Proposed Changes to Form 5500 Could be Costly

By: Taylor Napoli

The Employee Benefits Security Administration (“EBSA”), the Internal Revenue Service (“IRS”), and the Pension Benefit Guaranty Corporation (“PBGC”) have proposed changes to Form 5500 in an effort to improve the employee benefit plan reporting process.[1]  The changes would increase the reporting obligations of employers and could possibly eliminate some of the exemptions currently in place.[2]  These changes, if adopted, will likely go into effect in 2019, however, some changes may be enforced earlier.[3]

The Form 5500 Series is used to fulfill the annual reporting requirements provided under Title I and Title IV of Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code.[4]  The overall purpose of Form 5500 is to protect the benefits and rights of employees under their benefit plans.[5]  The form is filed by the benefit plan sponsors and assures that the employees themselves have access to their plan information.[6]  The plans currently reported cover around one hundred forty-three million workers, dependents of plans, and retirees.[7]

The proposed changes will require much more information than has previously been asked for in order to “help plan sponsors, fiduciaries, and participants and beneficiaries better understand their plans and plan investments.”[8]  The proposed changes are predominantly to keep up with the changes of employee benefit plans and financial market developments.[9]  In proposing these changes, EBSA, IRS, and PBGC have five primary goals in mind: (1) modernize financial reporting; (2) provide more information regarding group health plans; (3) enhance data mining; (4) improve service provider fee information, and; (5) better comply with the Internal Revenue Code and ERISA.[10]

Currently, welfare plans with less than one-hundred participants are exempt from reporting requirements, but under the proposed changes, these small plans will have to begin filing reports.[11]  The reporting for employers with small plans will not be as in depth as employers with much larger plans, but the new rule would add the burden of reporting to millions of employers who, as it stands right now, are not required to report.[12]  Much of the new information being requested is not routine.[13]  If employers are not prepared to report this type of data, it could end up being very costly for them in the event that their plans are not in compliance.[14]  While they do have until 2019 until the majority of these proposed changes could possibly take effect, it is not something they can leave to the last minute.

Along with the proposed changes to Form 5500, EBSA also proposed related changes to its annual reporting regulations under Title I of ERISA.[15]  The only course of action that employers can currently take is to comment on the proposed regulations published in the Federal Register. The notice and comment period was originally scheduled to end on October 4, 2016.[16] However, due to the amount of written requests for additional time from stakeholders, the notice and comment period has been extended to December 5, 2016.[17]  The original deadline was just over a week before the deadline for filing the 2015 Form 5500, which stakeholders argued would make it difficult for those closely involved to provide an adequate evaluation of the proposed changes.[18]  Many commenters have also requested a public hearing at the close of the written comment period, but a date has not been set.[19]

[1] Proposed Revision of Annual Information Return/Reports, 81 Fed. Reg. 47533 (proposed July 21, 2016) (to be codified at 26 C.F.R. pt. 301, 29 C.F.R. pts. 2520 & 2590, 29 C.F.R. pt. 4065).

[2] Lisa Nagele-Piazza, DOL Proposes Major Overhaul to Form 5500 Reporting, Soc’y For Hum. Resource Mgmt. (July 25, 2016), https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/form-5500-proposed-revisions.aspx.

[3] Significant Changes Proposed for Form 5500, EBIA Weekly Newsletter (Thomas Reuters), July 21, 2016.

[4] Employee Benefits Security Administration, U.S. Dep’t Of Lab., https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500 (last visited Sept. 23, 2016).

[5] Id.

[6] Form 5500 Corner, Internal Revenue Serv., https://www.irs.gov/retirement-plans/form-5500-corner (last visited Sept. 23, 2016).

[7] Proposed Revision of Annual Information Return/Reports, supra note 1.

[8] United States Department of Labor, Fact Sheet on Proposal to Improve, Modernize the Form 5500 Annual Return/Report Filed by Employee Benefit Plans (July 11, 2016), https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/fs-proposal-to-modernize-and-improve-the-form-5500-filed-by-employee-benefit-plans.pdf.

[9] Id.

[10] See Nagele-Piazza, supra note 2.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Press Release, U.S. Department of Labor, US Labor Department Releases Proposal to Improve, Modernize Form 5500 Annual Return/Report Filed by Employee Benefit Plans (July 11, 2016) (on file with U.S. Department of Labor).

[16] Employee Benefits Security Administration, supra note 4.

[17] Proposed Revision of Annual Information Return/Reports; Proposed Rule, 81 Fed. Reg. 65594 (proposed Sept. 23, 2016) (to be codified at 29 C.F.R. pts. 2520 & 2590).

[18] Id.

[19] Id.

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