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Employee Benefits Security Administration, Labor; Internal Revenue Service, Treasury; Pension Benefit Guaranty Corporation.
Notice of proposed forms revisions.
This document contains proposed changes to the Form 5500 Annual Return/Report forms filed for employee pension and welfare benefit plans under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (Code). The proposed form revisions primarily relate to statutory amendments to ERISA and the Code enacted as part of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). The Department of Labor (DOL), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) (collectively “Agencies”) are also proposing certain additional changes intended to improve reporting on multiemployer defined benefit pension plan funding, update Form 5500 financial reporting to make the financial information collected on the Form 5500 more useful and usable, enhance the reporting of certain tax qualification and other compliance information by retirement plans, and, transfer to the DOL Form M-1 (Report for Multiple Employer Welfare Arrangements (MEWAs) and Certain Entities Claiming Exception (ECEs)) (Form M-1) participating employer information for multiple employer welfare arrangements that are required to file the Form M-1. The proposed revisions would affect employee pension and welfare benefit plans, plan sponsors, administrators, and service providers to plans subject to annual reporting requirements under ERISA and the Code.
Written comments must be received by the Department of Labor on or before November 1, 2021.
You may submit written comments, identified by RIN 1210-AB97, by one of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. To facilitate receipt and processing of comments, the Agencies encourage interested parties to submit their comments electronically.
Mail: Office of Regulations and Interpretations, Employee Benefits Security Administration, Room N-5655, U.S. Department of Labor, 200 Constitution Ave. NW, Washington, DC 20210, Attention: Proposed Form 5500 Revisions RIN 1210-AB97.
Instructions: All submissions must include the agency name and Regulatory Identifier Number (RIN) for this rulemaking. The Agencies will share any comment submitted to one of the Agencies individually with the other Agencies. To avoid unnecessary duplication of effort, the DOL also will treat public comments submitted in response to this Notice of Proposed Forms Revisions as public comments on the Notice of Proposed Rulemaking to the extent they include information relevant to the proposed regulatory amendments. If you submit comments electronically, do not submit paper copies. Comments will be available to the public, without charge, online at: http://www.regulations.gov and http://www.dol.gov/agencies/ebsa and at the Public Disclosure Room, Employee Benefits Security Administration, Suite N-1513, 200 Constitution Ave. NW, Washington, DC 20210.
Warning: Do not include any personally identifiable or confidential business information that you do not want publicly disclosed. Comments are public records posted on the internet as received and can be retrieved by most internet search engines.
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FOR FURTHER INFORMATION CONTACT:
Janet Song or Colleen Brisport Sequeda, Office of Regulations and Interpretations, Employee Benefits Security Administration, U.S. Department of Labor, (202) 693-8500 for questions related to reporting requirements under Title I of ERISA. For information related to the IRS changes and questions under the Internal Revenue Code, contact Cathy Greenwood, Employee Plans Program Management Office, Tax Exempt and Government Entities, (470) 639-2503. For information related to PBGC changes, including proposed changes to the actuarial schedules, contact Karen B. Levin, Regulatory Affairs Division, Office of the General Counsel, Pension Benefit Guaranty Corporation, (202) 229-3559.
Customer service information: Individuals interested in obtaining general information from the DOL concerning Title I of ERISA may call the EBSA Toll-Free Hotline at 1-866-444-EBSA (3272) or visit the DOL's website (www.dol.gov/agencies/ebsa).
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I. Overview of the Proposal
A. Background of Form 5500 Annual Return/Report of Employee Benefit Plan
Sections 101 and 104 of Title I and section 4065 of Title IV of the Employee Retirement Income Security Act of 1974 (ERISA) and sections 6057(b), 6058(a), and 6059(a) of the Internal Revenue Code of 1986 (Code), and related regulations, impose annual reporting and filing obligations on pension and welfare benefit plans, as well as on certain other entities. Plan administrators, employers, and others generally satisfy these annual reporting obligations by filing the Form 5500, Annual Return/Report of Employee Benefit Plan (Form 5500), or Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan (Form 5500-SF) (together “Form 5500 Annual Return/Report”).
Specifically, filing of the Form 5500 or the Form 5500-SF, as applicable, with any required schedules and attachments in accordance with the instructions and related regulations, constitutes compliance with the applicable annual reporting requirements under Title I of ERISA and the Department's implementing regulations.
Filing of a Start Printed Page 51489Form 5500 or Form 5500-SF, together with the required attachments and schedules in accordance with the instructions, by plan administrators, employers, and certain other entities also satisfies the annual filing and reporting requirements under Code sections 6057(b), 6058(a), and 6059(a). Filing the Form 5500 Annual Return/Report will also satisfy an applicable plan administrator's annual reporting obligation under section 4065 of Title IV of ERISA.
The Form 5500 Annual Return/Report serves as the principal source of information and data available to the Agencies concerning the operations, funding, and investments of approximately 843,000 pension and welfare benefit plans that file.
ERISA plans cover roughly 154 million workers, retirees, and dependents of private sector pension and welfare plans 
with estimated assets of $12.2 trillion.
Accordingly, the Form 5500 Annual Return/Report is essential to each Agency's enforcement, research, and policy formulation programs, as well for the regulated community, which makes increasing use of the information as more capabilities develop to interact with the data electronically. The data 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. The Form 5500 Annual Return/Report also serves as a primary means by which the operations of plans can be monitored by participating employers in multiple employer plans and other group arrangements, plan participants and beneficiaries, and by the general public.
The last time the Agencies implemented significant changes to the forms and schedules was for the 2009 form year, in conjunction with the move to mandatory electronic filing and a related update to the ERISA Filing Acceptance System (EFAST2).
Those changes were proposed in 2006, 71 FR 41615 (Jul. 21, 2006), and finalized in 2007, effective for the 2009 form series. 72 FR 64731 (Nov. 16, 2007). Other discrete changes that have been made to the Form 5500 Annual Return/Report over those years were generally set forth annually in the “Changes to Note” section in the instructions, some of which have involved targeted rulemaking activity to implement reporting changes required by law.
The Agencies most recent significant initiative with respect to the Form 5500 was the publication of a proposal to modernize the forms and instructions in July 2016. 81 FR 47534 (July 16, 2016) (Tri-Agency Notice of Proposed Forms Revisions) and 81 FR 47496 (July 16, 2016) (DOL Notice of Proposed Rulemaking) (together the 2016 Modernization Proposal). The 2016 Modernization Proposal ultimately was not adopted as final changes to the forms, instructions, and regulations, although a small number of changes that were included in the 2016 proposal have been finalized, as set forth in the “Changes to Note” Section in the instructions to the Form 5500 Annual Return/Report for the years in which the changes were made.
B. Recent Legislative Changes Supporting Proposed Annual Reporting Improvements
The SECURE Act,
which overall was designed to expand and preserve workers' retirement savings, is the most significant legislation impacting ERISA and Code provisions pertaining to retirement plans since the Pension Protection Act of 2006. Among other things, the SECURE Act directed the Secretary of Labor and the Secretary of Treasury (together “Secretaries”) to develop a new aggregate annual reporting option for certain groups of retirement plans and included other statutory amendments that directly impact annual reporting requirements for multiple-employer pension plans (MEPs). In relevant part, the SECURE Act's expansion of MEPs and direction for the Secretaries to establish a consolidated reporting option for defined contribution pension plans that share certain key characteristics should help expand retirement coverage by making it easier for record keepers and other financial services providers to offer attractive retirement plan alternatives and for employers, especially small ones, to pick from among a broader array of alternatives what works best for them and their employees.
Section 202 of the SECURE Act provides that the Secretaries, shall, in cooperation, modify the Form 5500 Annual Return/Report so that all members of a group of defined contribution individual account plans described in section 202 may file a single aggregated annual return/report satisfying the requirements of both section 6058 of the Code and section 104 of ERISA. The SECURE Act further provides that, in developing the consolidated return/report, the Secretaries may require any information regarding each plan in the group as such Secretaries determine is necessary or appropriate for the enforcement and administration of the Code and ERISA. The SECURE Act also mandates that the consolidated reporting by such a group must include such information as will enable participants in each of the plans to identify any aggregated return/report filed with respect to their plan. Section 202 provides that to constitute an eligible group of plans, all of the plans in the group must be either individual account plans or defined contribution plans as defined in section 3(34) of ERISA or in section 414(i) of the Code; must have the same trustee as described in section 403(a) of ERISA; the same one or more named fiduciaries as described in section 402(a) of ERISA; the same administrator as defined in section 3(16)(A) of ERISA and plan administrator as defined in section 414(g) of the Code; must have plan years beginning on the same date; and must provide the same investments or investment options to participants and beneficiaries. Section 202 further provides that a plan not subject to Title I of ERISA shall be treated as meeting these requirements for being eligible to be part of a consolidated reporting Start Printed Page 51490group of plans, if the same person that performs each of the functions described in the above requirements, as applicable, for all other plans in such group performs each of such functions for such plan.
Section 101 of the SECURE Act amended ERISA section 3(2) and added ERISA sections 3(43) and 3(44) to allow for a new type of ERISA-covered MEP—a defined contribution pension plan called a “pooled employer plan” operated by a “pooled plan provider.” Pooled employer plans allow multiple unrelated employers to participate without the need for any common interest among the participating employers (other than having adopted the plan).
Under section 3(2) of ERISA, a pooled employer plan is treated for purposes of ERISA as a single plan that is a multiple employer plan. A pooled employer plan is defined in section 3(43) as a plan that is an individual account plan established or maintained for the purpose of providing benefits to the employees of two or more employers; that is a qualified retirement plan or a plan funded entirely with individual retirement accounts (IRA plan); and the terms of which must meet certain requirements set forth in the statute.
The term pooled employer plan does not include a multiemployer plan as defined in ERISA section 3(37) or a plan maintained by employers that have a common interest other than having adopted the plan.
The term also does not include a plan established before the date the SECURE Act was enacted unless the plan administrator elects to have the plan treated as a pooled employer plan and the plan meets the ERISA requirements applicable to a pooled employer plan established on or after such date. The existence of this new type of multiple employer plan requires some adjustments to the Form 5500 to provide for annual reporting by such plans.
Section 101 of the SECURE Act also amended ERISA section 103(g) for MEPs. Section 103(g) of ERISA requires that the annual return/report of a MEP generally must include a list of participating employers and a good faith estimate of the percentage of total contributions made by each participating employer during the plan year. The SECURE Act amended section 103(g) to expand the participating employer information that must be reported on the Form 5500 Annual Return/Report 
also to require the aggregate account balances attributable to each employer in the plan (determined as the sum of the account balances of the employees of each employer and the beneficiaries of such employees), and applied section 103(g) to retirement plans that currently meet the definition of a MEP under ERISA section 210(a), including any pooled employer plans, for plan years beginning on or after January 1, 2021.
With respect to a pooled employer plan, section 103(g) further requires that the annual return/report must include the identifying information for the person designated under the terms of the plan as the pooled plan provider.
In addition to various changes to the forms and instructions to address these statutory changes and reflect the existence of pooled employer plans and defined contribution plan reporting arrangements, some of the annual reporting changes being proposed are intended to ensure appropriate transparency and financial accountability for pooled employer plans, other MEPs, and defined contribution plan reporting arrangements. The rationales for some of those changes apply more broadly to retirement plans as a class (for example, improvements to the content and format for the financial schedules that retirement plans use to report information regarding their assets, investments, income, and expenses), and, accordingly, some of the changes are being proposed for retirement plans in general.
C. Overview of Proposed Changes to Forms, Schedules, and Instructions
1. General Proposed Changes
The proposed revisions involve the following major categories of changes, along with other technical revisions and updates, to the current structure and content of the Form 5500 Annual Return/Report.
- Update the Form 5500 and its instructions to establish requirements pursuant to section 202 of the SECURE Act for consolidated returns/reports for eligible defined contribution group (DCG) reporting arrangements as an alternative method of compliance for certain individual account or defined contribution retirement plans relying on the consolidated report to satisfy the generally applicable requirement that employee benefit plans file a Form 5500. This would include adding a new Schedule DCG (Individual Plan Information) to provide individual plan-level information for defined contribution pension plans covered by a DCG consolidated Form 5500 filing. It would also include adding a new checkbox on the Form 5500 (Part II, line 10a(4)) to indicate that Schedule DCG is attached to the Form 5500, with a space for the filer to enter the number of Schedules DCG (one per plan) attached to the Form 5500 filing.
- Update the Form 5500 and its instructions to add a new Schedule MEP (Multiple Employer Pension Plan). MEPs would report information specific to MEPs, including the ERISA section 103(g) participating employer information, updated to add the new aggregate account information that is Start Printed Page 51491relevant only for pension plans, on the Schedule MEP. Questions intended to satisfy the SECURE Act's reporting requirements for pooled employer plans and questions to link the Form PR (Pooled Employer Registration) and the Form 5500 for each plan operated by a pooled plan provider would also be on the Schedule MEP. A new checkbox would be added to the Form 5500 (Part II, line 10a(5) to indicate that Schedule MEP is attached to the Form 5500.
- Transfer the participating employer information from the Form 5500 Annual Return/Report to the Form M-1 for all multiple employer welfare arrangements (MEWAs)) (plan and non-plan MEWAs)) that offer or provide coverage for medical benefits, and continue to require reporting of participating employer information on the Form 5500 Annual Return/Report for plan MEWAs that provide other benefits.
- Update Schedule H and instructions to standardize the schedules of investment assets required to be included in the annual return/report (Schedule H, line 4i Schedules), so that the information can be entered or imported for improved electronic use and transparency.
- Update the Form 5500 and 5500-SF and their instructions on counting participants to change the current threshold for determining when a defined contribution plan may file as a small plan, including eligibility for the waiver of the requirement for small plans to have an audit and include the report of an independent qualified public accountant (IQPA) with their annual report. Specifically, instead of using all those eligible to participate, filers generally would look at the number of participants/beneficiaries with account balances as of the beginning of the plan year (the first plan year would use an end of year measure). This proposed change would be reflected in a new line item on the Form 5500 and Form 5500-SF.
- Add trust questions to the Form 5500, the Form 5500-SF, and the IRS Form 5500-EZ, regarding the name of the plan's trust, the trust's EIN, the name of the trustee or custodian, and the trustee's or custodian's telephone number. This information will enable the Agencies to more efficiently focus on compliance concerns for retirement plan trusts, including those for pooled employer plans and DCG reporting arrangements.
- Revise the 2021 5500 Annual Return/Report instructions to provide an interim method of reporting participating employer information for MEPs and pooled plan provider identification information for pooled employer plans pending the Schedule MEP implementation for 2022 plan year filings.
Section 101 of the SECURE Act also amended ERISA section 104(a)(2)(A) to permit the Secretary of Labor to prescribe by regulation simplified reporting for MEPs subject to ERISA section 210(a) with fewer than 1,000 participants in total, as long as each participating employer has fewer than 100 participants. The DOL is not, however, currently proposing to amend the current reporting rules to establish a “simplified report” for such plans. The DOL is interested in stakeholder comments on why MEPs subject to ERISA section 210(a) should be subject to different reporting requirements than single employer plans that cover fewer than 1,000 participants, and on appropriate conditions and limitations for such a simplified report that would ensure transparency and financial accountability comparable to that for other large retirement plans.
2. Internal Revenue Code-Based Questions for the 2022 Form 5500s
To better identify non-compliant plans, the IRS is proposing the following changes to the 2022 forms, schedules, and instructions, including adding the proposed Schedule DCG, so that certain questions are answered at the individual plan level (not the DCG level) in order for a plan's annual reporting obligation to be satisfied by a DCG Form 5500 filing:
- Add a nondiscrimination and coverage test question to Form 5500, Form 5500-SF, and proposed Schedule DCG that was on the Schedule T before it was eliminated. The question asks if the employer aggregated plans in testing whether the plan satisfied the nondiscrimination and coverage tests of Code sections 401(a)(4) and 410(b).
- Add a question to Form 5500, Form 5500-SF, and proposed Schedule DCG, for section 401(k) plans, asking whether, if applicable, the plan sponsor used the design-based safe harbor rules or the “prior year” or “current year” ADP test.
- Add a question to Form 5500, Form 5500-SF,
and proposed Schedule DCG asking whether the employer is an adopter of a pre-approved plan that received a favorable IRS Opinion Letter, the date of the favorable Opinion Letter, and the Opinion Letter serial number.
3. Defined Benefit Plan/Title IV Questions for the 2022 Form 5500s
The proposal includes certain changes designed to improve reporting by defined benefit plans subject to Title IV of ERISA. The proposed changes would:
- Modify Schedule MB, line 3 instructions to require an attachment that breaks down the total withdrawal liability amounts by date, separately specifying the periodic withdrawal liability amounts and lump sum withdrawal liability amounts.
- Modify Schedule MB by adding a new requirement for plans that assess withdrawal liability to an employer during the plan year, to report the interest rate used to determine the present value of vested benefits for withdrawal liability determinations. This information would be reported in a renumbered new line, 6f.
- Modify Schedule MB for the questions related to the line 6 “expense load” to better align with the various ways multiemployer plans incorporate expense loads into their calculations.
- Modify Schedule MB, line 8 by requiring additional information about demographics, benefits and contributions for plans with 500 or more total participants on the valuation date. Certain PBGC-insured single-employer plans would be required to report the some additional information as well.
- Modify Schedule MB by changing the “age/service” scatter attachment which is currently required for PBGC-insured multiemployer plans with active participants, regardless of the number of participants.
- Modify Schedule MB by clarifying the line 4f instructions and Schedule language concerning when or if plans in critical status or critical and declining Start Printed Page 51492status are projected to emerge or become insolvent.
- Make the Schedule SB, line 26 reporting requirements about demographics and benefits similar to the requirements for PBGC-insured multiemployer plans.
- Modify Schedule SB's Part IX, line 41 because the previously required information related to elective funding relief under the Pension Relief Act of 2010 is no longer relevant, and in its place, require information about the elective funding relief under the American Rescue Plan Act of 2021.
- Modify Schedule R's Part V, line 13 requirement that multiemployer defined benefit pension plans subject to minimum funding standards report identifying information about any participating employer whose contributions to the plan account for more than five (5) percent of the total contributions for the year to require that the ten employers who contributed the largest amounts be reported, even if that employer's contribution accounted for less than five (5) percent of the total.
- Modify the instructions to permit (but not require) certain attachments to Schedule MB and SB to be provided in a tabular format (spreadsheet) rather than PDF or TXT formats.
The Agencies have included the following appendices to provide more detailed illustrations and explanations of the proposed changes: (1) Appendix A—a facsimile of proposed Schedule MEP (Multiple Employer Pension Plan) and its instructions; (2) Appendix B—a facsimile of proposed Schedule DCG (Individual Plan Information) and its instructions; (3) Appendix C—a detailed description of proposed changes to the 2021 Form 5500, the Form 5500-SF, and their instructions; (4) Appendix D—a detailed description of proposed changes to the 2022 Form M-1 and its instructions; (5) Appendix E—a detailed description of proposed changes to the 2022 Form 5500, Form 5500-SF, applicable schedules, and their instructions.
Certain amendments to the annual reporting regulations are necessary to accommodate some of the proposed revisions to the forms. The DOL is publishing separately today in the Federal Register proposed amendments to the DOL's annual reporting regulations. That document includes a discussion of the findings required under sections 104 and 110 of ERISA that are necessary for the DOL to adopt the Form 5500 Annual Return/Report, including the Form 5500-SF, if revised as proposed herein, as an alternative method of compliance, limited exemption, and/or simplified report under the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA.
II. Request for Comments
The Agencies invite comments from interested persons on all facets of the proposed forms and instruction changes. Comments should be submitted in accordance with the instructions at the beginning of this document. Commenters are asked to take into account the costs and burdens to plans, participants and beneficiaries, plan fiduciaries, plan service providers, and other affected parties, in commenting on the proposed annual reporting changes, including any suggested alternatives.
As noted above, the DOL also is publishing elsewhere in today's Federal Register a Notice of Proposed Rulemaking with proposed amendments to the reporting and disclosure regulations at Part 2520 of Chapter XXV of Title 29 of the Code of Federal Regulations to implement certain proposed Form 5500 Annual Return/Report changes under Title I of ERISA. To avoid unnecessary duplication of effort, public comments submitted in response to this Notice of Proposed Forms Revisions will be treated as public comments on the Notice of Proposed Rulemaking to the extent they include information relevant to the proposed regulatory amendments.
The DOL components of this proposal are generally focused on implementing annual reporting changes related to the SECURE Act and MEPs and a limited number of other supporting proposed changes intended to ensure the Form 5500 serves as an appropriate transparency and financial accountability tool for retirement plans, including pooled employer plans and MEPs. The DOL has added a separate project to its semi-annual regulatory agenda that would focus on a broader range of improvements to the Form 5500 annual reporting requirements. The regulatory action is part of a strategic project with the IRS and PBGC to improve the Form 5500 Annual Return/Report. Modernizing the financial and other annual reporting requirements on the Form 5500, continuing to make the investment and other information on the Form 5500 more data mineable, and potential changes to group health plan annual reporting requirements are part of that evaluation. The project is also focused on enhancing the agencies' ability to collect employee benefit plan data that best meets the needs of changing compliance projects, programs, and activities. See www.reginfo.gov for more information. Public comments on such broader improvements to the Title I components of the Form 5500 are beyond the intended scope of this rulemaking.
III. Discussion of Proposed Changes
A. SECURE Act Section 202 Defined Contribution Group (DCG) Reporting Arrangements
Section 202 of the SECURE Act directs the Secretaries to modify the Form 5500 to allow certain groups of defined contribution pension plans to file a single consolidated annual return/report. For a group of plans to be able to file a consolidated return/report, the SECURE Act provides that all of the plans must be either individual account plans or defined contribution pension plans that have the same trustee; the same one or more named fiduciaries; the same plan administrator under ERISA and the Code; the same plan year; and provide the same investments or investment options for participants and beneficiaries.
The SECURE Act also provides that in developing the consolidated return or report for such arrangements, the Secretaries shall require such information as will enable a participant in a plan to identify any consolidated return or report filed with respect to the plan, and may require such return or report to include any information regarding each plan in the group as each Secretary determines is necessary or appropriate for the enforcement and administration of the provisions of ERISA and the Code.
Pursuant to Section 202 of the SECURE Act directing the Secretaries to modify the Form 5500 to allow certain groups of defined contribution pension plans to file a single consolidated annual return/report, the DOL and the IRS (the “Departments”) have determined that an efficient and effective approach to establishing such a consolidated return/report option would be to amend the Form 5500 and its related instructions to provide that the filing requirements for large pension plans and direct filing entities (DFEs) Start Printed Page 51493would generally apply to this new type of DFE—a defined contribution group (DCG) reporting arrangement, except that an additional schedule to report individual plan level information—the proposed Schedule DCG, would have to be attached for each plan included in the DCG filing.
Consistent with section 202(b) of the SECURE Act, as discussed in more detail below, the Departments are proposing to obtain for each plan in the DCG the additional information requested on a new proposed Schedule DCG, and are proposing certain other key conditions for DCG reporting arrangements that are intended to ensure appropriate transparency and financial accountability. Specifically, under the proposal: (1) The DCG would file a Form 5500 under rules and conditions that apply generally to large defined contribution pension plans; (2) each of the plans participating in the DCG would need to meet certain conditions as discussed in more detail below, including that the participating plan must not hold any employer securities, be 100% invested in certain secure, easy to value assets that meet the definition of “eligible plan assets” and be audited by an IQPA or be eligible for the waiver of the annual examination and report of an IQPA under 29 CFR 2520.104-46, but not by reason of enhanced bonding; (3) the DCG's Form 5500 would have to provide the plan level information reported on the proposed Schedule DCG regarding the covered plans, including an IQPA audit report for each participating large plan; and (4) the investment assets of the plans participating in the DCG would have to be held in a single trust of the DCG reporting arrangement and the consolidated Form 5500 filed by the DCG would include an audit of the DCG's trust financial statements.
An important aspect of the audit of the DCG trust would be that, in the DOL's view, the versions of the separate schedules referenced in ERISA section 103(a)(3)(A) and 29 CFR 2520.103-10(b) and proposed 2520.103-14(b) that would be filed as part of the DCG consolidated Form 5500 would be treated as ERISA section 103(b)(3) supplemental schedules for purposes of the required IQPA's opinion on whether those schedules are presented in conformity with DOL rules and regulations, including the delinquent participant contributions schedule filed by the DCG in connection with line 4a of its Form 5500, Schedule H. The DOL views these conditions as providing important financial accountability and oversight protections while also allowing DCGs to offer annual reporting cost-efficiencies, particularly for the small plans that we believe SECURE Act section 202 was intended to benefit, that are comparable to those that can be offered by MEPs, including pooled employer plans.
The DOL is also publishing a separate Notice of Proposed Rulemaking that includes a proposal to add new regulations at 29 CFR 2520.103-14 and 2520.104-51 pursuant to section 110 of ERISA that would set forth this DCG option as an alternative method of compliance for eligible plans with the generally applicable requirement to file their own separate Form 5500.
1. General Section 202 Conditions Applicable to Covered Plans
The Departments' review of the conditions in section 202 of the SECURE Act suggests that it was primarily aimed at plans of unrelated small businesses that adopt a plan that has received approval from the IRS as to its form through the IRS Pre-Approved Program (pre-approved plan) offered by the same provider, and that section 202 was intended to provide this type of business structure with annual reporting cost efficiencies similar to those that MEPs and pooled employer plans can offer to their participating employers. Accordingly the conditions and reporting requirements in this proposal focus on such arrangements. The Departments solicit public comments on whether the final rule should include other or different conditions for DCG reporting arrangements.
Under the proposed Form 5500 form changes and the DOL's related proposed regulation, and pursuant to the terms of section 202 of the SECURE Act, all of the plans relying on the DCG consolidated return/report must be individual account plans or defined contribution pension plans that have the same trustee and trust(s); the same one or more named fiduciaries; the same plan administrator under ERISA and the Code; the same plan year; and provide the same investments or investment options for participants and beneficiaries. The Departments are providing the following explanations of some aspects of and limitations related to those conditions that are part of the proposal.
With respect to the same trustee requirement, section 403(a) of ERISA provides that, except as provided in ERISA section 403(b), all assets of an employee benefit plan shall be held in trust by one or more trustees. The criteria set forth in ERISA section 403(b) apply to the DCG trustee under the proposal, except, pursuant to the SECURE Act provision there must be only one trustee for all the plans participating in a DCG reporting arrangement. The common trustee must be either named in the trust instrument or in the plan instrument or appointed by a person who is a named fiduciary of the participating plan, and upon acceptance of being named or appointed, the trustee shall have exclusive authority and discretion to manage and control the assets of the plan, except to the extent that the plan expressly provides that the trustee is subject to the direction of a named fiduciary who is not a trustee (in which case the trustees shall be subject to proper directions of such fiduciary which are made in accordance with the terms of the plan and which are not contrary to ERISA), or authority to manage, acquire, or dispose of assets of the plan is delegated to one or more investment managers pursuant to section 402(c)(3) of ERISA.
The Departments note that, historically, the IRS conditions applicable to many pre-approved plans required that employers who used what was known as a “master” plan were required to use the same trust or custodial account, whereas each employer had a separate trust or custodial account in a “prototype plan.” 
Under the proposal, the “same trust” requirement for the consolidated report would be satisfied by the same trust structure historically used by Start Printed Page 51494employers using “master” plans. Use of sub-trusts of the DCG trust would be permitted, but the proposal would not cover arrangements that allow separate plans to have a separate trust for investments. As discussed in more detail below, part of the reason for this provision stems from considerations related to the establishment of audit requirements for DCG reporting arrangements and the otherwise generally applicable requirement under Title I of ERISA for plans that cover 100 or more participants file with their Form 5500 an audit report of an independent qualified public accountant (IQPA) and the application of Generally Accepted Auditing Standards or GAAS (which ERISA section 103 applies to employee benefit plan audits).
Although, as described above, section 202 of the SECURE Act includes a requirement that the eligible plans must have the same “trustee” as described in section 403(a) of ERISA, the Departments note that it is commonplace for ERISA covered plans to use insurance (e.g., individual account plans using variable annuity structures and Code section 403(b)(1) plans) and custodial accounts (e.g., Code section 403(b)(7) plans) as funding vehicles. ERISA section 403(b) includes explicit exceptions to the trust requirement for such plan designs. There is no legislative history for SECURE Act section 202 discussing why the provision was limited to plans with “trustees,” and the Departments do not believe that the SECURE Act section 202 requirement for a “trustee” can be read to include plans without trustees funded by insurance or custodial accounts pursuant to the trust exceptions in ERISA section 403(b). Nonetheless, the Departments specifically solicit comments on whether they should, pursuant to their general regulatory authority, provide a consolidated reporting option for plans that use the same custodial account or insurance policy as the funding vehicle for their plans, and if so, whether special conditions should apply in light of the absence of a trustee or trustees.
With respect to the “same one or more named fiduciaries requirement,” ERISA section 402 provides that every employee benefit plan shall be established and maintained pursuant to a written instrument. Such instrument shall provide for one or more named fiduciaries who jointly or severally have authority to control and manage the operation and administration of the plan. Section 402 of ERISA further provides that the term “named fiduciary” means a fiduciary who is named in the plan instrument, or who, pursuant to a procedure specified in the plan, is identified as a fiduciary (A) by a person who is an employer or employee organization with respect to the plan or (B) by such an employer and such an employee organization acting jointly. The Departments understand that it is customary for the employer/plan sponsor to be a named fiduciary of the employer's plan. The Departments do not believe the SECURE Act intended that each employer in a group of plans be a named fiduciary of every plan in the group. Accordingly, the proposal would allow for the employer/plan sponsor to be a named fiduciary of each employer's own plan, provided that the other named fiduciaries under the plans are the same and common to all plans.
The SECURE Act further requires that all the plans have the same administrator as defined in section 3(16)(A) of ERISA and plan administrator as defined in section 414(g) of the Code. Under the proposal, the plans must designate the same person (which could be an entity or organization) as the administrator. In general, under ERISA and the Code the “plan administrator” or “administrator” is the person specifically so designated by the terms of the instrument under which the plan is operated. If an administrator is not so designated, the plan administrator is the plan sponsor, as defined in section 3(16)(B) of ERISA. The Departments do not believe that the default “plan sponsor” provision is workable in this context, and, accordingly, the proposal requires that there be a designated common plan administrator and that the administrator be the same for all the plans relying on the DCG consolidated Form 5500.
The proposal also requires that all the plans provide the same investments or investment options to participants and beneficiaries to be able to rely on the DCG consolidated Form 5500 as satisfying their annual reporting obligation. In the Departments' view, this requirement in part was intended to allow for appropriate transparency in the consolidated financial information that would be filed by the DCG. To the extent the covered plans had different investments or investment options, much more detailed financial reporting would be needed to provide appropriate oversight and accountability. The Departments also believe that, even absent the proposed “eligible plan assets condition for DCGs,” the SECURE Act's “same investments or investment options” requirement effectively precludes plans that hold employer securities from participating in a DCG reporting arrangement as well as precluding treatment of brokerage windows as an “investment option” because such investments and investment alternatives would conflict with the investment uniformity objectives of the SECURE Act requirement. The Departments, however, specifically solicit comments on whether the final rule should allow employer securities as an exception to the “same investments or investment options” requirement. The Departments also solicit comments on whether the final rule should allow brokerage windows, self-directed brokerage accounts, and similar features in plans participating in DCG arrangements, and, if so, what reporting requirements should be applied, e.g., what information should be collected regarding the brokerage windows/accounts, the participants using the brokerage windows/accounts, and the individual assets held by the plans as a result of investments made through brokerage windows/accounts.
Section 202 further provides that a plan not subject to Title I of ERISA can be part of a DCG reporting arrangement if the non-Title I plan and all other plans in the reporting group have the same persons acting as the trustee as defined in ERISA section 403(a), the named fiduciaries as described in ERISA section 402(a), the administrator as defined in ERISA section 3(16)(A), and the plan administrator as defined in Code section 414(g), as applicable. In the Departments' view, this provision was directed at so-called “one-participant” plans required to file the IRS Form 5500-EZ. IRS views the current Form 5500-EZ as providing plan sponsors with a simple and streamlined means to satisfy the annual reporting requirement under section 6058 of the Code. The information being requested on the Schedule DCG for a DCG is almost identical to the information already provided on the Form 5500-EZ, so that the group filing arrangement would not effectively reduce the information a Form 5500-EZ filer would need to provide to IRS in a separate filing. Additionally, the plan administrator will need to file a consolidated Form 5500 (with any required schedules) for the DCG that provides aggregate information for all Form 5500-EZ filers. Presumably, the DCG will require a Form 5500-EZ filer to provide at least as much information as would be required to file an individual Form 5500-EZ. Finally, IRS might incur significant costs and use significant resources if it were to develop a separate group filing arrangement for Form 5500-EZ filers. Start Printed Page 51495Before incurring these costs and using these resources, IRS requests comments from interested parties on whether Form 5500-EZ filers are expected to be interested in participating in a DCG structure, including a separate DCG structure only for Form 5500-EZ filers, in light of the lack of burden reduction that a Form 5500-EZ filer would experience by participating in a DCG structure. With respect to the latter, the Departments request comments on the feasibility of including both ERISA and non-ERISA filers in a single DCG filing, including with respect to the application of the audit requirements under Title I.
2. Conditions for Plans To Participate in a DCG Reporting Arrangement
To be eligible to rely on the proposed alternative method of compliance, the employee benefit plan (1) must have all of its investment assets held in a single trust of the DCG reporting arrangement; (2) the plan must not hold any employer securities at any time during the plan year; (3) at all times during the plan year, the plan must be 100% invested in certain secure, easy to value assets that meet the definition of “eligible plan assets” (see the instructions for line 6a of the Form 5500-SF), such as mutual fund shares, investment contracts with insurance companies and banks valued at least annually, publicly traded securities held by a registered broker dealer, cash and cash equivalents, and plan loans to participants; (4) the plan must be audited by an IQPA or be eligible for the waiver of the annual examination and report of an IQPA under 29 CFR 2520.104-46, but not by reason of enhanced bonding (see instructions for line 6b of the Form 5500-SF); and (5) multiemployer plans and MEPs (including pooled employer plans and professional employer organizations (PEOs)) cannot participate in DCG reporting arrangements.
An important aspect of the audit of the DCG trust would be that, in the DOL's view, the versions of the separate schedules referenced in ERISA section 103(a)(3)(A) and 29 CFR 2520.103-10(b) and 2520.103-2(b) that would be filed as part of the DCG consolidated Form 5500 would be treated as ERISA section 103(b)(3) supplemental schedules for purposes of the required IQPA's opinion on whether those schedules are presented in conformity with DOL rules and regulations, including the delinquent participant contributions schedule filed by the DCG in connection with line 4a of its Form 5500, Schedule H. The DOL views these conditions as providing important financial accountability and oversight protections while also allowing DCGs to offer annual reporting cost-efficiencies, particularly for the small plans that we believe SECURE Act section 202 was intended to benefit, that are comparable to those that can be offered by MEPs, including pooled employer plans.
With respect to the audit requirement for large plans participating in a DCG, the DOL understands that under GAAS, it would not be possible to have a consolidated audit of all the participating plans in the DCG reporting arrangement. Rather, under GAAS, each large plan in the DCG reporting arrangement would have to be subject to its own separate audit. By comparison it would be possible, under GAAS, for a DCG reporting arrangement to be subjected to a single audit if it used a single trust for all of the plans covered by the DCG report. Such a “single trust” audit, however, would cover only the trust's financial statements and would not cover aspects of plan operations and finances that would be covered by a GAAS audit at the plan level. The DOL views an IQPA audit as an important financial transparency and accountability condition for DCG reporting arrangements. Generally, pension plans and funded welfare plans with 100 or more participants are required to have an audit of the plan's financial statements performed by an IQPA. Under Statement on Auditing Standards No. 136 (SAS 136), Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, independent qualified public accountants are required to consider relevant plan provisions that affect the risk of material misstatement for various transactions, account balances, and related disclosures. Areas such as participant eligibility, plan contributions, benefit payments and participant loans are all covered as part of a plan level audit. Additionally, auditors are required to communicate reportable findings to the plan that are identified during the audit of the plan. For example, it has been the DOL's experience that plan audits lead to increased reporting of prohibited transactions, such as identifying and disclosing delinquent participant contributions.
An audit of a trust, such as a DCG trust, does not have similar requirements. In a trust audit, the line items on the trust's financial statement are audited, but because the underlying participating plans themselves are not audited, compliance with the provisions of the plans that are invested in and funded by the trust are not audited. Therefore, in a trust audit, the amount of contributions received by the trust might be tested against the contributions remitted by participating plans, but, whether those contributions amounts remitted are in accordance with the individual plan provisions would not be tested, as they would be tested in an audit of the plan. There could be undisclosed, material errors in the amount of contributions remitted to the trust versus what should have been remitted. Similarly, in a trust audit, the benefit payments to participants might be tested in terms of amounts paid and whether they were authorized, but whether those were in compliance with plan provisions, such as vesting provisions, would not be tested as they would be tested in a plan's audit. In a plan audit, participant data is tested. Participant data testing involves determining whether employees are properly included or excluded from participating and whether the census data upon which eligibility for certain contributions and distributions are made is accurate. The audit of a trust would not test this at all. Finally, the materiality threshold for a trust audit could be significantly higher than that which would apply in the case of an individual participating plan because the trust threshold would be based on total assets in the trust rather than assets in each individual plan. After carefully considering these issues, the Departments decided to propose that a large plan that elects to participate in a DCG must continue to be subject to an IQPA audit and that the audit report for the plan would have to be filed with the consolidated Form 5500 of the DCG reporting arrangement.
The DOL acknowledges that at least some of these considerations could be applied to small plans participating in the DGC arrangement. While the DOL did not believe it would be appropriate to relieve from the IQPA audit requirement those large plans currently subject to the audit, it also did not believe that it would be appropriate to require small plans that are not currently required to have an IQPA audit to have such an audit as a condition of participating in a DCG reporting arrangement. Rather, in light of the fact that DCG reporting arrangements would be consolidating the assets of many unaffiliated small plans under the control of a single trustee in a single trust, and the DOL's understanding that such a trust could be subject to a single GAAS audit, the DOL is proposing that the DCG trust be audited by an IQPA as a way of adding protections for funds aggregated in the DCG trust. The DOL notes that this structure has some parallels to the Start Printed Page 51496current reporting alternative for group insurance arrangements (GIAs) under 29 CFR 2520.103-2, another type of DFE that files the Form 5500 Annual Return/Report on behalf of participating welfare benefit plans. The need for more information for DCGs than for GIAs is due to the difference between retirement and welfare plans, including the respective requirements under the Code, and also due to the fact that GIAs must provide welfare benefits fully through insurance.
DOL further acknowledges that, under the proposal, for plans to be able to satisfy their annual reporting obligation by relying on the Form 5500 filing by a DCG reporting arrangement, the plans would have to be 100% invested in eligible plan assets as defined in the Form 5500-SF instructions.
Accordingly, plan assets in the DCG trust would, by definition, be held by regulated financial institutions, including banks or similar financial institutions and insurance companies, and may qualify for limited scope audit treatment in accordance with ERISA section 103(a)(3)(C). Thus, even for large plans, the investment assets certified by those financial institutions/insurance companies would not be audited, and the auditor would not be performing valuation work on the assets covered by the bank or insurance company certifications. Although that may diminish some aspects of the IQPA requirement for large plans in DCG reporting arrangements, the DOL did not believe that it would be appropriate to propose that large plans be precluded from participating in a DCG unless the plan disclaimed reliance on the limited scope audit provisions in ERISA section 103(a)(3)(C) and had a full scope audit performed.
The DOL further expects that, because all of the investments held in the DCG's single trust would be the subject of the DCG audit, it is likely that to reduce expenses the DCG reporting arrangement and the participating large plans would engage the same auditor to perform the audits of the DCG trust and any individual large plans participating in the DCG reporting arrangement. Alternatively, to the extent the individual plans engage different auditors, the DOL expects that the use of reports issued under Statement on Standards for Attestation Engagements No. 16 (SSAE 16) may permit the individual plan auditors to use those reports for the DCG trust to reduce their own audit work on the trust as part of the individual plan audit. The same rules for determining whether an individual plan is required to file as a large plan would apply to the plans within a DCG, including the “80 to 120” transition rule at 29 CFR 2520.103-1(d). Similarly, if finalized, the proposed change on using participants with account balances, rather than all eligible participants, to determine small plan status for general annual reporting purposes also would apply.
With respect to the condition prohibiting multiemployer plans and MEPs from being part of DCG reporting arrangements, the Departments do not believe that section 202 of the SECURE Act was focused on allowing groups of multiemployer plans or MEPs, which already file a single Form 5500 that covers all of the employers that participate in the plan, to file a single consolidated Form 5500 covering the group of multiemployer plans or MEPs. The Departments are also concerned that allowing a single consolidated Form 5500 in the case of such plans, for example, a group of multiemployer section 401(k) plans, could result in an undesirable reduction in transparency and financial accountability. Further, creating a consolidated report for such groups of plans would likely be much more complicated and costly than what is being proposed in this document. Nonetheless, the Departments acknowledge that such a limitation is not expressly set forth in section 202 of the SECURE Act, and, accordingly, solicits public comments on whether the final rule should include multiemployer plans and MEPs, and if so, what conditions should apply to DCG reporting arrangements that would include such plans.
3. Content Requirements for DCG Form 5500
The proposal also sets forth the content requirements for the consolidated Form 5500 return/report filed by the DCG reporting arrangement. Under the proposal, DCGs would not be permitted to file a Form 5500-SF. Rather, DCG reporting arrangements would be required to file a Form 5500 Annual Return/Report that includes largely the same information that large pension plans and other DFEs are generally required to file, except that a DCG reporting arrangement would also be required to include in its annual report a proposed Schedule DCG (described below) to report individual participating plan information for each plan that is a part of the DCG reporting arrangement. Specifically, the content of the DCG annual return/report would include a Form 5500 Annual Return/Report of Employee Benefit Plan and any statements or schedules required to be attached to the form for such entity, 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), Schedule R (Retirement Plan Information), Schedule DCG (Individual Plan Information), schedules described in § 2520.103-10(b)(1) and (b)(2), an IQPA audit report and the related financial statements covering the DCG trust, and, for DCG consolidated Form 5500 filings that are intended to cover large plans (generally those with 100 or more participants), an IQPA audit report and the related financial statements attached to the Schedule DCG for each such individual large plan. Financial statements include the financial statements of the trust, the notes to the financial statements and the schedules described in paragraph (b)(1) of § 2520.103-10.
Information reported on the various schedules to the Form 5500, other than the proposed Schedule DCG, would be reported in the aggregate. Thus, a Schedule A would be required for all insurance contracts that constitute one of the investments or investment alternatives available to all of the participants in a plan, regardless of whether certificates were to be issued to individual plans or participants upon selection of that option by a participant. The fees and commissions paid with respect to any insurance contracts available for investment by any of the plans/participants would be reported on the Schedule A. Similarly, a service provider to the trust and to each of the plans would be reported on Schedule C, even if the service provider did not actually provide services or charge fees to a particular plan because, for example, the service provider provided investment management services with respect to a particular investment option that was not selected by any of the participants in a particular plan. The $5,000 threshold would be based on the total amount received by the service provider. Reporting on Schedule C would still be required if the total amount was $5,000 or more, even if the amount paid by or charged against the assets of each the participating plans was less than $5,000 per plan. Reportable transactions on Schedule G would include any involving the assets of the trust and any parties in interest with respect to the trust. For reporting delinquent participant contributions on Schedule H, Line 4a, the Agencies would expect the DCG filing the annual report to identify the delinquent Start Printed Page 51497participating employer in the attachment already required in the instructions.
The Departments expect that cost savings for plans relying on a DCG filing compared to plans filing separately would generally only begin to emerge when the DCG collectively exceeds an aggregate participant count of 100 participants. In other words, the Departments do not expect a DCG filing to provide meaningful cost savings for plans, as compared to filing their own annual report, in the case of DCG arrangements with an aggregate participant count of under 100 participants. Rather, the Departments expect in such cases that the individual plans would likely qualify for filing the Form 5500-SF and that they would likely find it more cost effective to file their own separate Form 5500-SF.
Accordingly, this proposal does not include an option under which such a “small” DCG could file as a small plan filer. The Departments solicit comments on whether stakeholders expect there to be “small” DGCs, whether a “small” DCG alternative should be made available, and what the content requirements for such an alternative should be, e.g., whether the content of the “small” DCG annual return/report should include Schedule I instead of Schedule H, whether it should include the IQPA audit report and/or the schedules of assets, and whether it should include the Schedule C.
4. Proposed Schedule DCG (Individual Plan Information)
Section 202(b) of the SECURE Act specifically provides that IRS and DOL may require the consolidated Form 5500 return/report filed by the DCG reporting arrangement to include any information regarding each plan in the group as IRS and DOL may determine necessary or appropriate for the enforcement and administration of the Code and ERISA. The proposed Schedule DCG would contain the plan level information needed by the IRS for administrating and enforcing tax laws passed by Congress and by the DOL for important Title I oversight functions, particularly with respect to large plans. A separate Schedule DCG would be required to be completed for each individual plan, similar to the requirement to complete a separate Schedule A for each insurance contract held by a plan or DFE filing the Form 5500. IRS examines individual plans, not groups of plans, to ensure that plan sponsors and/or employers comply with the tax laws governing retirement plans, and to help protect the retirement benefits of participants and beneficiaries. Thus, IRS requires information with respect to a plan's qualification, financial condition, and operation on a separate basis for each plan filing as part of a DCG. Individual plan financial information already reported on the Form 5500-SF is important for the DOL to continue to ensure that participants and beneficiaries of the individual plans participating in a DCG receive their promised benefits. The proposed Schedule DCG includes:
- Part I—DCG name and EIN/PN modeled on the similar plan-level information on other schedules to the Form 5500. Information in Part I must match the DCG information reported on Part II of the consolidated Form 5500.
- Part II—confirmation that the plan for which the Schedule DCG is being filed is a single employer plan (as noted above, MEPs and multiemployer plans may not participate in a DCG under the proposal) and, if applicable, identification of the plan as a collectively bargained plan.
- Part III—basic individual plan information, including the plan name, plan number, plan effective date, plan sponsor's name and address, plan sponsor's EIN, plan sponsor's telephone number, plan sponsor's business code, total number of participants, total number of active participants, number of participants with account balances, and number of participants who terminated employment during the plan year with accrued benefits that were less than 100% vested.
- Part IV—plan financial information, including total plan assets (including participant loans), total plan liabilities, net plan assets, contributions received or receivable in cash from the employer, participants, and others; noncash contributions and, total contributions; benefit payments, corrective distributions, and certain deemed distributions of participant loans, direct expense information, net income, and assets transferred to (from) plans.
- Part V—two-digit boxes for entry of all applicable codes in the List of Plan Characteristics Codes in the instructions to the Form 5500.
- Part VI—compliance questions relating to delinquent participant contributions, plan assets/liabilities transferred from the plan, indication of whether the plan is a defined contribution plan subject to section 412 of the Code, plan coverage and nondiscrimination information, and whether a plan is a pre-approved plan that received a favorable IRS Opinion Letter.
- Part VII—questions for large plans (generally plans covering 100 or more participants as of the beginning of the plan year) regarding the required individual IQPA report and financial statements that must be filed with the Schedule DCG filed for the participating large plan.
B. SECURE Act Section 101 Amendment to ERISA Section 103(g) Participating Employer Information
1. Participating Employer Reporting Under ERISA Section 103(g)
As discussed above, section 103(g) of ERISA, which was added to ERISA by the Cooperative and Small Employer Charity Pension Flexibility Act (CSEC Act) in 2014,
requires multiple employer plans to include with their annual reports “a list of participating employers” and, with respect to each participating employer, “a good faith estimate of the percentage of total contributions made by such participating employers during the plan year.” The DOL issued an interim final rule on November 10, 2014, which implemented the section 103(g) reporting requirements by requiring filers that check the “multiple employer plan” box on the face of the Form 5500 or the Form 5500-SF, and to attach a list of participating employers and a good faith estimate of the percentage of total contributions made by each participating employer during the plan year.
The 2014 interim final rule and the corresponding instructions further provided that unfunded or insured multiple employer welfare plans that are exempt under 29 CFR 2520.104-44 from filing financial statements with their annual report must attach a list of participating employers, but do not have to include an estimated amount of contributions from each employer.
Pursuant to the interim final rule, the section 103(g) reporting change became effective with the 2014 Form 5500 Annual Return/Report forms. The 2016 proposal on modernization of the Form 5500 included a proposal to finalize these changes.
The DOL received four comments on the interim final rule and six additional Start Printed Page 51498comments in connection with the Paperwork Reduction Act (PRA) notice associated with the publication of the interim final rule.
In addition, two comments on the 2016 proposal related to the proposal to finalize the 2014 interim final rule.
The central concerns of most of the commenters was that filing the participating employer list imposes material costs and burdens on multiple employer plans and that making the employer list public was not in the best interests of plan participants and beneficiaries. One commenter suggested that the DOL should not apply the section 103(g) reporting changes to defined contribution or welfare plans because ERISA section 103(g) was added as part of the CSEC Act, which generally focused on ERISA minimum funding requirements that are not applicable for the majority of defined contribution pension plans or to any group health and welfare plans. In the 2016 proposed rule as well as in the Field Assistance Bulletin No. 2019-01,
DOL stated its position that it believes the section 103(g) reporting requirements adopted by the 2014 interim final rule, which apply the new requirements to all multiple employer plans (defined benefit pension plans, defined contribution plans, and welfare plans), are a reasonable and appropriate way to implement Congress' directive in the CSEC Act. The information has proven useful to the DOL for its oversight functions for both MEPs and those MEWAs that file the Form 5500, regardless of the types of benefits provided by the MEWA. Before the DOL finalized the section 103(g) reporting requirements, the SECURE Act was enacted, which amended the original language in ERISA section 103(g), reaffirming that MEPs, including association retirement plans, PEOs, and the newly created pooled employer plans would have to report not just the existing identifying information, but also new financial information.
Specifically, section 101 of the SECURE Act amended ERISA section 103(g) by providing that annual reports for “any plan to which [ERISA] section 210(a) applies (including a pooled employer plan)” must include (1) a list of participating employers in the plan, a good faith estimate of the percentage of total contributions made by such participating employers during the plan year, and the aggregate account balances attributable to each employer in the plan (determined as the sum of the account balances of the employees of such employer (and the beneficiaries of such employees)); and (2) with respect to a pooled employer plan, identifying information for the person designated under the terms of the plan as the pooled plan provider. Although the SECURE Act added a specific reference to ERISA section 210(a), DOL believes that this reference was meant to emphasize that defined contribution multiple employer pension plans and different types of MEPs that became more accessible in recent years, such as association retirement plans, professional employer organization plans (PEOs), and the newly created pooled employer plan are required to comply with the participating employers reporting requirements, and not just defined benefit pension plans.
The SECURE Act reporting changes are effective for plan years beginning on or after January 1, 2021. In order to implement the SECURE Act reporting requirements on a timely basis, the Agencies are proposing that, for the 2021 plan year, MEPs (including pooled employer plans, association retirement plans, and PEOs) would be required to provide the participating employer information as a nonstandard attachment to the 2021 Form 5500 Annual Return/Report in a similar manner as currently required, and the content of the attachment would be updated to add the aggregate account balances attributable to each participating employer in the plan to the current requirement to provide identifying information and the percent of contributions by each participating employer. In addition, a MEP that is a pooled employer plan would be required to indicate on the nonstandard attachment for 2021 that it is a pooled employer plan and provide information similar to information required to be reported on a proposed Schedule MEP, as discussed below, for the 2022 and following plan years, including confirming that the entity identified as the plan sponsor and administrator in Part I of the Form 5500 is the pooled plan provider, and providing the ACK ID for the pooled plan provider's most recent Form PR. For the 2022 and following plan years, MEPs would be required to report the participating employer information in a standard format on a proposed new Schedule MEP, as discussed below.
2. Participating Employer Reporting for MEWAs
As discussed above, the SECURE Act amended ERISA section 103(g) by directing the reporting requirements specifically to multiple employer plans subject to ERISA section 210(a). The DOL continues to believe that receiving participating employer information from multiple employer welfare plans is important for oversight of such arrangements and should be continued. Even though the DOL originally relied on ERISA section 103(g) when it added the requirement for all multiple employer plans to provide the participating employer information, there are other rulemaking and reporting authorities that support continuing the reporting requirement for multiple employer welfare plans and extending it to non-plan MEWAs that file the Form M-1 (Report for Multiple Employer Welfare Arrangements (MEWAs) and Certain Other Entities Claiming Exception (ECEs) (Form M-1).
Based on the authority in ERISA sections 101(g), 505, and 734, the DOL in 2003 promulgated a regulation at 29 CFR 2520.101-2 that required the administrators of both multiple employer welfare plans and non-plan MEWAs that offer or provide coverage for medical benefits to file the Form M-1 on an annual basis (Form M-1 annual report) as well as upon occurrence of certain registration events (Form M-1 registration filing). Effective for plan years beginning on or after January 1, 2022, DOL is proposing to require MEWAs (plan and non-plan MEWAs) that offer or provide coverage for medical benefits to provide the participating employer information on the Form M-1 and not as an attachment to the Form 5500 Annual Return/Report. Specifically, new questions would be added to Form M-1 requiring MEWAs (plan and non-plan MEWAs) that offer or provide coverage for medical benefits to identify each participating employer in the MEWA by name and EIN and provide a good faith estimate of each participating employer's percentage of the total contributions made by all participating employer during the plan year. However, similar to the 2014 interim final rule issued under ERISA section 103(g), the Form M-1 proposal does not require contribution information from unfunded or insured MEWAs. Furthermore, the Form M-1 proposal would require contribution information on the Form M-1 annual report filing but not the Form M-1 registration filing. The DOL specifically solicits comments on whether the final rule should require participating Start Printed Page 51499employer information on only the annual Form M-1 filing, and not on other M-1 required filings, in light of the fact that only annual information is required for plans reporting participating employer information on the Form 5500.
With respect to multiple employer welfare plans that do not offer or provide coverage for medical benefits, and thus are not required to file a Form M-1 (for example, life or disability benefits), section 103 of ERISA provides the DOL with the authority to require the plan administrator to furnish, as part of the Form 5500 annual report, the “name and address of each fiduciary.” See ERISA section 103(c)(2). In the DOL's view, the employer is acting as a fiduciary with respect to its decision to provide ERISA-covered benefits through a MEWA rather than through a single employer plan and also is a fiduciary for purposes of continuing to monitor the plan that it adopted.
Accordingly, the DOL is relying on ERISA section 103(c)(2) as its authority for requiring multiple employer welfare plans (other than those that file the Form M-1) to continue reporting the participating employer identifying information, and unless unfunded or insured, a good faith estimate of each participating employer's percentage of the total contributions made by all participating employer during the plan year.
As is currently required for such plans, the information would continue to be filed as an attachment to the Form 5500 Annual Return/Report. MEWAs, however, whether those reporting on the Form 5500/Form 5500-SF or the Form M-1, would not be required to provide the new aggregate account balances information that was added by the SECURE Act to section 103(g).
For the 2021 plan year, pending the implementation of the Form M-1 changes, all plan MEWAs would continue to provide participating employer information as a nonstandard attachment to the 2021 Form 5500 Annual Return/Report in a similar manner as currently required.
The proposal, by transferring the participating employer information from the Form 5500 Annual Return/Report to the Form M-1 for MEWAs that offer or provide coverage for medical benefits and continuing to require reporting of participating employer information on the Form 5500 Annual Return/Report for plan MEWAs that provide other benefits, would enable the DOL to receive such information from both plan and non-plan MEWAs, regardless of how they are funded or structured. The DOL and other users of the Form M-1 data (e.g., state insurance regulators) would have access to updated and current lists of participating employers because the Form M-1 must be filed annually as well as upon the occurrence of certain registration events (30 days prior to MEWAs operating in any state or expanding their operations into an additional state; and within 30 days of a merger, material change, or a participant increase of 50% or more).
C. Proposed Form 5500-Schedule MEP (Multiple Employer Pension Plan Information) and Requirement That MEPs (Including Pooled Employer Plans) File the Form 5500 and not the Form 5500-SF
The proposal would add a new Schedule MEP (Multiple Employer Pension Plan Information) to the Form 5500 Annual Return/Report that would be completed by MEPs. The proposal also would add a limited number of additional data items elsewhere on the Form 5500 relevant to MEPs. The proposed Schedule MEP would provide a unified vehicle to report information related to new SECURE Act provisions, including information unique to MEPs. The first section, Part I, like the other schedules to the Form 5500, would require filers to enter identifying information (which must match the information entered on the Form 5500) and to indicate the plan type by checkbox. The instructions would provide general definitions for purposes of annual reporting for the various categories of pension plans that must complete the Schedule MEP. This would include different types of MEPs (group or association retirement plans within the meaning of 29 CFR 2510.3-55(b) (association retirement plans), professional employer organization plans within the meaning of 29 CFR 2510.3-55(c) (PEO plans), pooled employer plans within the meaning of ERISA section 3(43), and other MEPs covering the employees of two or more employers that are not single or multiemployer plans for annual reporting purposes). Multiemployer plans, as defined under section 3(37) of ERISA, would not be required to complete the Schedule MEP.
Part II of the proposed Schedule MEP would be a repeating line item on which all MEPs would report information under ERISA section 103(g) regarding participating employers, including employer/plan sponsor name, EIN, and the percentage of total contributions to the plan or arrangement by each participating employer, and the aggregate account balances information the SECURE Act added to ERISA section 103(g).
That information is currently collected for MEPs as a non-standard attachment to the Form 5500 and Form 5500-SF.
Pursuant to the SECURE Act, a new data element would be added to require reporting of the aggregate account balances for each participating employer in the MEP.
Part III would be completed by pooled employer plans. A pooled employer plan would be required to indicate whether the pooled plan provider operating the plan (identified on the Form 5500 for each of the pooled employer plans it operates as both the plan sponsor and the plan administrator) has complied with the registration requirements for pooled plan providers under section 3(43) and 3(44) of ERISA by filing a Form PR, in accordance with that form's instructions.
The pooled employer plan would be required to provide the “ACK ID”—the acknowledgement code generated by the system in response to a completed filing—for the most recent Start Printed Page 51500Form PR submitted.
Pooled employer plans would also be required to indicate whether certain services were provided by an affiliate, and, if relying on a prohibited transaction exemption for the use of an affiliate, to identify the prohibited transaction (whether a class or individual) exemption.
The DOL, through rules and other initiatives, has pursued and required improvements in fee transparency to ensure that ERISA plan fiduciaries and plan participants are effectively informed about service provider fees and expenses, including cost and performance information of designated investment alternatives under the plan. These considerations are particularly important in the case of pooled employer plans and MEPs given their structure and the roles that traditional service providers end up playing as plan sponsors and plan administrators. Accordingly, comments are specifically solicited on whether more specifically tailored questions should be added, in addition to those already on the Schedules C and H, to report fee and expense information on pooled employer plans and other MEPs, including information on how fees and expenses are allocated among participating employers and among covered participants and beneficiaries.
Further, the proposal would require all MEPs, similar to the current rule for multiemployer plans and the proposed rule for DCGs, to file the Form 5500 regardless of whether they would otherwise be eligible to file the Form 5500-SF. Making the filings across plan types more uniform would enable more consistent and informed oversight of collective retirement arrangements. Small MEPs would have the same simplified Form 5500 reporting as small pension plans, including MEPs, that currently file the Form 5500. They would be able to file the Schedule I instead of the Schedule H and its financial attachments, would not be required to complete the Schedule C or Schedule G, and would be able to file without having an IQPA audit and attaching an IQPA report.
D. Improving Usability of Data Collection for Schedule H, Line 4i Schedules of Assets
By their nature, MEPs have the potential to build up a substantial amount of assets quickly and the effect of any abusive schemes on future retirement distributions may be hidden or difficult to detect for a long period. The DOL is aware that MEPs could be the target of fraud or abuse for this reason. Although DOL is not aware of direct information indicating that the risk for fraud and abuse is greater for MEPs than for other defined contribution pension plans, a key component of the proposal is to make the financial information reported on the Form 5500 Annual Return/Report more data mineable and accessible for enforcement and analysis purposes. The DOL does not believe it would be sensible to limit this aspect of the proposal to just pooled employer plans and other MEPs because, although an important data improvement for MEPs, the need for more relevant and comparable financial information extends to defined contribution and defined benefit pension plans generally. Reports from GAO, the DOL—Office of Inspector General, the ERISA Advisory Council, and the Treasury Inspector General for Tax Administration (“TIGTA”) 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 and those held through pooled investment vehicles. It also would be confusing and inefficient to try to adopt these kinds of financial reporting improvement just for MEPs or for certain types of MEPs.
Mandatory e-filing, which was implemented for the 2009 form filing year, changed both the regulated community's and the government's ability to use the Form 5500 Annual Return/Report data. The data sets developed from e-filing information have been helping researchers, businesses, and other plan professionals.
The Form 5500 Annual Return/Report data sets can be one of the major building blocks for a private organization to use in developing information for employees and employers on plan administration. Currently, however, the line 4i attachments to Schedule H (Schedule of Assets Held at End of Year, Schedule of Assets Acquired and Disposed of Within Year and the Schedule of Reportable Transactions) are difficult to search, filter, aggregate, and analyze because they are not filed in a standardized electronic format. As a result, the Agencies, policymakers, employers, labor organizations, participants and beneficiaries, and the public have difficulty accessing key information about plan investments. This proposal to establish a standardized electronic filing format for the Schedule H, line 4i Schedules of Investments is also intended to be responsive to the 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 information, particularly information on hard-to-value assets and multiple-employer plans. See DOL-OIG EBSA Needs to Provide Additional Guidance and Oversight to ERISA Plans Holding Hard-To-Value Alternative Investments, at 17. See also Private Pensions: Targeted Revisions Could Improve Usefulness of Form 5500 Information, at 37; see also U.S. Gov't Accountability Office, GAO-12-665, Federal Agencies Should Collect Data and Coordinate Oversight of Multiple Employer Plans (2012), at 30.
Schedule H, line 4i would be separated into two elements—line 4i(1) would ask whether the plan held assets for investment at the end of the year; line 4i(2) would ask about assets acquired and disposed of during the plan year. The information to be collected as part of the schedules would be largely unchanged, but some adjustments are being proposed to improve the consistency and quality of the data. The proposal clarifies conventions for identifying filers by name and identifying number(s).
The proposal would require plans to use legal entity and other industry and regulatory identifiers for investment assets whenever possible. Check boxes are also being added for participant directed individual account plans to identify investments that are designated investment alternatives and qualified default investment alternatives and to require entry of the total annual Start Printed Page 51501operating expenses for the investments expressed as a percentage of assets that was furnished to participants and beneficiaries in their most recent “404a-5 statement.” 
With the expected increase in employers choosing to offer retirement benefits through MEPs and DCGs, instead of stand-alone plans that file their own annual return/report, and the requirement for DCGs to provide the same investments and investment alternatives, these changes are intended to help the Agencies, employers, and other interested stakeholders compare plan participation, investment options, and investment performance from year-to-year.
E. Schedules MB, SB and R—Proposed Modifications and Additions to Information Reported
As described more fully below, the Agencies propose adding new questions to the Form 5500 Schedule MB (Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information), Schedule SB (Single-Employer Defined Benefit Plan Actuarial Information), and Schedule R (Retirement Plan Information), and modifying the demographic and benefit attachment requirements to enable the Agencies to project more precisely defined benefit pension plans' and insurance programs' liabilities. Also for multiemployer defined benefit pension plans, among other changes, the Agencies propose identifying a larger number of contributing employers. For both single-employer and multiemployer defined benefit pension plans, the Agencies propose the option to provide certain required attachments in a spreadsheet file to make it easier for the Agencies to access the information.
1. Schedule MB Modifications
Currently, Schedule MB requires that if any of the employer contributions reported in line 3 include amounts owed for withdrawal liability, an attachment must be provided listing the total withdrawal liability amounts and the dates such amounts were contributed. The Agencies propose modifying the line 3 instructions to require an attachment that breaks down the total withdrawal liability amounts by date, separately specifying the periodic withdrawal liability amounts and lump sum withdrawal liability amounts.
Currently, line 6 of Schedule MB requires filers to provide information about the actuarial assumptions used to determine plan liabilities. The Agencies propose adding a new requirement for plans that assess withdrawal liability to an employer during the plan year to report the interest rate used to determine the present value of vested benefits for withdrawal liability determinations. This information would be reported in a new line, which would become line 6f. In addition, the Agencies propose modifying the questions related to the line 6 “expense load” to better align with the various ways multiemployer plans incorporate expense loads into their calculations. Filers would be required to indicate if an expense load is included in normal cost and, if so, whether it is determined as a percentage of normal cost, a dollar amount that varies from year to year, or something else. As part of the modification, the Agencies propose moving the expense load from line 6e to a new line 6i and to revise the instructions accordingly.
In addition, the Agencies propose modifying line 8 of Schedule MB by requiring additional information about demographics, benefits, and contributions as described below. As is the case currently with respect to line 8, these requirements would apply only to PBGC-insured multiemployer plans with 500 or more total participants as of the beginning of the plan year.
Benefit Projections—Currently, such plans are required to attach a projection of benefits expected to be paid in each of the next ten years (see line 8b(1)).
The Agencies propose modifying the format of the attachment to show the benefit projection broken down into three categories based on the participant's or beneficiary's status on the valuation date (i.e., active, terminated vested, in pay status). In addition, the projection period would be extended from 10 to 50 years. It is the Agencies' understanding that almost all valuation software automatically generates these numbers and that it takes the same amount of effort to project 50 years as it does to project 10 years.
Contribution Projections—The Agencies propose adding a new requirement that such plans provide, as an attachment, a 10-year projection of employer contributions and withdrawal liability payments. A new line, line 8b(3), would be added to Schedule MB where the filer would report whether the projection is required. As is the case with the benefit projection attachments, the instructions would provide the required format for the attachment.
Average age/benefit—The Agencies propose requiring such plans to report the average age and average monthly benefit separately for terminated vested participants and retired participants and beneficiaries receiving payments. This information would be provided directly on Schedule MB, in new line 8b(4).
The Agencies also propose a change to the “age/service” scatter attachment which is currently required for PBGC-insured multiemployer plans with active participants, regardless of the number of participants. Currently, the scatter shows, for each “attained age” and “years of credited service” grouping of active participants, the number of active participants, and if the total number of active participants at the beginning of the plan year is 1,000 or more, (1) for plans that use compensation to determine benefits, the average compensation, and (2) for cash balance plans, the average cash balance account (see line 8b(2)). The Agencies propose modifying the age/service scatter by deleting the required information related to cash balance plans and adding a requirement to report average accrued monthly benefits as of the valuation date for each grouping (for plans with 1,000 or more active participants at the beginning of the year). As is the case with respect to average compensation, the accrued benefit information would not be required for any age/service combination that contains fewer than 20 participants.
The Agencies also propose clarifying the line 4f instructions and Schedule language concerning when (or if) plans in critical status or critical and Start Printed Page 51502declining status are projected to emerge or become insolvent, as filers' previous responses indicate they may have been confused as to how to fill out line 4f correctly.
2. Modifications to Schedule SB
The Agencies propose making the Schedule SB (actuarial schedule), line 26 reporting requirements about demographics and benefits similar to the requirements for PBGC-insured multiemployer plans. Consistent with the requirements for PBGC-insured multiemployer plans, the new single-employer plan requirements would apply only to plans with 500 or more total participants. However, because the only participant count information reported on Schedule SB is as of the valuation date, for single-employer plans, participants are counted as of the valuation date for this purpose instead of as of the beginning of the plan year. Such plans would be required to attach a projection of benefits expected to be paid in each of the next 50 years broken down into three categories based on the participant's or beneficiary's status on the valuation date (i.e., active, terminated vested, in pay status). The instructions would provide the requirements for the attachment's format. The Agencies are also proposing that these plans report the average age and average monthly benefit separately for terminated vested participants and retired participants and beneficiaries receiving payments. As discussed above, the Agencies do not believe the benefit projection requirement would be burdensome for such single-employer plans, as almost all valuation software automatically generates these numbers.
To facilitate these changes, the Agencies propose rearranging Schedule SB line 26. Currently, line 26 relates only to the “age/service” scatter of active participant data required to be attached to Schedule SB for PBGC-insured single-employer plans with active participants. The Agencies propose changing line 26 into a three-part question (26a, 26b, and 26c). Line 26a would be the current line 26. New line 26b would require PBGC-insured single-employer plans with 500 or more total participants as of the valuation date to attach a projection of expected benefit payments. New line 26c would be the line for plans to report average age and average monthly benefit information.
The Agencies propose modifying Part IX of the Schedule SB, and its instructions, so that it relates to elective funding relief provided under the American Rescue Plan (ARP) Act of 2021 instead of elective funding relief provided under the Pension Relief Act of 2010 (PRA 2010). The PRA 2010 information is no longer needed because the ARP Act reduces to zero all shortfall amortization bases, including amortization bases established pursuant to the PRA 2010 elective funding relief. As modified, plan sponsors of single-employer defined benefit plans that elect to have the ARP Act extended amortization rule apply before the 2022 plan year would be required to report the first plan year to which the extended amortization rule applies.
3. Modification to Schedule R Reporting Requirement
The Agencies propose modifying Schedule R's Part V, line 13 requirement that multiemployer defined benefit pension plans subject to minimum funding standards report identifying information about any participating employer whose contributions to the plan account for more than five (5) percent of the total contributions for the year. The proposed change would require that plans report identifying information about any participating employer who either (1) contributed more than five percent of the plan's total contributions or (2) was one of the top ten highest contributors. This will ensure that reported data represents a reasonable sampling of contributors.
4. Change in Format for Certain Schedule MB and SB Attachments
EFAST filers currently file Form 5500 attachments as PDF and plain text (TXT) files. A PDF file is required only if the attachment is supposed to be signed. TXT attachments are rarely provided. Many attachments include a lot of numbers (e.g., benefit projections, age/service scatters) that are reported in tables. These numbers have to be extracted out of PDF tables and entered into databases or spreadsheets before the Agencies can use the information for various projects, studies, etc. This is costly and inefficient. It would be more efficient for the Agencies if this information was instead provided by filers in a tabular format (spreadsheet). Therefore, the Agencies propose modifying the instructions to allow and suggest (but not require) that certain attachments be provided in a tabular format (spreadsheet) such as CSV or XLS rather than PDF or TXT formats. The attachments affected by this change are:
|Attachment||Schedule MB||Schedule SB|
|Schedule of Projection of Expected Benefit Payments||Line 8b(1)||Line 26b.|
|Schedule of Active Participant Data (i.e., Age/service scatter)||Line 8b(2)||Line 26a.|
|Withdrawal Liability Amounts||Line 3||N/A.|
|Schedule of Projection of Employer Contributions and Withdrawal Liability||Line 8b(3)||N/A.|
Because much of this information is automatically generated by valuation software, the Agencies expect that this option may simplify the process for preparing attachments as well.
F. Internal Revenue Code-Based Questions for the 2022 Form 5500s
Prior to 2009, Schedule E, ESOP Annual Information, Schedule P, Annual Return of Fiduciary of Employee Benefit Trust, and Schedule T, Qualified Pension Plan Coverage Information, were required as part of the annual return under section 6058(a) of the Code and associated regulations, but they were not information collections of the DOL or the PBGC. Beginning in 2009, DOL mandated electronic filing of Form 5500, Annual Return/Report of Employee Benefit Plan, and Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan. Limitations on the IRS' authority to require electronic filing of annual returns resulted in the removal of the “IRS-only” schedules from the Form 5500 filing requirements. See Code section 6011(e).
The 2011 report from the TIGTA entitled “The Employee Plans Function Should Continue Its Efforts to Obtain Needed Retirement Plan Information” notes that the lack of information contained on Schedules E, P, and T can negatively impact the IRS's ability to effectively focus on specific factors of noncompliance when selecting retirement plans for examination. This lack of information may result in the IRS selecting relatively compliant plans, which increases the burden on these plans and affects the IRS's ability to identify and focus on potentially noncompliant plans. Additionally, the Employee Plans (EP) function has Start Printed Page 51503focused its examination strategy on identifying plans with non-compliance by using compliance strategies and data analysis. Compliance strategies use agents' experience to identify certain types of plans where EP sees numerous qualification failures. EP uses data analysis by identifying certain responses to questions on the Form 5500 that indicate that a plan may be non-compliant.
Rather than reinstating the Schedules E, P, and T, the IRS is proposing to add new questions to the 2022 Form 5500 that are designed to assist the IRS in identifying plans that are non-compliant relating to Code section 410(b) coverage, Code section 401(a)(4) non-discrimination, and Code section 401(k) non-discrimination testing. Additionally, the IRS is proposing to add a question that will help it identify whether adopters of pre-approved plans have been updated timely for changes in the law. DCGs would report this information at the plan level as part of the Schedule DCG.
Specifically, the proposal would add a nondiscrimination and coverage test question to Form 5500 and Form 5500-SF that was on the Schedule T before it was eliminated. The question asks if the employer aggregated plans in testing whether the plan satisfied the nondiscrimination and coverage tests of Code sections 401(a)(4) and 410(b). A plan that is aggregated with another plan to pass either nondiscrimination or coverage testing generally has more issues that are technically complicated and raise the possibility of non-compliance. Adding this question will allow EP to identify these plans for examination over plans that are likely more compliant with the law. This question is also helpful when performing pre-examination analysis and allows the IRS to narrow any inquiries for information that is requested from the plan sponsor. The restoration of this question also reflects the elimination of optional coverage and nondiscrimination demonstrations in the IRS determination letter process. See Rev. Proc. 2012-6, 2012-1 I.R.B. 235, and Announcement 2011-82, 2011-52 I.R.B. 1052.
The proposal would add a question to Form 5500 and Form 5500-SF, for section 401(k) plans, asking whether the plan sponsor used the design-based safe harbor rules or, if applicable, the “prior year” or “current year” ADP test. ADP testing and nondiscrimination are significant compliance issues for section 401(k) plans. For example, a plan that performs prior year or current year ADP testing is more likely to have compliance issues than a plan with a designed-based safe harbor. Adding this question will allow EP to identify for examination section 401(k) plans that use ADP testing over plans that have designed-based safe harbors. This question will also help the IRS perform pre-examination analysis and, for design-based safe harbor plans, verify whether (1) allocations of required safe harbor contributions comply with the terms of the plan, and (2) proper notice requirements are satisfied on an annual basis.
The proposal would add a question to Form 5500 and Form 5500-SF,
asking whether the employer is an adopter of a pre-approved plan that received a favorable IRS Opinion Letter, the date of the favorable Opinion Letter, and the Opinion Letter serial number. This question will help the IRS identify whether a plan sponsor has adopted a pre-approved plan and to determine whether the plan was adopted timely in accordance with the Code section 401(b) remedial amendment period. This question will also assist the IRS in determining whether to select a plan for examination as a late amender for changes in the law.
Finally, the proposal would add a new checkbox F to Form 5500-EZ, Part I, asking whether a filer is required to file Form 5500-EZ electronically pursuant to Treas. Reg § 301.6058-2. A filer who has to file at least the applicable number of returns with the IRS during a calendar year generally must file Form 5500-EZ electronically under EFAST2. The applicable number is 10 for returns required to be filed during calendar years after 2022. If a filer is required to file Form 5500-EZ electronically, but fails to do so, the filer is deemed to have failed to file Form 5500-EZ. This question will assist IRS in determining if a filer is in compliance with IRS mandatory electronic filing rules, in the event a paper Form 5500-EZ is filed.
G. Change to Participant-Count Methodology for Determining Independent Qualified Public Accountant Audit Requirement for Individual Account Plans
The Agencies are proposing to change the rules for determining when a defined contribution pension plan is exempt from the requirement to include an IQPA report with its annual return/report filing. Currently, the plan size measure for the IQPA audit requirement is based on the total number of participants at the beginning of the plan year, including those eligible to elect to have contributions made under a section 401(k) qualified cash or deferred arrangement even if they have not elected to participate and do not have an account balance in a section 401(k) or 403(b) plan. Some stakeholders have pointed out that the use of this definition for the audit threshold may result in two plans with the same number of active participants, e.g., 85 account holders, with one subject to an audit and the other not based on the number of non-participating but eligible employees of the plan sponsor. They questioned the policy basis for such a difference in application of the audit requirement. Further, under this definition, some stakeholders have suggested that section 112 of the SECURE Act could make it even more likely that a plan with a small number of active participants may be required to bear the cost of an audit based on eligible but not participating employees being counted toward the audit threshold. Specifically, because section 112 provides that long-term, part time workers that have reached the plan's minimum age requirement and worked at least 500 hours in each of three consecutive 12-months period must be permitted to make elective contributions to a section 401(k) qualified cash or deferred arrangement for plan years beginning on or after January 1, 2024, there could be more employees eligible to participate that elect not to do so. These eligible employees who are not active participants would still be impacting the threshold for determining whether the plan would have to file as a large plan.
To address these issues, the Agencies are proposing to add to the Form 5500 and Form 5500-SF a new question for defined contribution pension plans only, asking for the number of participants with account balances at the “beginning of the year,” in addition to the current end-of-year count for defined contribution pension plan participants with account balances. Defined contribution pension plans would determine whether they have to file as a large plan and whether they have to attach an IQPA report and audited financial statements based on the number of participants with account balances as of the beginning of the plan year, as reported on the face of the Form 5500 or Form 5500-SF. To avoid circumstances in which a beginning-of-year count would result in an inappropriate exclusion of large plans Start Printed Page 51504from the audit requirement, for first plan year filings, the participant count for this purpose would exclude only plans that have fewer than 100 participants with account balances both at the beginning of the first plan year and the end of the first plan year.
Thus, under the proposal, the determination would be based on the number of participants with account balances as of the beginning of the plan year (as reported on proposed line 6g(1) of the Form 5500 or line 5c(1) of the Form 5500-SF), except that the determination for first plan year filings would be based on the number of participants with account balances both at the beginning of the plan year and at the end of the plan year (as reported on proposed line 6g(2) of the Form 5500 and line 5c(2) of the Form 5500-SF).
H. Miscellaneous and Conforming Changes for Forms and Instructions
Various other technical, formatting, and conforming changes to the forms, schedules, and instructions are being proposed as part of the substantial restructuring of the Form 5500 Annual Return/Report described in this notice. For example, to implement the proposed Schedule MEP and Schedule DCG, the proposal includes conforming changes to other parts of the forms, schedules, and instructions. The instructions for what constitutes a multiple employer plan for purposes of the Form 5500 would generally be left unchanged, but conforming changes would be made throughout the instructions as necessary to reference the Schedule MEP and pooled employer plans for pension plans. The instructions would also be amended to reflect the transferring of the participating employer information from the Form 5500 Annual Return/Report to the Form M-1 for MEWAs that offer or provide coverage for medical benefits, and continued reporting of participating employer information on the Form 5500 Annual Return/Report as an attachment for plan MEWAs that provide other benefits. The instructions for Part I, DFE box, would be updated to add a code for DCGs, which would be instructed to check the DFE box, enter the correct code, and attach the proposed Schedule DCG. The proposed Schedule MEP and Schedule DCG would be added to the list of pension schedules. DCG filers would have to check that they are adding the Schedule DCG and enter the number of Schedules DCG attached. Other conforming changes would also be made throughout the instructions as necessary to reference DCGs and Schedule DCG. The DOL's reporting regulation at 29 CFR 2520.103-1(c)(2)(ii) and the Form 5500-SF instructions would be amended to add MEPs and DCGs to those types of filers that are not permitted to file a Form 5500-SF, but must instead file the Form 5500, with all required schedules and attachments. The instructions would be revised to state that pooled employer plans and DCGs would not report investment assets aggregated into master trust investment accounts (MTIAs) because the purpose of the MTIA reporting structure is to provide a financial reporting structure for groups of affiliated plans (e.g., separate plans of controlled group members) that utilize master trusts for the collective investment of the assets of the affiliated plans. The Departments do not believe that separate pooled employer plans and DCGs are “affiliated” in the way that was envisioned for master trust reporting by plans and may in fact create an overly complex and undesirable lack of transparency if used in the case of pooled employer plans and DCGs.
The proposal would also add new breakout categories to the “Administrative Expenses” category of the Income and Expenses section of the Schedule H balance sheet. The Agencies have determined that to get a better picture of plan expenses, particularly those related to service providers, more detail in this category is warranted. Accordingly, data elements would be added for “Salaries and allowances,” “Independent Qualified Public Accountant (IQPA) Audit fees,” “Recordkeeping and Other Accounting Fees,” “Bank or Trust Company Trustee/Custodial Fees,” “Actuarial fees,” “Legal fees,” “Valuation/appraisal fees,” and “Trustee fees/expenses (including travel, seminars, meetings.” Other than IQPA Audit Fees and Bank or Trust Company Trustee/Custodial Fees, these questions were on the Form 5500 prior to 1999.
As noted above in connection with pooled employer plans and MEPs, transparency and improved reporting of fees and expenses is an ongoing objective for the DOL and an important goal for continuing to improve the Form 5500 as a tool for financial transparency and accountability among employee benefit plans. Accordingly, the agencies specifically request comments on whether the final rule should require more detailed reporting regarding fee and expense information on the Form 5500. Useful comments would include, for example, suggestions on how to improve reporting of direct and indirect service provider compensation, generally and in particular with respect to pooled employer plans, other MEPs, and DCG reporting arrangements (including information about how the fees and expenses are allocated among participating plans, employers, and plan participants and beneficiaries, as applicable). Another example of an area of interest on fee information is whether the Form 5500 would be an appropriate vehicle for collecting information on fees charged to participants or alternate payees by a retirement plan—including plan service provider fees the plan passes on to participants—for review and qualification of domestic relations orders.
The proposal would also amend the Form 5500 instructions to make explicit that the pooled plan provider operating the pooled employer plan must report the same identifying information—i.e., name and EIN for itself, identified affiliates and other service providers, and trustees—on the Form PR for the pooled plan provider and on the Forms 5500 for every pooled employer plan the pooled plan provider operates. The instructions to the new Form PR have parallel instructions. The proposal would also amend the Form 5500 and Form 5500-SF instructions and make conforming changes to the other parts of the forms, schedules, and instructions to implement the proposed changes described above to the participant count methodology for individual account plans for determining whether such plans have to file as a large plan and whether they have to attach an IQPA report.
IV. Paperwork Reduction Act Statement
As part of continuing efforts to reduce paperwork and respondent burden, the general public and Federal agencies are invited to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data will be provided in the Start Printed Page 51505desired format, reporting burden (time and financial resources) will be minimized, collection instruments will be clearly understood, and the impact of collection requirements on respondents is properly assessed. Currently, the DOL is soliciting comments concerning the proposed revisions of the Form 5500 Annual Return/Report, Form M-1 and Summary Annual Report, which are information collection requests subject to the PRA. A copy of the ICRs may be obtained by contacting the person listed in the PRA Addressee section below. The DOL has submitted a copy of the proposed revisions to the Office of Management and Budget (OMB) in accordance with 44 U.S.C. 3507(d) for its review of the DOL's information collection. The IRS and the PBGC intend to submit separate requests for OMB review and approval based upon the final forms revisions. The DOL and OMB are particularly interested in comments that:
- Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the Agencies, including whether the information will have practical utility;
- Evaluate the accuracy of the estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
- Enhance the quality, utility, and clarity of the information to be collected; and
- Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
Comments should be sent to the Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10235, New Executive Office Building, Washington, DC 20503 and marked “Attention: Desk Officer for the Employee Benefits Security Administration.” Comments can also be submitted by Fax: 202-395-5806 (this is not a toll-free number), or by email: OIRA_submission@omb.eop.gov. OMB requests that comments be received by October 15, 2021, which is 30 days from publication of the proposed rule to ensure their consideration.
PRA Addressee: Address requests for copies of the ICR to James Butikofer, Office of Regulations and Interpretations, U.S. Department of Labor, Employee Benefits Security Administration, 200 Constitution Avenue NW, Room N-5655, Washington, DC 20210. Email: email@example.com. ICRs submitted to OMB also are available at http://www.RegInfo.gov.
Form 5500 ICR: As described below, DOL is requesting a new OMB Control Number for this collection. The request for a new control number is for administrative reasons only. The DOL is currently in the process of requesting an extension for OMB Control Number 1210-0110, Annual Information Return/Report of Employee Benefit Plan. Once all of the outstanding actions are complete, the DOL intends to submit a nonmaterial change request to transfer the burden from the new ICR to the existing OMB control number for the Annual Information Return/Report of Employee Benefit Plan (1210-0110) and proceed to discontinue the use of the new control number.
The Agencies' burden estimation methodology excludes certain activities from the calculation of “burden.” If the activity is performed for any reason other than compliance with the applicable federal tax administration system or the Title I annual reporting requirements, it was not counted as part of the paperwork burden. For example, most businesses or financial entities maintain, in the ordinary course of business, detailed accounts of assets and liabilities, and income and expenses for the purposes of operating the business or entity. These recordkeeping activities were not included in the calculation of burden because prudent business or financial entities normally have that information available for reasons other than federal tax or Title I annual reporting. Only time for gathering and processing information associated with the tax return/annual reporting systems, and learning about the law, was included. In addition, an activity is counted as a burden only once if performed for both tax and Title I purposes. The Agencies also have designed the instruction package for the Form 5500 Annual Return/Report so that filers generally will be able to complete the Form 5500 Annual Return/Report by reading the instructions without needing to refer to the statutes or regulations. The Agencies, therefore, have included in their PRA calculations a burden for reading the instructions and find there is no recordkeeping burden attributable to the Form 5500 Annual Return/Report. The DOL solicits comments regarding whether or not any recordkeeping beyond that which is usual and customary is necessary to complete the Form 5500 Annual Return/Report. Comments are also solicited on whether the Form 5500 Annual Return/Report instructions are generally sufficient to enable filers to complete the Form 5500 Annual Return/Report without needing to refer to the statutes or regulations.
Summary Annual Report ICR: Section 2520.104b-10 sets forth the requirements for the Summary Annual Report (SAR) appendix and prescribes formats for such reports. The DOL is proposing to revise the currently approved information collection (1210-0040) to include required additions to the SAR formats that reflect the addition of the new Schedule MEP and Schedule DCG to the 5500 Annual Report/Return.
Form M-1 ICR: Effective for plan years beginning on or after January 1, 2022, DOL is proposing to amend the Form M-1 information collection (1210-0116) by adding new questions requiring MEWAs (plan and non-plan MEWAs) that offer or provide coverage for medical care to identify each participating employer in the MEWA by name and EIN. MEWAs that are not unfunded or insured must also provide participating employer's percentage of the total contributions (employer and employee) made by all employer participating in a MEP. This information is currently reported as a non-standard attachment as part of the Form 5500 filing. The reporting of this burden is being moved from OMB control number 1210-0110. For the 2021 plan year, pending the implementation of the Form M-1 changes, plan MEWAs that offer or provide coverage for medical care would be required provide participating employer information as a nonstandard attachment to the 2021 Form 5500 Annual Return/Report in a similar manner as currently required. A summary of paperwork burden estimates follows:
Type of Review: New information collection.
Title: Annual Information Return/Report of Employee Benefit Plan.
Affected Public: Individuals or households; Private Sector—Business or other for-profit; Not-for-profit institutions.
Forms: Form 5500 and Schedules.
Total Respondents: 804,000.
Total Responses: 804,000.
Frequency of Response: Annually.
Estimated Total Burden Hours: 588,000.
Total Annualized Costs: $275 million.
Agency: Department of Treasury—IRS.
Type of Revision: Revision of existing collection.
Title of Collection: Annual Return/Report of Employee Benefit Plan.Start Printed Page 51506
OMB Control Number: 1545-1610.
Affected Public: Individuals or households; Private Sector—Business or other for-profit; Not-for-profit institutions.
Forms: Form 5500 and Schedules.
Total Respondents: 804,000.
Total Responses: 804,000.
Frequency of Response: Annually.
Estimated Total Burden Hours: 354,000.
Total Annualized Costs: $142 million.
Type of Revision: Revision of existing collection.
Title of Collection: Annual Information Return/Report.
OMB Control Number: 1212-0057.
Affected Public: Individuals or households; Private Sector—Business or other for-profit; Not-for-profit institutions.
Forms: Form 5500 and Schedules.
Total Respondents: 24,744.
Total Responses: 24,744.
Frequency of Response: Annually.
Estimated Total Burden Hours: 1,242.
Total Annualized Costs: $2 million.
Type of Revision: Revision of existing collection.
Title of Collection: Annual Report for Multiple Employer Welfare Arrangements.
OMB Control Number: 1210-0116.
Affected Public: Not-for-profit institutions, Businesses or other for-profits.
Forms: Form M-1.
Total Respondents: 687.
Total Responses: 687.
Frequency of Response: Annually.
Estimated Total Burden Hours: 141.
Total Annualized Costs: $126,556.
Type of Revision: Revision of existing collection.
Title of Collection: Summary Annual Report Requirement.
OMB Control Number: 1210-0040.
Affected Public: Not-for-profit institutions, Businesses or other for-profits.
Total Respondents: 761,170.
Total Responses: 177,793,034.
Frequency of Response: Annually.
Estimated Total Burden Hours: 1,110,692.
Total Annualized Costs: $20,320,505.
The DOL solicits comments regarding whether or not any recordkeeping beyond that which is usual and customary is necessary to complete the Form 5500 Annual Return/Report. Comments are also solicited on whether the Form 5500 Annual Return/Report instructions are generally sufficient to enable filers to complete the Form 5500 Annual Return/Report without needing to refer to the statutes or regulations.
Paperwork and Respondent Burden: Estimated time needed to complete the forms listed below reflects the combined requirements of the IRS, the DOL, and the PBGC. The times will vary depending on individual circumstances. The estimated average times are:
| ||Pension plans|
|Large||Small, filing Form 5500||Small, filing 5500-SF|
|Form 5500||1 hr, 51 min||1 hr, 19 min|
|Sch A||2 hr, 52 min||2 hr, 52 min|
|Sch MB||8 hr, 49 min||8 hr, 6 min||8 hr, 6 min.|
|Sch SB||6 hr, 38 min||6 hr, 49 min||6 hr, 49 min.|
|Sch C||2 hr, 52 min|
|Sch D||1 hr, 39 min||20 min|
|Sch G||14 hr, 22 min|
|Sch H||11 hr, 51 min|
|Sch I||2 hr, 6 min||2 hr, 6 min|
|Sch R||1 hr, 45 min||1 hr, 7 min|
|Form 5500-SF||2 hr, 35 min.|
|Sch MEP||10 min|
| ||Welfare plans that include health benefits|
|Large||Small, unfunded, combination unfunded/fully insured, or funded with a trust 5500-SF|
|Form 5500||1 hr, 45 min||1 hr, 14 min.|
|Sch A||3 hr, 40 min||2 hr, 43 min.|
|Sch C||3 hr, 38 min|
|Sch D||1 hr, 52 min||20 min.|
|Sch G||11 hr, 0 min|
|Sch H||12 hr, 46 min|
|Sch I||1 hr, 56 min.|
|Form 5500-SF||2 hr, 35 min.|
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| ||Welfare plans that do not include health benefits|
|Large||Small, filing Form 5500||Small, filing Form 5500-SF|
|Form 5500||1 hr, 45 min||1 hr, 14 min|
|Sch A||3 hr, 40 min||2 hr, 43 min|
|Sch C||3 hr, 38 min|
|Sch D||1 hr, 52 min||20 min|
|Sch G||11 hr, 0 min|
|Sch H||12 hr, 46 min|
|Sch I||1 hr, 56 min|
|Form 5500-SF||2 hr, 35 min.|
|Sch M1||15 min|
| ||Direct filing entities|
|Master trusts||CCTs||PSAs||103-12 IEs||GIAs||DCGs|
|Form 5500||1 hr, 50 min||1 hr, 30 min||1 hr, 23 min||1 hr, 38 min||1 hr, 26 min||1 hr, 50 min.|
|Sch A||2 hr, 54 min||2 hr, 48 min||2 hr, 46 min||2 hr, 51 min||3 hr, 1 min||2 hr, 52 min.|
|Sch C||3 hr, 2 min||1 hr, 2 min||29 min||1 hr, 56 min||1 hr, 22 min||2 hr, 42 min.|
|Sch D||1 hr, 30 min||48 min||34 min||1 hr, 1 min||54 min||1 hr, 39 min.|
|Sch G||12 hr, 34 min||8 hr, 3 min||11 hr, 6 min.|
|Sch H||12 hr, 19 min||11 hr, 47 min||11 hr, 43 min||12 hr, 16 min||12 hr, 1 min||8 hr, 36 min.|
|Sch DCG||1 hr, 33 min.|
The aggregate hour burden for the Form 5500 Annual Return/Report (including schedules and short form) is estimated to be 0.9 million hours annually. The hour burden reflects filing activities carried out directly by filers. The cost burden is estimated to be $419 million annually. The cost burden reflects filing services purchased by filers. Presented below is a chart showing the total hour and cost burden of the revised Form 5500 Annual Return/Report separately allocated across the DOL and the IRS. There is no separate PBGC entry on the chart because, as explained below, its share of the paperwork burden is very small relative to that of the IRS and the DOL.
The paperwork burden allocated to the PBGC includes a portion of the general instructions, basic plan identification information, a portion of Schedule MB, a portion of Schedule SB, a portion of Schedule H, and a portion of Schedule R. The PBGC's Estimated Share of Total Form 5500 Annual Return/Report Burden is: 1,242 Hours and $1.6 million per year.
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Accordingly, pursuant to the authority in sections 101, 103, 104, 109, 110 and 4065 of ERISA and sections 6058 and 6059 of the Code, the Form 5500 Annual Return/Report and the instructions thereto are proposed to be amended as set forth herein.
End Supplemental Information
Signed at Washington, DC,
Acting Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor.
Director, Employee Plans, Tax Exempt and Government Entities Division, Internal Revenue Service.
Director, Pension Benefit Guaranty Corporation.
BILLING CODE 4510-29-P
[FR Doc. 2021-19714 Filed 9-14-21; 8:45 am]
BILLING CODE 4510-29-C