Pushback on Form 5500 Proposed Changes

By: Taylor Napoli

In July 2016, the Department of Labor (“DOL”), the Internal Revenue Service (“IRS”), and the Pension Benefit Guaranty Corporation (“PBGC”) proposed changes to the Form 5500 Series in order to modernize and improve the current Forms.[1]  The comment period on such changes was extended to mid-December, after originally being set for the beginning of October, to appease the many organizations that requested a longer comment period in order to fully understand and analyze the proposed changes.[2]  The majority of organizations that chose to send in comment letters had mainly negative things to say about what the DOL, IRS, and PBGC have proposed.

Two major plan sponsor organizations, the American Benefits Council (“ABC”) and the ERISA Industry Committee (“ERIC”), are asking the DOL to withdraw the proposed Form 5500 changes.[3]  Both ABC and ERIC believe that these changes would cause “administrative burdens” for plan sponsors and providers, as well as substantially increasing the operating costs of such plans.[4]  ERIC submitted a joint comment with the Committee on Investment of Employee Benefit Assets (“CIEBA”) and the Society for Human Resource Management (“SHRM”) to discuss the proposed changes to the reporting requirements for two supplemental schedules that go along with Form 5500, Schedules C and H.[5]  The Organizations cite four predominant issues with the proposed changes regarding Schedules C and H: (1) substantial additional costs with unclear benefits; (2) consistency in disclosure; (3) Schedule H in its entirety; and (4) biased reporting.[6]

The Organizations are predominantly concerned about the substantial costs, both monetary and otherwise.[7]  They believe that the new requirement will greatly increase “legal, compliance, and audit costs” and require many more resources from plan administrators in order to compile the new data that is being proposed.[8]  The Organizations are worried that the costs will eventually be pushed onto the plan participants because the plan administrators may not be able to cover the increased costs.[9]  Additionally, CIEBA, SHRM, and ERIC believe that the Agencies’ proposal severely underestimates the additional hours of work that will need to be put in by plan sponsors and administrators to comply with the new reporting requirements.[10]  While the IRS, DOL, and PBGC believe that the new reporting requirements will only increase the work of large employers by approximately ninety hours, the Organizations have estimated an additional 2,000 hours to complete the form, and another 4,000 hours to be able to adjust to the form changes and comply with them by 2019, which would be the first year that they’re in effect if accepted.[11]

ABC also submitted their own comment letter to the IRS, DOL, and PBGC voicing their concerns regarding the increased administrative burdens they believe will result from the proposed changes.[12]  ABC is specifically concerned with the reporting requirements being extended to all group health plans no matter the size, the increase of detail reported on every plan’s financial information, and the expansion of information collected for service provider compensation.[13]  Rather than giving feedback regarding the problems ABC has with each of the changes, they instead suggested that the Agencies completely withdraw the proposal, take into full consideration all comments received, and re-propose a new, revised proposal at a later date.[14]  Knowing a complete withdrawal is unlikely, ABC has requested that the IRS, DOL, and PBGC push back the date the proposed changes would become effective to 2020.[15]

While there is much backlash regarding the proposed changes, one of the Big Four accounting firms, PricewaterhouseCoopers, seems to be supporting the Agencies’ proposal.[16]  PricewaterhouseCoopers has drafted their own summary of changes to reach out to those who may be affected by the proposal.[17]  The accounting firm believes that the DOL, IRS, and PBGC will use the new data they are asking for within the proposed changes to help in their enforcement of benefit plans, which will be helpful to plan administrators and participants alike.[18]

At this time, the Agencies are taking into consideration all comments received.  If the proposed changes had been able to be approved and passed before President Trump had taken office, it is likely that the final, accepted changes would have closely mirrored those that were proposed.  However, because there will likely be a lot of changes to health care plans and the Agencies who propose such changes, the chances of the July 2016 proposed changes to the Form 5500 Series getting approved greatly decreases.

[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] 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).

[3] Plan Sponsor Groups Call on DOL to Withdraw Proposed Form 5500 Changes, HR Daily Advisor (Dec. 21, 2016), http://hrdailyadvisor.blr.com/2016/12/27/plan-sponsor-groups-call-dol-withdraw-proposed-form-5500-changes/.

[4] Id.

[5] Letter from Ray Kanner, Acting Exec. Director, CIEBA Inc., Will Hansen, Senior VP, Retirement Policy, ERIC, and Michael Aitken, VP, Government Affairs, SHRM, to Assistant Secretary Borzi, Director Choi, and Director Reeder, Employee Benefits Security Administration (Dec. 5, 2016) (on file with ERIC at http://www.eric.org/uploads/doc/retirement/Form%205500%20Letter%20to%20DOL%20IRS%20%20PBGC%20(RIN%201210-AB63)%20–%2012-5-2016.pdf).

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Letter from Jan Jacobson, Senior Couns., Retirement Pol’y, ABC and Kathryn Wilber, Senior Couns., Health Pol’y, ABC, to the Office of Regulations and Interpretations, Employee Benefits Security Administration (Dec. 5, 2016) (on file with the American Benefits Council at http://www.americanbenefitscouncil.org/pub/29025d79-d89d-b636-87d6-3fd99e0cd176) (stating that ABC is a “national nonprofit organization dedicated to protecting and fostering privately sponsored employee benefit plans.” They have about 400 members that provide benefits to active and retired workers and their families).

[13] Id.

[14] Id.

[15] Id.

[16]Agencies Propose Significant Changes to Form 5500, PwC: Insights from People and Organization (Oct. 11, 2016), https://www.pwc.com/us/en/tax-services/publications/insights/assets/pwc-significant-changes-proposed-to-form-5500.pdf.

[17] Id.

[18] Id.

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