filing DFEs Line 4i
Schedule of Assets underlying assets by category where the DFE has
filed a Form 5500 Annual Return/Report. The assets would be broken out
by the plan only if a CCT or PSA did not file a Form 5500 Annual
Return/Report. The Agencies also considered whether to require plans
that file the Form 5500-SF that participate in DFEs to provide more
detailed information on those DFEs to help provide a more complete
crosswalk between DFE and plan filings. The Agencies determined that
the burden would outweigh the benefit in that regard. In addition, the
Agencies considered, but decided against, requiring CCTs and PSAs that
file the Form 5500 Annual Return/Report and 103-12 IEs to complete both
Schedule H, Line 4i Schedules of Assets. The Agencies determined that
having such entities complete just the Line 4i(1) Schedule of Assets
Held for
[[Page 47523]]
Investment, and not the Line 4i(2) Schedule of Assets Disposed During
Plan Year, would adequately address concerns with quality and
usefulness of data, while minimizing burden.
Regulatory Flexibility Act--Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely
to have a significant economic impact on a substantial number of small
entities. In accordance with section 603 of the RFA, the following
reflects EBSA's Initial Regulatory Flexibility Analysis (IRFA)
describing the impact of the rule on small entities and seeking public
comment on such impact.
For purposes of this IRFA, the DOL continues to consider a small
entity to be an employee benefit plan with fewer than 100 participants,
as it has in many previous IRFAs measuring the impact of proposed
regulatory actions on small employee benefit plans. 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.). The basis
of EBSA's definition of a small entity for this IRFA 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. While some large employers may have small plans, in
general small employers maintain most small plans. The Form 5500 Annual
Return/Report impacts any employer in any private sector industry who
chooses to sponsor a plan. The DOL is unable to locate any data linking
employer revenue to plans to determine the relationship between small
plans and small employers in industries whose SBA size standard is
revenue-based. For a separate project, the DOL purchased data on ESOPs
that file the Form 5500 and on defined contribution pension plans that
file the Form 5500-SF from Experian Information Solutions, Inc. The
Experian dataset provides the number of employees for the plan sponsor.
By merging these data with internal DOL data sources, the DOL
determined the relationship between small plans and small employers in
industries whose SBA size standard is based on a threshold number of
employees that varies from 100 to 1,500 employees. Based on these data,
the DOL estimates that over 97 percent of small retirement plans and
over 80 percent of small health plans are sponsored by employers with
less than 100 employees. The DOL estimates that over 99 percent of
small retirement plans and over 97 percent of small health plans are
sponsored by employers with less than 1,500 employees. Thus, the DOL
believes that assessing the impact of these proposed rules on small
plans is an appropriate substitute for evaluating the effect on small
entities. In previous regulations, the DOL 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), and the DOL received no
comments suggesting use of a different size standard. The Department
solicits public comments on the appropriateness of continuing to use
this size standard.
The following subsections address specific components of an IRFA,
as required by the RFA.
Need for the rule and its objectives: The DOL is publishing this
proposal to amend the regulations relating to the annual reporting and
disclosure requirements of section 103 of ERISA simultaneously with the
publication of the Notice of Proposed Forms Revisions. The DOL
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 of
reporting requirements in order to satisfy these objectives changes
over time. As discussed in the Need for Regulatory Action section
above, the Form 5500 and the financial statements contained in the
current Schedule H (Large Plan Financial Information) and Schedule I
(Small Plan Financial Information) are based on data elements that have
remained largely unchanged since the Form 5500 Annual Return/Report was
established in 1975. Meanwhile, benefit plan designs and practices have
evolved over time in response to market trends in labor, financial,
health care, and insurance markets, and markets for various services
used by plans. In addition, the technologies available to manage and
transmit information continually advance. Therefore, it is incumbent on
the Agencies to revise their reporting requirements from time to time
to keep pace with such changes. The proposed forms revisions, and
associated DOL regulatory amendments in the proposal, are intended to
calibrate reporting requirements to take into account certain recent
changes in markets, the law (including the Affordable Care Act), and
technology, many of which are referred to above in this document.
Description and estimate of number of small entities to which rule
will apply: This proposal increases the number of small plans required
to comply with annual reporting requirements by requiring approximately
1.9 million welfare plans that provide group health benefits with fewer
than 100 participants that previously were exempt from annual reporting
to file a Form 5500 Annual Return/Report, completing lines 1-5 on Form
5500 and lines 1-8 on Schedule J. This proposal also requires
approximately 289,000 plans that provide group health benefits and have
fewer than 100 participants that are unfunded, combination unfunded/
fully insured, or funded with a trust to file a Form 5500 Annual
Return/Report, where previously roughly 6,000 were required to do so.
In total, approximately 2.81 million small pension plans and plans that
provide group health benefits covering fewer than 100 participants
would be required to comply with annual reporting requirements, where
previously approximately 658,000 were required to do so. As described
previously, estimates of the number of small pension plans and small
welfare plans that do not offer group health benefits are based on 2013
Form 5500 filing data. Estimates of the number of plans that provide
group health benefits and have fewer than 100 participants are based on
MEPS-IC and Census of Business data.
Description of projected reporting, recordkeeping, and other
compliance requirements of the rule: The reporting requirements
applicable to small plans are detailed above and in the associated
Notice of Proposed Forms Revision. Almost 89 percent of the 2.81
million small plans subject to the proposed annual reporting
requirements can satisfy the requirements through streamlined options.
The 1.9 million welfare plans that provide group health benefits
with fewer than 100 participants can fulfill the proposed reporting
requirements answering lines 1-5 of the Form 5500 and line 1-8 of the
Schedule J. For these plans, annual reporting will require the use of a
mix of clerical and professional administrative skills.
Over 581,000 small defined contribution pension plans and small
welfare plans that do not provide group health benefits can fulfill the
proposed reporting requirements with the Form 5500-SF with no schedules
required to be attached. All of these plans are
[[Page 47524]]
eligible for the waiver of audit requirements. For such plans,
therefore, satisfaction of the applicable proposed annual reporting
requirements is not expected to require the services of an IQPA or
auditor, but, like the small, fully insured group health plans, will
require the use of a mix of clerical and professional administrative
skills. Another 41,000 small defined benefit pension plans and money
purchase plans will continue to be eligible to use the streamlined
5500-SF; satisfaction of the proposed reporting requirements will
require additional services of an actuary and submission of the
Schedule SB or Schedule MB, as applicable, and no other schedules.
The remaining 319,000 small pension and welfare plans will not be
eligible to use the Form 5500-SF or any other streamlined reporting
option. These plans will be required to file the Form 5500 Annual
Return/Report, along with any other schedules required for pension
plans or welfare plans that are not fully insured group health
plans.\63\ Of these plans, approximately 289,000 are welfare plans that
provide group health benefits and are unfunded, combination unfunded/
fully insured, or funded with a trust, 25,000 are defined contribution
pension plans, and over 3,000 are welfare plans that do not provide
group health benefits. All will require a mix of clerical and
professional administrative skills to satisfy the proposed reporting
requirements. Fewer than 1,000 small pension plans that are not
eligible to use the Form 5500-SF are defined benefit pension plans that
will be required to use an actuary and file Schedule MB or Schedule SB
in addition to needing a mix of clerical and professional
administrative skills to satisfy the proposed reporting requirements.
---------------------------------------------------------------------------
\63\ The exact schedules that these plans are required to attach
vary based on the plans' specific facts and circumstances.
---------------------------------------------------------------------------
Satisfaction of the proposed annual reporting requirements under
these regulations is not expected to require any additional
recordkeeping that would not otherwise be part of normal business
practices.
Table 5 below compares the DOL's estimates of small plans'
reporting costs under the requirements in effect prior to this action
with those under the new requirements for various classes of affected
plans. As shown, costs under the new requirements will be slightly
higher for small pension plans and small welfare plans that are
eligible to file the Form 5500-SF and significantly higher for small
pension and welfare plans that are not eligible to file the Form 5500-
SF (including group health plans). As discussed above, the significant
increase for group health plans reflects the elimination of prior
reporting exemptions for most plans that provide group health benefits
and have fewer than 100 participants. The significant increase for
small pension plans and small welfare plans that do not offer group
health benefits that are not eligible to file the Form 5500-SF results
primarily from the changes to financial and service provider reporting.
The DOL notes that for the over 90 percent of plans that are eligible
for annual reporting under streamlined options, the per-filer cost
under the proposed requirements increases by $35-37 annually relative
to the current requirements.\64\ 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.
---------------------------------------------------------------------------
\64\ In the case of the 2.0 million small, fully insured group
health plans, the increase in per filer cost is from no cost to $37
per year.
Table 5--Small Plan Reporting Costs Under Prior and New Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
Aggregate
Number of Number of Aggregate annual cost Annual per Annual per
filers under filers under annual cost under filer cost filer cost
Class of small plan current proposed under current proposed under current under proposed
requirements requirements requirements requirements requirements requirements
(thousands) (thousands) (millions) (millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Defined Benefit Pension--Eligible for 5500-SF........... 41.1 41.1 $37.6 $39.0 $916 $951
Defined Benefit Pension--Not Eligible for 5500-SF....... 1.0 1.0 1.1 1.9 1,150 1,970
Defined Contribution Pension--Eligible for 5500-SF...... 580.7 580.7 168.0 188.0 289 324
Defined Contribution Pension--Not Eligible for 5500-SF.. 25.4 25.4 11.8 33.9 484 1,335
Welfare--Non-Health--Eligible for 5500-SF............... 0.7 0.7 0.2 0.2 289 324
Welfare--Non-Health--Not Eligible for 5500-SF........... 3.3 3.3 1.5 2.5 455 758
Welfare--Fully Insured Health........................... 0.0 1,869.0 0.0 69.6 0 37
Welfare--Unfunded, Combination Unfunded/Insured, or 6.2 289.0 4.1 158.2 654 547
Funded with a Trust Health.............................
-----------------------------------------------------------------------------------------------
Total for All Small Plans........................... 658.3 2,810.1 224.3 493.4 341 176
--------------------------------------------------------------------------------------------------------------------------------------------------------
In comparison to the costs per filer described in Table 5, the
75,000 large pension plans will incur an average cost of $2,326 under
the proposed requirements and the almost 74,000 large welfare plans
subject to annual reporting requirements will incur an average cost of
$1,833 each year.\65\
---------------------------------------------------------------------------
\65\ Average costs for large plans do not include the costs of
obtaining the report of an IQPA or an actuarial report, if such a
report is required for the plan's specific situation.
---------------------------------------------------------------------------
Table 6 below compares the DOL's estimates of small plans'
reporting costs under the requirements in effect prior to this action
with those under the new requirements as a percentage of plan assets
for pension plans and welfare plans that do not offer group health
benefits and as a percentage of annual health insurance premiums for
welfare plans that offer group health benefits to show the impact of
the reporting requirement on small plans of differing
[[Page 47525]]
sizes.\66\ As shown, group health plans with five or fewer participants
that are unfunded, combination unfunded/fully insured, or funded with a
trust incur the highest costs as a result of the proposed reporting
requirements, incurring an annual reporting cost of 0.998 percent of
their annual health insurance premiums. Non-health welfare plans that
are eligible to file Form 5500-SF and have between 6 and 10
participants incur the second highest costs under the proposed
reporting requirements. These plans' annual reporting cost is 0.561
percent of their plan assets.
---------------------------------------------------------------------------
\66\ Plan asset data reflects data reported on 2013 Form 5500
filings. Because so few plans that provide group health benefits and
have fewer than 100 participants are currently subject to annual
reporting requirements and many group health plans do not hold
assets in trusts, the DOL concluded that annual health insurance
premium data reported by the Kaiser Family Foundation was a more
appropriate metric for comparison of group health plans.
Table 6--Small Plan Reporting Costs Under Prior and New Requirements as a Percentage of Plan Assets or Aggregate
Annual Health Insurance Premiums
----------------------------------------------------------------------------------------------------------------
Annual per filer
Annual per filer cost under
cost under current proposed
requirements as a requirements as a Number of plans
Class of small plan (participants) percentage of plan percentage of plan subject to
assets or assets or proposed filing
aggregate annual aggregate annual requirements
health insurance health insurance
premiums premiums
----------------------------------------------------------------------------------------------------------------
Defined Benefit Pension--Eligible for 5500-SF:
5 or Fewer...................................... 0.088 0.091 178,694
6-10............................................ 0.084 0.087 105,458
11-25........................................... 0.067 0.070 139,971
26-50........................................... 0.040 0.041 86,936
51-75........................................... 0.022 0.023 38,822
76-90........................................... 0.018 0.018 14,491
90-99........................................... 0.016 0.016 6,341
Defined Benefit Pension--Not Eligible for 5500-SF:
5 or Fewer...................................... 0.002 0.003 566
6-10............................................ 0.050 0.086 82
11-25........................................... 0.041 0.069 60
26-50........................................... 0.016 0.027 40
51-75........................................... 0.017 0.028 46
76-90........................................... 0.016 0.027 66
90-99........................................... 0.020 0.034 90
Defined Contribution Pension--Eligible for 5500-SF:
5 or Fewer...................................... 0.045 0.050 178,694
6-10............................................ 0.036 0.040 105,458
11-25........................................... 0.024 0.027 139,971
26-50........................................... 0.014 0.016 86,936
51-75........................................... 0.010 0.011 38,822
76-90........................................... 0.008 0.009 14,491
90-99........................................... 0.007 0.008 6,341
Defined Contribution Pension--Not Eligible for 5500-
SF:
5 or Fewer...................................... 0.011 0.033 15,650
6-10............................................ 0.040 0.115 1,856
11-25........................................... 0.021 0.062 1,989
26-50........................................... 0.012 0.033 1,888
51-75........................................... 0.009 0.026 1,362
76-90........................................... 0.009 0.026 990
90-99........................................... 0.008 0.024 1,086
Welfare--Non-Health--Eligible for 5500-SF:
5 or Fewer...................................... 0.135 0.151 263
6-10............................................ 0.501 0.561 61
11-25........................................... 0.269 0.301 124
26-50........................................... 0.124 0.139 91
51-75........................................... 0.036 0.041 58
76-90........................................... 0.057 0.064 32
90-99........................................... 0.134 0.150 23
Welfare--Non-Health--Not Eligible for 5500-SF:
5 or Fewer...................................... 0.019 0.032 1,917
6-10............................................ 0.197 0.328 51
11-25........................................... 0.172 0.287 117
26-50........................................... 0.038 0.064 218
51-75........................................... 0.073 0.123 310
76-90........................................... 0.028 0.047 323
90-99........................................... 0.150 0.250 404
Welfare--Fully Insured Health....................... .................. .................. 1,869,000
5 or Fewer...................................... 0.000 0.068 ..................
6-10............................................ 0.000 0.034 ..................
11-25........................................... 0.000 0.014 ..................
26-50........................................... 0.000 0.007 ..................
[[Page 47526]]
51-75........................................... 0.000 0.005 ..................
76-90........................................... 0.000 0.004 ..................
90-99........................................... 0.000 0.003 ..................
Welfare--Unfunded, Combination Unfunded/Fully .................. .................. 289,000
Insured, or Funded with a Trust Health.............
5 or Fewer...................................... 1.192 0.988 ..................
6-10............................................ 0.596 0.496 ..................
11-25........................................... 0.238 0.199 ..................
26-50........................................... 0.119 0.100 ..................
51-75........................................... 0.079 0.066 ..................
76-90........................................... 0.066 0.055 ..................
90-99........................................... 0.060 0.050 ..................
----------------------------------------------------------------------------------------------------------------
Note: Due to data constraints, the DOL is unable to break out smaller subgroup plan counts for welfare plans
that provide group health benefits with fewer than 100 participants. Instead, the DOL has provided the total
number of welfare plans that provide group health benefits with fewer than 100 participants.
The DOL is unaware of any relevant federal rules for small plans
that duplicate, overlap, or conflict with these regulations.
Description of steps the DOL has taken to minimize impact on small
entities: In developing these regulations and the associated forms
revisions, the Agencies considered a number of alternative provisions
directed at small plans, many of which are discussed elsewhere in this
preamble and in the Notice of Proposed Forms Revision. The DOL believes
that the proposed changes to the reporting requirements impose the
least amount of burden on small plans, while allowing the DOL to
collect sufficient information for it to fulfill its statutory
responsibilities. Any efforts to further reduce reporting burden would
have had a detrimental impact on the DOL's ability to protect plan
participants and beneficiaries.
The new reporting requirements for welfare plans that offer group
health benefits with fewer than 100 participants comprise over 83
percent of the increased burden on small plans. The subset of these
welfare plans that are fully insured comprises almost 87 percent of
welfare plans that offer group health benefits with fewer than 100
participants. As discussed previously, the DOL considered requiring
welfare plans that offer fully insured group health benefits with fewer
than 100 participants to file a Form 5500 Annual Return/Report and
Schedule J annually, or alternatively, on a two or three year cycle.
The DOL opted instead to have those plans file only limited information
on the Form 5500 Annual Return/Report and Schedule J. Requiring those
plans to file a complete Form 5500 Annual Return/Report and Schedule J
annually would have added $927.6 million in annual reporting costs
relative to the chosen alternative. The DOL also considered requiring
welfare plans that offer group health benefits with fewer than 100
participants that are fully insured to attach a Schedule A (in addition
to the Form 5500 and Schedule J). If the DOL were to require welfare
plans that offer group health benefits with fewer than 100 participants
that are fully insured to attach Schedule A, the additional aggregate
annual reporting cost would be $583.4 million relative to the option
chosen. The DOL rejected both of these options because they added
significant cost ($1.5 billion total) with limited additional benefit.
As discussed above, the Schedule I is being eliminated for small
plans that are not eligible to file Form 5500-SF because the Schedule I
does not require small plans to provide detailed plan asset
information. This shortcoming impairs the utility of the Form 5500
Annual Return/Report as a tool to obtain a meaningful picture of small
plan investments in hard-to-value and other assets. As the GAO has
noted, the limited financial information provided on the Schedule I
creates a challenge for participants, beneficiaries, oversight
agencies, researchers, and other users of the Form 5500 Annual Return/
Report or its data.\67\ Accordingly, under the proposed change,
approximately 27,000 small plans that are not eligible to file the Form
5500-SF and currently are required to file the Schedule I would be
required to complete the Schedule H and the applicable schedules of
assets. Although this would result in additional reporting details for
certain small plans, the Agencies do not expect that small plans with
simple investment portfolios would see a significant increase in their
annual reporting burden. Small plans with complex portfolios that
include hard-to-value or alternative investments should have more
transparent financial statements which may require somewhat more
complex financial reporting obligations. In light of changes in the
financial environment and increasing concerns about investments in
hard-to-value assets and alternative investments, the Agencies continue
to believe that requiring separate financial information regarding
hard-to-value investments is important for regulatory, enforcement, and
disclosure purposes. The DOL notes that although the proposal would
require such small plans to complete the Schedule H instead of the
Schedule I, including the Schedule H Line 4i(1) and 4i(2) Schedules of
Assets, small plans that are eligible for a waiver of the annual
examination and report of an IQPA under current rules would still be
eligible for this waiver under the proposal.\68\
---------------------------------------------------------------------------
\67\ GAO Targeted Revisions Could Improve Usefulness of Form
5500 Information, at 18.
\68\ 29 CFR 2520.104-46.
---------------------------------------------------------------------------
The proposed rule would also require approximately 18,200 small
plans that
[[Page 47527]]
are not eligible to file the Form 5500-SF to file Schedule C.
Currently, only large plans must file a Schedule C, thus excluding a
large portion of plans from having to disclose service provider fees.
The Agencies recognize the burdens small plans face in complying with
disclosure obligations. The Agencies therefore propose to require small
pension plans to file Schedule C only if they do not meet the
eligibility conditions for filing the Form 5500-SF, which generally
would be those pension plans that are invested in alternative or hard-
to-value assets. Small welfare plans that provide group health benefits
(which are not eligible to file the Form 5500-SF) would also be
required to file the Schedule C if they are not unfunded or insured
(e.g., funded using a trust). This would continue to emphasize
sensitivity to reporting burden for small plans with simple investment
portfolios, while addressing some of the GAO's concerns that not all
critical information on indirect compensations is being reported to the
Agencies. See GAO Targeted Revisions Could Improve Usefulness of Form
5500 Information at 25-26 (``Given these various exceptions to fee
reporting requirements, Schedule C may not provide participants, the
government, or the public with information about a significant portion
of plan expenses and limits the ability to identify fees that may be
questionable.'') In addition, the rule would align financial
information reporting with recently adopted disclosure rules to ensure
that all fees are reported by the plans.\69\
---------------------------------------------------------------------------
\69\ Id. at 50.
---------------------------------------------------------------------------
Paperwork Reduction Act Statement
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (PRA) (44 U.S.C. 3506(c)(2)), the DOL requests comments on the
information collections included in the proposed amendments to the
DOL's regulations relating to annual reporting and disclosure
requirements under Part 1 of Subtitle B of Title I of ERISA and in the
proposed revision of the Form 5500 Annual Return/Report pursuant to
Part 1 of Subtitle B of Title I and Title IV of ERISA and the Code. The
DOL has submitted an information collection request (ICR) to OMB in
accordance with 44 U.S.C. 3507(d), for OMB's review of the DOL's
information collections previously approved under OMB Control No. 1210-
0110.
A copy of the ICR can be obtained by contacting the U.S. Department
of Labor, Employee Benefits Security Administration, Office of Policy
and Research, 200 Constitution Avenue NW., Room N-5718, Washington, DC
20210, Telephone: (202) 693-8410; Fax: (202) 219-4745 or at
www.RegInfo.gov. These are not toll-free numbers.
OMB asks that comments about information collections in this NPRM
be submitted by mail or courier to the Office of Information and
Regulatory Affairs, Attn: OMB Desk Officer for DOL-EBSA, Office of
Management and Budget, Room 10235, 725 17th Street NW., Washington, DC
20503; by Fax: 202-395-6881 (this is not a toll-free number); or by
email: [email protected]. Commenters are encouraged, but not
required, to send a courtesy copy of any comments to the party
identified in the ADDRESSES section of this NPRM. OMB requests that
comments be received within 75 days of publication of the proposed rule
to ensure their consideration. Comments submitted in response to this
request become a matter of public record. The Department and OMB are
particularly interested in comments that:
Evaluate whether the collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the DOL's estimate of the burden
of the 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.
Congressional Review Act
The proposed rules being issued here are subject to the
Congressional Review Act provisions of the Small Business Regulatory
Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and, if
finalized, will be transmitted to the Congress and the Comptroller
General for review. The proposed rule is a ``major rule'' as that term
is defined in 5 U.S.C. 804, because it is likely to result in an annual
effect on the economy of $100 million or more.
Unfunded Mandates Reform Act Statement and Summary
Title II of the Unfunded Mandates Reform Act of 1995, 2 U.S.C.
1531-1538 requires each Federal agency to prepare a written statement
assessing the effects of any Federal mandate in a proposed or final
agency rule that may result in an expenditure of $100 million or more
(adjusted annually for inflation with the base year 1995) in any one
year by State, local, and tribal governments, in the aggregate, or by
the private sector. Such a mandate is deemed to be a ``significant
regulatory action.'' The current proposal is expected to have such an
impact on the private sector, and the DOL therefore hereby provides
such an assessment. The DOL's written statement as required by this act
follows:
The DOL is issuing the current proposed regulations and forms
revisions under Sections 103, 104, 110 and 505 of ERISA (29 U.S.C.
1023, 1024, 1030, and 1135). Under Titles I and IV of ERISA and the
Code, 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 a Form 5500
Annual Return/Report of Employee Benefit Plan or Form 5500-SF Short
Form Annual Return/Report of Small Employee Benefit Plan, together with
any required schedules and attachments, generally satisfies these
annual reporting requirements. The current proposal would amend current
reporting regulations and update the existing forms and schedules as
explained in the summary information provided above in this document.
The DOL assessed the anticipated benefits and costs of the current
proposal pursuant to Executive Order 12866 in the Regulatory Impact
Analysis for the current proposal, above, and concluded that its
benefits would justify its costs. The current proposal's material
benefits and costs generally would be largely confined to the private
sector, where plans would incur increased costs from expanded reporting
requirements, while participants and beneficiaries and other end-users
of the Form 5500 Annual Return/Report data would benefit from improved
reporting. The DOL itself, as well as IRS, PBGC, and other governmental
users would benefit from increased efficiency in enforcement activity
and improved quality in research and policy decisions resulting from
reporting data that more accurately reflect the current plan
marketplace.
Some employee benefit plans sponsored by tribal governments that
are subject to ERISA because they cover employees who are involved in
performing commercial activities (whether or not such activities are
essential government functions) may be affected by the Federal mandate
contained in this rule, if it is adopted as
[[Page 47528]]
proposed. The DOL does not have sufficient data to estimate the amount
of the increase in future compliance costs that would be imposed on
tribal governments that sponsor these plans, but it believes such costs
would be similar to those imposed on private sector employers that are
discussed in the regulatory impact analysis. Such increased costs would
not be paid with Federal financial assistance (or otherwise paid for by
the government). The DOL is not aware of any available Federal
resources to carry out this mandate on tribal governments. The
budgetary impact of the mandate will fall on tribal governments that
maintain certain employee benefit plans. Apart from this, the DOL does
not believe that the mandate will cause any disproportionate budgetary
effects on any particular regions of the nation or particular tribal
governments, urban, rural or other types of communities, or particular
segments of the private sector.
The DOL has not consulted with elected representatives of tribal
governments, but will do so after the proposed regulations and forms
revisions are published.
In summary, the DOL believes the benefits of this proposed rule are
significant, and will result in a modernized annual return/report that
has substantially more utility for the agencies, the regulated
community, and the public. The proposed rule would also impose
increased costs on employee benefit plan sponsors. Tribal governments
that sponsor ERISA-covered plans will incur increased costs as will all
other sponsors of ERISA-covered plans. The DOL lacks sufficient
information to quantify the number of tribal governments impacted by
this proposed rule, but believes that the costs imposed on tribal
governments will be consistent with the costs imposed on all other
sponsors of ERISA-covered plans. Finally, the DOL does not believe that
the costs imposed by this proposed rule will have any disproportionate
budgetary effects based on any particular regions of the nation or
particular tribal governments, urban, rural or other types of
communities, or particular segments of the private sector.
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
specifically enumerated, that the provisions of Titles I and IV of
ERISA supersede any and all laws of the States as they relate to any
employee benefit plan covered under ERISA. The requirements implemented
in these rules do not alter the fundamental provisions of the statute
with respect to employee benefit plans, and as such would have no
implications for the States or the relationship or distribution of
power between the national government and the States.
List of Subjects
29 CFR Part 2520
Accounting, Employee benefit plans, Pensions, Reporting and
recordkeeping requirements.
29 CFR Part 2590
Continuation coverage, Disclosure, Employee benefit plans, Group
health plans, Health care, Health insurance, Medical child support,
Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Department proposes
to amend Subchapter C, parts 2520 and 2590 of Title 29 of the Code of
Federal Regulations as follows:
PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE
0
1. The authority section for part 2520 continues to read as follows:
Authority: 29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134, and
1135; and Secretary of Labor's Order 1-2011, 77 FR 1088 (Jan. 9,
2012). Sec. 2520.101-2 also issued under 29 U.S.C. 1132, 1181-1183,
1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.102-3,
2520.104b-1, and 2520.104b-3 also issued under 29 U.S.C. 1003, 1181-
1183, 1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.104b-1
and 2520.107 also issued under 26 U.S.C. 401 note, 111 Stat. 788.
0
2. In Sec. 2520.103-1, revise paragraphs (b)(1), (c)(1), (c)(2)(i),
(c)(2)(ii)(D), (E), and (e), and add paragraphs (c)(2)(ii)(F) and
(c)(2)(iii) to read as follows:
Sec. 2520.103-1 Contents of the annual report.
* * * * *
(b) * * *
(1) A Form 5500 ``Annual Return/Report of Employee Benefit Plan''
and any statements or schedules required to be attached to the form,
completed in accordance with the instructions for the form, including
Schedule A (Insurance Information), Schedule C (Service Provider
Information), Schedule E (ESOP Annual Information), Schedule G
(Financial Transaction Schedules), Schedule H (Financial Information),
Schedule J (Group Health Plan Information), Schedule MB (Multiemployer
Defined Benefit Plan and Certain Money Purchase Plan Actuarial
Information), Schedule R (Retirement Plan Information), Schedule SB
(Single-Employer Defined Benefit Plan Actuarial Information), and other
financial schedules described in Sec. 2520.103-10. See the instructions
for this form.
* * * * *
(c) * * *
(1) Except as provided in paragraphs (c)(2), (d), (e), and (f) of
this section, and in Sec. Sec. 2520.104-43, 2520.104a-6 and 2520.104-
44, 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 C (Service Provider Information),
Schedule E (ESOP Annual Information), Schedule G (Financial
Transactions), Schedule H (Financial Information), Schedule J (Group
Health Plan Information), Schedule MB (Multiemployer Defined Benefit
Plan and Certain Money Purchase Plan Actuarial Information), Schedule R
(Retirement Plan Information), and Schedule SB (Single Employer Defined
Benefit Plan Actuarial Information), completed in accordance with the
instructions for the form. See the instructions for this form.
(2)(i) The annual report of an employee pension benefit plan or
employee welfare benefit plan that does not provide group health
benefits and 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 Annual
Return/Report of Small Employee Benefit Plan'' and any statements or
schedules required to
[[Page 47529]]
be attached to the form, including Schedule SB (Single Employer Defined
Benefit Plan Actuarial Information) and Schedule MB (Multiemployer
Defined Benefit Plan and Certain Money Purchase Plan Actuarial
Information), completed in accordance with the instructions for the
form. See the instructions for this form.
(ii) * * *
(D) Is not a multiemployer plan;
(E) Is not a plan subject to the Form M-1 requirements under Sec.
2520.101-2 (Filing by Multiple-employer Welfare Arrangements and
Certain Other Related Entities); and
(F) Is not a group health plan as defined in section 733(a) of the
Act.
(iii) The annual report of an employee benefit plan that meets the
definition of a group health plan as defined in section 733(a) of the
Act 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 C (Service
Provider Information), Schedule H (Financial Information), and Schedule
J (Group Health Plan Information). See the instructions for this form.
* * * * *
(e) Plans that participate in a master trust. The plan
administrator of a plan which participates in a master trust shall file
a Form 5500 Annual Return/Report in accordance with the instructions
for the form relating to master trusts. For purposes of annual
reporting, a master trust is a trust for which a regulated financial
institution serves as trustee or custodian (regardless of whether such
institution exercises discretionary authority or control respecting the
management of assets held in the trust) and in which assets of more
than one plan sponsored by a single employer or by a group of employers
under common control are held. A master trust must operate either on a
calendar year basis or on the same fiscal year as all of the plans that
are participating in the master trust. For purpose of this paragraph, a
regulated financial institution is a bank, trust company, or similar
financial institution regulated, supervised, and subject to periodic
examination by a State or Federal agency. Common control is determined
on the basis of all relevant facts and circumstances (whether or not
such employers are incorporated).
0
3. In Sec. 2520.103-2, revise paragraph (b)(1) to read as follows:
Sec. 2520.103-2 Contents of the annual report for group insurance
arrangement.
* * * * *
(b) Contents. (1) A Form 5500 ``Annual Return/Report of Employee
Benefit Plan'' and any statements or schedules required to be attached
to the form, completed in accordance with the instructions for the
form, including Schedule A (Insurance Information), Schedule C (Service
Provider Information), Schedule D (DFE/Participating Plan Information),
Schedule G (Financial Transaction Schedules), Schedule H (Financial
Information), a separate Schedule J (Group Health Plan Information) for
each participating plan, and the other financial schedules described in
Sec. 2520.103-10. See the instructions for this form.
* * * * *
0
4. In Sec. 2520.103-3, revise paragraph (c) to read as follows:
Sec. 2520.103-3 Exemption from certain annual reporting requirements
for assets held in a common or collective trust.
* * * * *
(c) Contents. (1) A plan that meets the requirements of paragraph
(b) of this section, and that invests in a common or collective trust
that files a Form 5500 report in accordance with Sec. 2520.103-9,
shall include in its annual report: information required by the
instructions to Schedule H (Financial Information) about the current
value of and net investment gain or loss relating to the units of
participation in the common or collective trust held by the plan;
identifying information in the common or collective trust including its
name, employer identification number, and any other information
required by the instructions to the Schedule of Assets Held for
Investment Purposes and Schedule of Assets Disposed of During Plan
Year; and such other information as is required in the separate
statements and schedules of the annual report about the value of the
plan's units of participation in the common or collective trust and
transactions involving the acquisition and disposition by the plan of
units of participation in the common or collective trust.
(2) A plan that meets the requirements of paragraph (b) of this
section and that invests in a common or collective trust that does not
file a Form 5500 report in accordance with Sec. 2520.103-9, shall
include in its annual report: Information required by the instructions
to Schedule H (Financial Information) about the current value of and
the net investment gain or loss relating to the units of participation
in the common or collective trust held by the plan; information
required by the accompanying instructions to the ``Schedule of Assets
Held for Investment'' about the current value of the plan's allocable
portion of the underlying assets and liabilities of the common or
collective trust; identifying information about the common or
collective trust including its name, employer identification number,
and any other information required by the instructions to the Schedule
of Assets Held for Investment Purposes and Schedule of Assets Disposed
of During Plan Year; and such other information as is required in the
separate statements and schedules of the annual report about the value
of the plan's units of participation in the common or collective trust
and transactions involving the acquisition and disposition by the plan
of units of participation in the common or collective trust.
0
5. In Sec. 2520.103-4, revise paragraph (c) as follows:
Sec. 2520.103-4 Exemption from certain annual reporting requirements
for assets held in an insurance company pooled separate account.
* * * * *
(c) Contents. (1) A plan that meets the requirements of paragraph
(b) of this section, and which invests in a pooled separate account
that files a Form 5500 report in accordance with Sec. 2520.103-9,
shall include in its annual report: Information required by the
instructions to Schedule H (Financial Information) about the current
value of and net investment gain or loss relating to the units of
participation in the pooled separate account held by the plan;
identifying information about the pooled separate account including its
name, employer identification number, and any other information
required by the instructions to the Schedule of Assets Held for
Investment Purposes and Schedule of Assets Disposed of During Plan
Year; and such other information as is required in the separate
statements and schedules of the annual report about the value of the
plan's units of participation in the pooled separate account and
transactions involving the acquisition and disposition by the plan of
units of participation in the pooled separate account.
(2) A plan that meets the requirements of paragraph (b) of this
section and which invests in a pooled separate account that does not
file a Form 5500 report in accordance with Sec. 2520.103-9, shall
include in its annual report: Information required by the instructions
[[Page 47530]]
to Schedule H (Financial Information) about the current value of and
the net investment gain or loss relating to the units of participation
in the pooled separate account held by the plan; information required
by the accompanying instructions to the ``Schedule of Assets Held for
Investment'' about the current value of the plan's allocable portion of
the underlying assets and liabilities of the pooled separate account;
identifying information about the pooled separate account including its
name, employer identification number, and any other information
required by the instructions to the Schedule of Assets Held for
Investment Purposes and Schedule of Assets Disposed of During Plan
Year; and such other information as is required in the separate
statements and schedules of the annual report about the value of the
plan's units of participation in the pooled separate account and
transactions involving the acquisition and disposition by the plan of
units of participation in the pooled separate account.
0
6. In Sec. 2520.103-6, revise paragraph (d) to read as follows:
Sec. 2520.103-6 Definition of reportable transaction for annual
return/report.
* * * * *
(d) Contents. (1) The schedule of reportable transactions shall be
filed in the format and include information as described in the
instructions for the Form 5500 Annual Return/Report of Employee Benefit
Plan.
(2) [Removed]
0
7. In Sec. 2520.103-8, revise paragraphs (a) and (c) and add new
paragraphs (d) and (e) to read as follows:
Sec. 2520.103-8 Limitation on scope of accountant's examination.
(a) General. Under the authority of section 103(a)(3)(C) of the
Act, the examination and report of an independent qualified public
accountant need not extend to any statement or information prepared and
certified by a bank or similar institution or insurance carrier
provided the certification meets the requirements of paragraph (d) of
this section.
* * * * *
(c) Excluded information. Any statements or information certified
to by a bank or similar institution or insurance carrier described in
paragraph (b) of this section, provided that the statements or
information regarding assets so held are prepared and certified to by
the bank or insurance carrier in accordance with the requirements of
(d) of this section and Sec. 2520.103-5.
(d) Contents and manner. The certification described in paragraph
(a) of this section shall:
(1) Appear on a separate document from the list of plan assets
covered by the certification;
(2) Identify the bank or insurance company holding the plan's
assets;
(3) Describe the manner in which the bank or insurance company is
holding the assets covered by the certification;
(4) State whether the bank or insurance company is providing
current value information regarding the assets covered by the
certification in accordance with 2520.103-5, and if so, state that the
assets for which current value is being certified are separately
identified in the list of assets covered by the certification;
(5) If current value is not being certified for all of the assets
covered by the certification, include a caution that the certification
is not certifying current value information and the asset values
provided by the bank or insurance company may not be suitable for use
in satisfying the plan's obligation to report current value information
on the Form 5500 Annual Return/Report; and
(6) If the certification is being provided by an agent on behalf of
the bank or insurance company, a statement certifying that the person
providing the certification is an authorized agent acting on behalf of
the bank or insurance company and affirming that the bank or insurance
company is taking responsibility for the accuracy and completeness of
the certification and the underlying records used as a basis for the
information being certified.
(e) The administrator of a plan which meets the requirements of
paragraph (b) of this section, and which is not required to have
covered by the accountant's examination or report any of the
information described in paragraph (c) of this section shall attach to
the Form 5500 Annual Return/Report of Employee Benefit Plan the
certification of investment information created by certain banks or
insurance companies in accordance with the requirements of paragraph
(d) of this section to comply with the limited scope audit
requirements.
0
8. In Sec. 2520.103-10, revise paragraphs (b)(1)(i) and (2)(i) to read
as follows:
Sec. 2520.103-10 Annual report financial schedules.
* * * * *
(b) * * *
(1) * * *
(i) A schedule of all assets held for investment purposes at the
end of the plan year (see Sec. 2520.103-11) with assets aggregated and
identified as described in the instructions to the Form 5500 Annual
Return/Report of Employee Benefit Plan.
* * * * *
(2) Assets disposed of during the plan year. (i) A schedule of all
assets disposed of during the plan year (see Sec. 2520.103-11) with
assets aggregated and identified as described in the instructions to
the Form 5500 Annual Return/Report of Employee Benefit Plan.
* * * * *
0
9. In Sec. 2520.104-20, revise paragraph (b)(1) to read as follows:
Sec. 2520.104-20 Limited exemption for certain small welfare plans.
* * * * *
(b) * * *
(1) Which have fewer than 100 participants at the beginning of the
plan year, and do not provide benefits consisting of medical care as
defined in section 733(a)(2) of the Act;
* * * * *
0
10. In Sec. 2520.104-26, revise paragraph (b) to read as follows:
Sec. 2520.104-26 Limited exemption for certain unfunded dues financed
welfare plans maintained by employee organizations.
* * * * *
(b) Application. This exemption applies only to welfare benefit
plans that do not provide benefits consisting of medical care as
defined in section 733(a)(2) of the Act that are maintained by an
employee organization, as that term is defined in section 3(4) of the
Act, paid out of the employee organization's general assets, which are
derived wholly or partly from membership dues, and which cover employee
organization members and their families.
* * * * *
0
11. Revise Sec. 2520.104-42 to read as follows:
Sec. 2520.104-42 Waiver of certain actuarial information in the
annual report.
Under the authority of section 104(a)(2)(A) of ERISA, the
requirement of section 103(d)(6) of ERISA that the annual report
include as part of the actuarial statement (Schedule SB) the present
value of all of the plan's liabilities for nonforfeitable pension
benefits allocated by termination priority categories, as set forth in
section 4044 of title IV of ERISA, and the actuarial assumptions used
in these computations, is waived.
0
12. In Sec. 2520.104b-10, revise the Appendix to Sec. 2520.104b-10 to
read as follows:
[[Page 47531]]
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-SF line
SAR Item Form 5500 line items items
------------------------------------------------------------------------
A. Pension Plan (defined contribution pension benefit plans and defined
benefit pension plans that do not furnish the annual funding notice
under 29 CFR 2520.101-4)
------------------------------------------------------------------------
1. Funding arrangement...... Form 5500-10a....... Line 13a.
2. Total plan expenses...... Sch. H--2j.......... Line 10h.
3. Administrative expenses.. Sch. H--2i(12)(C)... Line 10f.
4. Benefits paid............ Sch. H--2e(4)....... Line 10d.
5. Other Expenses........... Sch. H--Subtract the Line 10g.
sum of 2e(4) &
2i(12)(C) from 2j.
6. Total Participants at end Form 5500--7f....... Line 7f.
of plan year.
7. Value of plan assets
(net):
a. end of plan year..... Sch. H--1l [Col. Line 9c [Col. (b)].
(b)].
b. beginning of plan Sch. H--1l [Col. Line 9c [Col. (a)].
year. (a)].
8. Changes in Net Assets.... Sch. H--Subtract 1l Line 9c-Subtract
[Col. a] from 11 [Col. a] from [Col.
[Col. b]. b].
9. Total Income............. Sch. H--2d.......... Line 10c.
a. Employer Sch. H--2a(1)(A, & Line 10a(1)(A).
contributions. 2a(2) if applicable.
b. Employee Sch. H--2a(1)(B), & Line 10a(1)(B).
contributions. 2a(2) if applicable.
c. Gains (losses) from Sch. H--2c(4)(C).... Not applicable.
sale of assets.
d. Earnings from Sch. H--Subtract the Line 10b.
investments. sum of 2a(3) and
2c(4)(C) from 2d.
10. Name of insurance Schs. A--1a......... Not applicable.
carriers.
11. Total insurance premiums Sch. A--5b (total of Not applicable.
all contracts).
12. Unpaid minimum required
contribution (S-E plans or
Defined contribution plans)
or Funding deficiency (ME
plans):
a. S-E Defined benefit Sch. SB--43......... Same.
plans.
b. ME Defined benefit Sch. MB--10......... Not applicable.
plans.
c. Defined contribution Sch. R--7c, if not Line 16b.
plans. zero.
------------------------------------------------------------------------
B. Welfare Plan
------------------------------------------------------------------------
1. Name of insurance Schs. A--1a......... Not applicable.
carriers.
2. Total (experience rated Schs. A--Sum of Not applicable.
and non-experienced rated) 9a(1) and 10a
insurance premiums. (total of all
contracts).
3. Experience rated premiums Schs. A--9a(1) Not applicable.
(total of all
contracts).
4. Experience rated claims.. Schs. A--9b(4) Not applicable.
(total of all
contracts).
5. Value of plan assets
(net).
a. end of plan year..... Sch. H--1l [Col. Line 9c [Col. (b)].
(b)].
b. beginning of plan Sch. H--1l [Col. Line 9c [Col. (a)].
year. (a)].
6. Changes in Net Assets.... Sch. H--Subtract 1l Line 9c--Subtract
[Col. a] from [Col. [Col. a] from [Col.
b]. b].
7. Total Income............. Sch. H--2d.......... Line 10c.
a. Employer Sch. H--2a(1)(A) & Line 10a(1)(A) if
contributions. 2a(2) if applicable. applicable.
b. Employee Sch. H--2a(1)(B) & Line 10a(1)(B) if
contributions. 2a(2) if applicable. applicable.
c. Gains (losses) from Sch. H--2c(4)(C).... Not applicable.
sale of assets.
d. Earnings from Sch. H--Subtract the Line 10b.
investments. sum of 2a(3) and
2c(4)(C) from 2d.
8. Total plan expenses...... Sch. H--2j.......... Line 10h.
9. Administrative expenses.. Sch. H--2i(12)(C)... Line 10f.
10. Benefits paid........... Sch. H--2e(4)....... Line 10d.
11. Other Expenses.......... Sch. H--Subtract the Line 10g.
sum of 2e(4) &
2i(12)(C) from 2j.
------------------------------------------------------------------------
PART 2590 --RULES AND REGULATIONS FOR GROUP HEALTH PLANS
0
13. The authority citation for Part 2590 continues to read as follows:
Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1181 note, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c;
sec. 101(g), Pub. L.104-191, 110 Stat. 1936; sec. 401(b), Pub. L.
105-200, 112 Stat. 645 (42 U.S.C. 651 note); sec. 512(d), Pub. L.
110-343, 122 Stat. 3881; sec. 1001, 1201, and 1562(e), Pub. L. 111-
148, 124 Stat. 119, as amended by Pub. L. 111-152, 124 Stat. 1029;
Secretary of Labor's Order 1-2011, 77 FR 1088 (Jan. 9, 2012).
Subpart C--Other Requirements
0
14. Add Sec. Sec. 2590.715-2715A and 2590.715-2717 to Subpart C to
read as follows:
Sec. 2590.715-2715A Provision of additional information.
A group health plan that complies with the requirements of Sec.
2520.103-1 of this Chapter and any implementing guidance (including
filing any required schedules to the annual report required by Sec.
2520.103-1) satisfies the requirements of PHS Act section 2715A, as
incorporated in ERISA.
[[Page 47532]]
Sec. 2590.715-2717 Ensuring the quality of care.
A group health plan that complies with the requirements of Sec.
2520.103-1 of this Chapter and any implementing guidance (including
filing any required schedules to the annual report required by Sec.
2520.103-1) satisfies the requirements of PHS Act section 2717, as
incorporated in ERISA.
Signed at Washington, DC, this 20th day of June 2016.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
[FR Doc. 2016-14892 Filed 7-11-16; 4:15 pm]
BILLING CODE 4510-29-P