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Businesses Suggest Intensive Type 5500 Amendments | Groom Legislation Group, Chartered

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By Staff , in Investments , at September 23, 2021

The Division of Labor (“DOL”), Division of the Treasury (the “Treasury”), and Pension Profit Warranty Company (“PBGC”) (collectively, the “Businesses”) lately launched a discover of proposed revisions to the Type 5500 Annual Return/Report of Worker Profit Plan (“Type 5500”) filed for worker pension and welfare profit plans below the Worker Retirement Earnings Security Act of 1974, as amended (“ERISA”) and the Inside Income Code (the “Code”). The bundle issued by the Businesses accommodates each a discover of proposed revisions to the Kinds themselves in addition to a discover of proposed regulatory modifications to the relevant Type 5500 rules.

The Proposed Guidelines are primarily meant to implement provisions of the Setting Each Group Up for Retirement Enhancement Act of 2019 (“SECURE Act”). Nonetheless, the companies went a lot additional, proposing modifications affecting outlined profit plans, a number of employer plans (“MEPs”), pooled employer plans (“PEPs”), and a number of employer welfare preparations (“MEWAs”). Under, we focus on most of the vital proposed modifications to the Type 5500 addressed within the Proposed Guidelines. Feedback are as a result of Businesses on or earlier than November 1st.

I. Background

The Businesses developed the Type 5500 and Type 5500-SF, Quick Type Annual Return/Report of Small Worker Profit Plan (“Type 5500 SF”), to fulfill relevant reporting necessities for worker pension and welfare profit plans below ERISA and the Code. The Type 5500 features as the first supply of data and knowledge obtainable to the Businesses concerning the operations, funding, and investments of the greater than 843,000 pension and welfare profit plans that file.1 Plan directors who fail to file the required report when due might be topic to vital financial civil penalties below each ERISA and the Code. Presently, civil penalties below ERISA can quantity to greater than $2,200 per day. As well as, the SECURE Act elevated the penalties imposed below the Code for failing to file an annual report for a retirement plan, which may quantity to $250 per day, as much as a most of $150,000 per annual report. The DOL, specifically, maintains a really lively administrative program for the evaluation of Type 5500-related civil penalties.

In 2016, the Obama administration proposed a sweeping bundle of modifications to the Type 5500 that may have dramatically rewritten the Kinds. See 81 Fed. Reg. 47534 (July 21, 2016); 81 Fed. Reg. 47496 (July 21, 2016). These modifications had been controversial and by no means finalized. Though the Proposed Guidelines are as in depth because the 2016 proposed Type 5500 modifications, the Businesses have signaled that additional Type 5500 revisions are doubtless. Particularly, the preamble to the Proposed Guidelines states that the DOL has added to its regulatory agenda a brand new challenge that can concentrate on broader revisions to the Type 5500 aimed toward modernizing the Kinds and enhancing the Businesses’ knowledge assortment actions by the Type 5500. Keep tuned for additional developments on this space.

II. Group of Plans / Outlined Contribution Teams

Part 202 of the SECURE Act directs the Secretary of the Treasury and Secretary of Labor (the “Secretaries”) to switch Type 5500 to permit sure teams of outlined contribution plans (“DCGs”) to file a single consolidated annual report/return. For plans to be eligible for the DCG reporting association, Part 202 of the SECURE Act requires that the plans have to be particular person account plans or outlined contribution plans which have the identical trustee as described in Part 403(a) of ERISA, the identical a number of named fiduciaries below Part 402 of ERISA, the identical plan administrator below Part 3(16)(A) of ERISA and Part 414(g) of the Code, the identical plan 12 months, and supply the identical investments or funding choices for individuals and beneficiaries (“the DCG Eligibility Necessities”). Per the SECURE Act, the Proposed Guidelines would amend the Type 5500 to require plans to confirm that they meet the DCG Eligibility Necessities as a way to file a single, consolidated annual report.

The Proposed Guidelines would modify the Type 5500 directions to supply that the submitting necessities for giant pension plans and direct submitting entities (similar to grasp belief funding accounts, collective trusts, pooled separate accounts, 103-12 funding entities and group insurance coverage preparations, collectively “DFEs”) usually would apply to DCGs. The directions for Half I, DFE field, can be up to date to incorporate a code for DCGs. Plans in a DCG reporting association would report particular person plan stage info on the Schedule DCG, together with, amongst different gadgets, the next info: (i) whether or not the plan is a single employer plan, (ii) whether or not the plan is topic to the collective bargaining course of, (iii) the identify of the plan, (iv) plan sponsor figuring out info, (v) monetary info (together with, amongst different gadgets, the full quantity of plan belongings and bills involving administrative service suppliers and whole charges paid), (vi) compliance questions, and (vii) questions for giant plans protecting 100 or extra individuals on the IQPA report and monetary statements.

The Proposed Guidelines would additionally impose a number of necessities on taking part plans in a DCG reporting association.

  • Plans should not maintain any employer securities and have to be invested 100% in sure “eligible plan belongings” (similar to mutual funds, financial institution or insurance coverage firm issued contracts valued at the very least yearly, publicly traded securities held by a registered dealer, money and money equivalents and plan loans to individuals). These necessities additionally apply to plans eligible to file the 2-page Type 5500-SF.
  • Every plan’s belongings have to be held in the identical belief, however the usage of sub-trusts inside the identical belief is permitted.
  • The Type 5500 would require an IQPA audit report hooked up for every plan taking part within the DCG reporting association (except the plan is eligible for the waiver of the audit requirement below DOL rules).
  • A trust-level audit, and trust-level monetary statements, can be required along with an audit for every taking part plan.

At current, plans which can be exempt from the belief requirement (similar to 403(b) plans and sure insured plans) wouldn’t be permitted to take part in DCG reporting preparations. As well as, MEPs are barred from the consolidated DCG reporting preparations below the Proposed Guidelines. The Businesses consider that such an association as utilized to MEPs, which already file a single Type 5500 protecting all taking part employers within the plan, may “lead to an undesirable discount in transparency and monetary accountability” and will add complexity and price for such teams of plans. Nonetheless, as a result of the Businesses “acknowledge such a rule is just not expressly set forth in Part 202 of the SECURE Act,” the Businesses solicit public feedback on whether or not multiemployer plans and MEPs must be barred from DCG reporting.

Plans that embrace brokerage home windows would even be barred from taking part in a DCG association. The Businesses requested for feedback on whether or not such options must be permitted in a DCG association and likewise solicited feedback on whether or not the DCG reporting choice ought to exist for plans that use the identical custodial account or insurance coverage coverage because the funding automobile for the plans.

The DCG consolidated reporting choice, in its present type, is restricted and entails expense. The taking part plans are restricted to investing 100% of their belongings in belongings which have a available worth (similar to mutual funds and money equivalents) and will not maintain employer securities or brokerage window options. Along with requiring every plan to have its personal audit (if the audit requirement applies to the plan), the belief itself should additionally obtain an audit. Subsequently, it might make sense to file as a DCG association solely after the plan has reached a sure threshold of taking part employers. Furthermore, if the taking part plans have fewer than 100 individuals with account balances, the plans will usually be eligible for an audit waiver and to file the Type 5500-SF. Because of this, a DCG association that features small plans might decide it makes extra sense to file a Type 5500-SF for every taking part plan reasonably than file as a DCG association.


The Proposed Guidelines would add a brand new “Schedule MEP” to the Type 5500 that may require retirement MEPs to supply plan particular info on an annual report together with, amongst different gadgets, the kind of a number of employer pension plan (e.g., affiliation retirement plan, skilled employer group (“PEO”), pooled employer plan, or different), the identify of the plan administrator, taking part employer info (together with the EIN), and the share of whole contributions by every taking part employer for the plan 12 months. The Proposed Guidelines add a checkbox to the Type 5500 on Half II, Line 10(a)(5) to point {that a} Schedule MEP is hooked up to the report. The directions for what constitutes a MEP would usually be left unchanged, however the Proposed Guidelines would make conforming modifications to incorporate references to varied MEP varieties, together with PEO-sponsored plans and PEPs.

Part 103(g) of ERISA requires a MEP to checklist on its annual report the employers taking part within the MEP and to supply a great religion estimate of the share of whole contributions made by every taking part employer throughout a plan 12 months. Part 101 of the SECURE Act amended Part 103(g) of ERISA to require that an annual report for a MEP additionally embrace the mixture account balances for every taking part employer (i.e., the sum of the account balances of the workers and beneficiaries for every employer) within the MEP starting on January 1, 2021. The Schedule MEP incorporates this requirement by together with a spot to fill within the combination account balances attributable to every taking part employer.


Part 101 of the SECURE Act added ERISA Sections 3(43) and three(44) to permit for a brand new and distinct sort of outlined contribution pension plan referred to as a PEP, which is operated by a “pooled plan supplier” (“PPP”). Not like different MEPs, a PEP permits unrelated employers to take part within the plan and not using a frequent curiosity (e.g., a typical commerce, line of enterprise or trade). To function a PEP, a PPP is required to file a registration assertion (a “Type PR”) with the Secretary of Treasury, which asks for figuring out info such because the EIN for the PPP, the identification of any associates offering providers, trustees, and the plan identify of the PEP.

The SECURE Act’s amendments to ERISA require PEPs to file a Type 5500 that features the entire identical taking part employer info as mentioned above for MEPs (i.e., the share of whole contributions made by every taking part employer throughout a plan 12 months and the mixture account balances attributable to every taking part employer within the plan). As can be the case with MEPs, PEPs would full and fix the newly created Schedule MEP as a part of the Type 5500. The Schedule MEP features a “Half III” particularly for PEPs to supply further PEP-specific info similar to whether or not the PPP is in compliance with the Type PR necessities, whether or not affiliated providers have been supplied to the PPP, and whether or not the PPP has acknowledged in writing that it’s a named fiduciary and plan administrator of the plan.

The Proposed Guidelines additionally present the next revisions to the Type 5500 associated to the creation of PEPs:

  • Amend the Directions to the Type 5500 to make specific that PEPs should report the identical figuring out info (e., EIN, recognized associates and different service suppliers and trustees) on the Type 5500 as reported by the PPP on the Type PR;
  • Add belief inquiries to the Type 5500 concerning the identify of the trustee or custodian, the belief’s EIN, and the trustee or custodian’s phone quantity, which is able to “allow the companies to extra effectively concentrate on compliance considerations for retirement plan trusts, together with these for pooled employer plans”;
  • Amend the Directions to the Type 5500 to state that PEPs and DCGs wouldn’t report funding belongings aggregated into grasp belief funding accounts, if relevant; and
  • The Proposed Guidelines would add breakout classes to Schedule H partly to replicate the necessity for transparency and improved reporting of charges and bills for service suppliers within the PEP and MEP context. Such classes would come with: “salaries and allowances,” “IQPA Audit charges,” “Recordkeeping and Different Accounting Charges,” “Financial institution or Belief Firm Trustee/Custodial Charges,” “Actuarial charges,” “Authorized charges,” “Valuation/appraisal charges”.

The Proposed Guidelines additionally solicit feedback on whether or not extra tailor-made questions in Schedules C (Service Supplier Info) and H of the Type 5500 must be included to assemble extra concrete info on reporting charges and bills incurred by PEPs and different MEPs. Such info may embrace how charges and bills are allotted amongst taking part employers and amongst coated individuals and beneficiaries. The Preamble to the Proposed Guidelines gives that such feedback can be useful in furthering the general purpose of charge transparency, which is especially vital within the PEP and MEP context provided that “conventional service suppliers find yourself performing as plan sponsors and directors.” The Businesses added that helpful feedback would come with “strategies on learn how to enhance reporting of direct and oblique service supplier compensation.”

V. Simplified Reporting

Part 101(d) of the SECURE Act amended ERISA Part 104(a)(2)(A) to supply that the Secretary of Labor “might by regulation prescribe simplified annual experiences” for single employer pension plans protecting fewer than 100 individuals, or MEPs with fewer than 1,000 individuals in whole, so long as every taking part employer has fewer than 100 individuals.

Nonetheless, the Proposed Guidelines don’t handle simplified reporting. Fairly the Proposed Guidelines solicit feedback on why simplified reporting must be prolonged to MEPs with fewer than 1,000 individuals and what applicable circumstances and limitations “would guarantee transparency and accountability similar to that for different massive retirement plans.”

Beneath the Proposed Guidelines, all MEPs can be required to file the Type 5500, even when they might in any other case be eligible to file the Type 5500-SF. DOL famous that this method is in line with (“just like”) the present rule for multiemployer plans and the proposed rule for DCGs. DOL’s reasoning was that uniform submitting necessities throughout all plans facilitate “constant and knowledgeable oversight.”

Small MEPs (these with lower than 100 individuals as of the start of the plan 12 months) would, nonetheless, be eligible for a similar simplified reporting necessities that apply to small pension plans that at the moment file Kinds 5500. Which means small MEPs would, below the Proposed Guidelines, file Schedule I: Monetary Info – Small Plan reasonably than the longer and extra detailed Schedule H: Monetary Info. Neither would small MEPs be required to have an audit. Small MEPs would even be exempt from submitting the Schedule C: Service Supplier Info and Schedule G: Monetary Transaction Schedules.

VI. Adjustments to the Schedule of Belongings Held for Funding

The Proposed Guidelines would amend the content material necessities for the “Schedule of Belongings Held for Funding” and the “Schedule of Belongings Held and Disposed of inside the Plan Yr” to require that these schedules be filed electronically in a structured format in order that they’re data-minable. The preamble to the Proposed Guidelines states that the change is “designed to enhance the consistency, transparency, and usefulness of data reported concerning plan investments.”

The proposal to make the schedules of belongings held for funding functions uniform and digital was proposed by the Businesses in 2016 and is clearly a key purpose for the Businesses. Presently, figuring out the investments held by a plan have to be performed manually as a result of the funding schedules usually are not required to be hooked up in any specific format. For instance, there isn’t any environment friendly technique for the DOL to establish the entire ERISA plans that spend money on a selected funding similar to a collective funding belief, mutual fund, or restricted partnership. DOL states within the preamble to the Proposed Guidelines, that the Type 5500 knowledge helps DOL, the Inside Income Service (“IRS”), and the PBGC “extra successfully…and effectively present oversight, help with compliance, and implement the provisions of ERISA and the Code” and the Type 5500 “is among the vital instruments the DOL makes use of to hold out its duty to detect and examine [ERISA] violations.” Standardizing an digital format for the plan’s funding schedules will enable knowledge aggregation and assessment, which might be used each by the DOL’s enforcement division in addition to plaintiff’s attorneys.

VII. Funding for Outlined Profit Plans

The Proposed Guidelines comprise modifications to the Schedules MB, SB, and R, mentioned under. These modifications are meant to extend transparency and supply PBGC with further info and knowledge to extra precisely challenge outlined profit pension plans’ and PBGC’s personal liabilities, in addition to assist PBGC conduct simpler investigations. These modifications would impression the 23,371 single-employer and 1,373 multiemployer outlined profit plans coated by PBGC.

The proposed modifications to Schedule MB embrace:

  • Withdrawal legal responsibility reporting. Line 3 at the moment requires reporting of all employer and worker contributions to the plan, together with withdrawal legal responsibility funds and quantities. Beneath the Proposed Guidelines, the filer can be required to connect a withdrawal legal responsibility breakdown by date and whether or not a fee was a periodic fee or a lump sum.
  • Actuarial assumptions. In reporting varied actuarial assumptions, the filer can be required to report the rate of interest used to find out the current worth of vested advantages for withdrawal legal responsibility functions. Moreover, the questions referring to the expense load can be modified to, inter alia¸ require a filer to point whether or not the expense load is included in regular price and the way the quantity of the expense load is set.
  • Miscellaneous further info. The Proposed Guidelines would make modifications to line 8 to require further details about the demographics, advantages, contributions, and withdrawal legal responsibility funds for giant plans (e., plans with 500 or extra individuals). For instance, filers can be required to supply 50-year advantages and contributions projections, and the common age and month-to-month profit for terminated vested and retired individuals.
  • Clarifying change. The Proposed Guidelines make modifications to make clear the previously-confusing language in line 4f and corresponding directions concerning when plans which can be in “crucial” or “crucial and declining” standing are projected to emerge from such standing or turn out to be bancrupt.

The proposed modifications to Schedule SB embrace:

  • Demographics and Advantages. Beneath the Proposed Guidelines, single-employer plans with at the very least 500 individuals can be required to supply demographics and advantages info just like that required to be reported by PBGC-covered multiemployer plans. This info would come with 50-year projections of advantages damaged down by standing (e., lively, terminated vested, retiree) and a report of individuals’ and beneficiaries’ common age and month-to-month profit by standing.
  • ARPA elections. Half IX and corresponding directions can be revised to require reporting of an election below the American Rescue Plan Act of 2021 (“ARPA”) reasonably than the Pension Aid Act of 2010, which is now not related.

The proposed change to Schedule R would require multiemployer plans to not solely checklist employers that contributed greater than 5 % of the plan’s whole contributions for the plan 12 months, but additionally the highest 10 highest contributing employers to the plan for the plan 12 months, even when a prime contributor contributes lower than 5 % of the full plan contributions.

Lastly, the Proposed Guidelines would modify the directions to allow—however not require—sure attachments to the Schedules MB and SB to be supplied in a spreadsheet type reasonably than PDF or TXT codecs.

VIII. A number of Employer Welfare Preparations

The Proposed Guidelines would require MEWAs that provide or present protection for medical advantages to supply a listing of every taking part employer within the MEWA (by identify and EIN) within the Type M-1, and, for sure MEWAs, a great religion estimate of every taking part employer’s proportion of the full contributions made by all taking part employers in the course of the plan 12 months.

In 2014, when the Cooperative and Small Employer Charity Pension Flexibility Act (“CSEC Act”) was enacted into regulation, it amended Part 103 of ERISA to require all a number of employer plans (each retirement and welfare) to supply a listing of taking part employers and a great religion estimate of the share of whole contributions made by every taking part employer in the course of the plan 12 months on the plan’s Type 5500. In late 2014, DOL issued a regulation confirming that this requirement would apply for plan years starting after December 31, 2013. (Unfunded and insured a number of employer well being plans had been exempt from the requirement to supply the contribution info).

Nonetheless, when the SECURE Act turned regulation, it amended Part 103(g) of ERISA in order that solely retirement plan MEPs had to supply the employer checklist and contribution breakdown, thus eliminating the requirement for well being and welfare plans for plan years starting after December 31, 2020. Subsequently, many MEWAs had been trying ahead to ceasing finishing the contributing employer checklist with their 2021 Type 5500 submitting.

However within the Discover, DOL notes that the data concerning taking part employers “has confirmed helpful to the DOL for its oversight features for each MEPs and people MEWAs that file the Type 5500” and that it consider there are different “rulemaking and reporting authorities” that present a foundation for persevering with the reporting requirement for MEWAs. Subsequently, DOL is now proposing that this info can be added to the Type M-1 submitting for each plan and non-plan MEWAs.

The Type M-1 is required to be filed yearly by MEWAs, and likewise upon sure triggering occasions that will happen mid-year. For instance, an M-1 Type is required to be filed when a MEWA begins working in a brand new state, when its participant depend will increase by 50% or extra, and if it merges with one other MEWA. As a result of the contributing employer checklist has been added to the Type M-1, a MEWA may conceivably be required to file a contributing employer checklist a number of instances per 12 months with the federal government. Unfunded and insured MEWAs would stay exempt from the requirement to supply contribution info. A further line can be added to the Type M-1 requiring MEWAs to report any self-employed people receiving protection from the MEWA that aren’t related to a specific taking part employer.

For a number of employer plans that present welfare advantages apart from medical care, the contributing employer checklist will stay as it’s at this time, an attachment to the Type 5500.

Including the checklist of contributing employers to the Type M-1 for each plan and non-plan MEWAs might be an unwelcome shock for MEWAs. Whereas DOL believes the checklist of taking part employers is beneficial for its skill to supervise MEWAs, most MEWAs view their checklist of taking part employers as proprietary and can chafe on the prospect of including this info to the Type M-1. Furthermore, the Type M-1 might should be filed a number of instances per 12 months by a MEWA. For instance, a brand new Type M-1 have to be filed mid-year if the MEWA merges or experiences a big improve in individuals. Because of this, some MEWAs might have to file a contributing employer checklist a number of instances per 12 months. Filed Kinds M-1 are publicly obtainable (just like the Type 5500) so a MEWA’s checklist of taking part employers might be totally accessible.

IX. Miscellaneous Revisions to the Type 5500

The Proposed Guidelines would additionally add the next key revisions, amongst different gadgets:

  • IQPA Audit Requirement for Particular person Account Plans. A big plan (usually with 100 or extra individuals) is required to connect an IQPA audit report and associated monetary statements to its Type 5500. Presently, whether or not a plan qualifies as “massive” relies on the variety of staff who’re eligible to take part within the plan as of the start of the plan 12 months, no matter whether or not all of these eligible staff have elected to contribute and have account balances. The Preamble to the Proposed Guidelines notes that “some stakeholders have identified that the usage of this definition might lead to two plans with the identical variety of lively individuals, with one topic to an audit and the opposite not primarily based on the variety of non-participating however eligible staff.” To right this problem, the Proposed Guidelines change the strategy of counting individuals for particular person account plans. Whether or not the plan is “massive” or “small” for functions of the audit requirement would rely on the variety of individuals with account balances as of the start of the plan 12 months and applicable traces can be added to the Type 5500 for these plans (as reported on proposed line 6g(1) on the Type 5500 or line 5c(1) of the Type 5500-SF).
  • 2021 Annual Return/Report Directions for MEPs and PEPs. The Proposed Guidelines would revise the 2021 Type 5500 to supply “an interim technique of reporting taking part employer info for MEPs and PPP figuring out info pending the Schedule MEP implementation.” This technique would include together with a “nonstandard attachment” to the 2021 Type 5500 as at the moment required, with the content material of such attachment to incorporate the mixture account balances attributable to every taking part employer within the plan in line with the SECURE Act’s amendments to Part 103(g) of ERISA.
  • New breakout classes can be added to the “Administrative Bills” traces of the Schedule H steadiness sheet. New breakout classes would come with particular traces for: audit charges, financial institution or belief firm charges, actuarial charges, authorized charges, valuation charges, salaries, trustee charges and bills.
  • Belief Info. Belief questions can be added to the Type 5500, together with traces that may establish the identify of belief, the belief’s EIN, and the identify and telephone variety of the trustee.
  • IRS Questions. Sure IRS questions can be added for retirement plans, together with questions associated to nondiscrimination and protection testing, whether or not the plan makes use of a pre-approved plan, and, in that case, the date of the plan’s favorable dedication letter.

The change to the strategy of counting individuals for particular person account plans must be a welcome change for a lot of plan sponsors. Permitting a plan to qualify as a small plan primarily based on having fewer than 100 individuals with account balances will simplify plan administration and save many plans the headache and expense of the annual plan audit. This variation implies that many outlined contribution plans that had been required to have an audit prior to now will now qualify for an exemption from the audit requirement primarily based on the DOL’s small plan audit waiver regulation at 29 C.F.R. § 2520-46.

The addition of recent classes to the Administrative Expense traces of Schedule H is clearly an enforcement device. DOL will doubtlessly use the detailed info concerning plan funds for authorized, audit, recordkeeping and trustee charges to assessment whether or not the plan’s bills are affordable. This detailed info may even be obtainable to the plaintiff’s bar. The belief and IRS questions are additionally added to enhance the Businesses’ enforcement efforts. The IRS compliance questions might be used to evaluate the plan’s compliance with qualification necessities and establish plans for additional examination or audit.

X. Applicability Dates and Subsequent Steps

If adopted, the proposed amendments would usually apply to plan years starting on or after January 1, 2022 (i.e., relevant to the 2022 Type 5500 filings, which might be filed throughout calendar 12 months 2023). Nonetheless, the proposed amendments to implement Part 103(g) of ERISA (i.e., the modification requiring the mixture account balances for every patriating employer in a MEP or PEP listed on the Type 5500) would apply to reporting for plan years starting on or after January 1, 2021. Feedback on the Proposed Guidelines have to be submitted to the Division of Labor by November 1, 2021.

[1] Single employer welfare plans with below 100 individuals which can be unfunded or insured are exempt from submitting a type 5500 below 29 CFR 2520.104-29.

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