Significant Changes to Form 5500 Proposed

August 8, 2016

The Internal Revenue Service “IRS”, the Department of Labor “DOL” and the Pension Benefit Guaranty Corporation “PBGC” (the agencies) recently proposed significant changes to the Form 5500 requirements for employer sponsored benefit plans. If approved, the changes would be the most significant since implementing the EFAST2 electronic filing system in 2009. As such, the filing system has allowed for easier data collection leaving the agencies anxious to obtain more robust data from plan sponsors about their plans. While the new reporting requirements are scheduled to take effect for plan years beginning on or after January 1, 2019, employers, investment companies, custodians, record-keepers, third-party administrators, and trustees, etc. would be impacted by the new requirements, which could cause rollout delays.

The changes are quite ambitious and clearly reflect the agencies’ desire for additional and more valuable data in the areas of concern. The proposed changes focus on the following areas:

Plan investments

There is continued sentiment that many plans include high-risk, hard to value assets. Proposed modifications to the Schedule H Financial Information, would disclose the assets that create the greatest concern. New information would be gathered on derivatives, limited partnerships, private equity and hedge funds.

Service provider fees and expenses

Fees paid by plan participants continue to be a huge focus, along with continued frustration from the agencies as to how these amounts are being reported via the current Form structure. Additional reporting would be required on the Schedule H, while the  Schedule C Service Provider Information, would be modified to more closely align with the 408(b)(2) indirect compensation reporting for covered service providers. Schedule C reporting would also be required for small retirement and welfare benefit plans along with additional new inquires on the Form.

Information on plan operation and compliance

The 2015 Forms included several new questions focused on plan provisions and testing. Shortly after being released, the agencies relented and eliminated the requirement that these questions be answered. It is not clear at this point when answers to these questions will be required, but they remain a reminder of just how much new information the agencies can obtain. The additional proposed compliance questions revolve around other plan administration areas, including service provider compensation, uncashed checks, default investment alternatives and participant disclosures.

New and enhanced reporting requirements for employer sponsored healthcare arrangements

Employers who sponsor welfare benefit plans, including health plans that generally have greater than 100 participants, are required to file Form 5500. This filing typically consists of the Form itself along with Schedule A Insurance Information, and sometimes Schedule C. Small welfare benefit plans have been exempt from this requirement. However, under the proposed rules, the exemption would be modified. ERISA covered group health plans, regardless of size, would be required to file Form 5500. Additionally, applicable employers would be subject to filing the new Schedule J Group Health Plan Information, which includes a myriad of questions required under the Public Health Service Act.

Other areas impacted by the proposed changes include: additional ESOP questions on Schedule E ESOP Annual Administration, enhanced reporting on Form 5500-SF, new reporting requirements for small plans not eligible for Form 5500-SF, revised Schedule G Financial Transaction Schedules, merger and termination reporting on Schedule H, and changes to Direct Filing Entity “DFE” reporting.

Employers sponsoring ERISA covered plans have been quite fortunate that Form 5500 reporting requirements have generally been reduce over the last 10 to 15 years. This is the first time in quite a while that enhanced Form 5500 reporting requirements are likely. Given the expansive nature of the proposal, some increases are almost certain to be enacted. As previously stated, the proposed reporting changes are a huge undertaking that would greatly impact employers that sponsor retirement plans and/or group health plans. The new reporting for group health plans in particular could present challenges as generating the additional proposed information by health insurance vendors would not be an easy task. Enhanced retirement plan investment fee reporting would also pose difficulties. These challenges will likely result in significant push back from the impacted plan service providers, which has historically resulted in modifications prior to release of the final version.

Employers and service providers have been afforded ample time to prepare for the changes and how the agencies respond to the public’s comments is worth watching. There is no doubt that it is much easier for the agencies to gather and analyze information on employer sponsored plans and they are very interested in the benefits and associated costs of that which is being provided. As an employer, be preparing for change.

Please contact Mark Flanagan of Aronson’s Compensation and Benefits Practice at 301-231-6257 to further discuss the impact of the proposed Form 5500 changes.