Electronic Filing of Annual Reports
[08/30/2005]
Volume 70, Number 167, Page 51541-51553
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Part VI
Department of Labor
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Employee Benefits Security Administration
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29 CFR Part 2520
Electronic Filing of Annual Reports; Proposed Rule
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2520
RIN 1210-AB04
Electronic Filing of Annual Reports
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Proposed regulation.
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SUMMARY: This document contains a proposed regulation that, upon
adoption, would establish an electronic filing requirement for certain
annual reports required to be filed with the Department of Labor by
plan administrators and other entities. The Employee Retirement Income
Security Act of 1974 (ERISA) and the Internal Revenue Code (the Code),
and the regulations issued thereunder, impose certain annual reporting
obligations on pension and welfare benefit plans, as well as on certain
other entities. These annual reporting obligations generally are
satisfied by filing the Form 5500 Series. Currently, the Department of
Labor, the Pension Benefit Guaranty Corporation, and the Internal
Revenue Service (the Agencies) use an automated document processing
system--the ERISA Filing Acceptance System--to process the Form 5500
Series filings. As part of the Department's efforts to update and
streamline the current processing system, the Department has determined
that improvements and cost savings in the filing processes can best be
achieved by adopting a wholly electronic filing processing system and
eliminating the currently accepted paper filings. The Department
believes that a wholly electronic system will result in, among other
things, reduced filer errors and, therefore, reduced correspondence and
potential for filer penalties; more timely data for public disclosure
and enforcement, thereby enhancing the protections for participants and
beneficiaries; and lower annual report processing costs, benefiting
taxpayers generally. As part of the move to a wholly electronic filing
system, the regulation contained in this document would, upon adoption,
require Form 5500 filings made to satisfy the annual reporting
obligations under Title I of ERISA to be made electronically. In order
to ensure an orderly and cost-effective migration to an electronic
filing system by both the Department and Form 5500 filers, under the
proposal the requirement to file electronically would not apply until
plan years beginning on or after January 1, 2007, with the first
electronically filed forms due in 2008. Upon adoption, this regulation
would affect employee pension and welfare benefit plans, plan sponsors,
administrators, and service providers to plans subject to Title I of
ERISA.
DATES: Written comments must be received by the Department of Labor on
or before October 31, 2005.
ADDRESSES: Comments should be addressed to the Office of Regulations
and Interpretations, Employee Benefits Security Administration (EBSA),
Room N-5669, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210. Attn: Form 5500 E-filing regulation (RIN 1210-
AB04). Comments also may be submitted electronically to e-ori@dol.gov
or by using the Federal eRulingmaking Portal: http://www.regulations.gov
(follow instructions provided for submission of
comments). EBSA will make all comments available to the public on its
Web site at http://www.dol.gov/ebsa. The comments also will be
available for public inspection at the Public Disclosure Room, N-1513,
EBSA, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Yolanda R. Wartenberg, Office of
Regulations and Interpretations, Employee Benefits Security
Administration, (202) 693-8510. This is not a toll-free number.
SUPPLEMENTARY INFORMATION:
A. Background
Sections 104(a) and 4065 of the Employee Retirement Income Security
Act of 1974, as amended (ERISA), and sections 6057(b) and 6058(a) of
the Internal Revenue Code of 1986, as amended (the Code), and the
regulations issued under those sections, impose certain annual
reporting and filing obligations on pension and welfare benefit plans,
as well as on certain other entities.\1\ Plan administrators,
employers, and others generally satisfy these annual reporting
obligations by filing the Form 5500 Annual Return/Report of Employee
Benefit Plan, together with any required attachments and schedules for
the particular plan (Form 5500).\2\
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\1\ Other filing requirements may apply to employee benefit
plans under ERISA or to other benefit arrangements under the Code,
and such other filing requirements are not within the scope of this
proposal. For example, Code sec. 6033(a) imposes an additional
reporting and filing obligation on organizations exempt from tax
under Code sec. 501(a), which may be related to retirement trusts
that are qualified under sec. 401(a) of the Code. Code sec. 6047(e)
also imposes an additional reporting and filing obligation on
pension benefit plans that are employee stock ownership plans
(ESOPs).
\2\ For purposes of the annual reporting requirements under the
Code, certain pension benefit arrangements that cover only business
owners or partners (and their spouses), which are not employee
benefit plans under Title I of ERISA, are permitted to file the Form
5500-EZ to satisfy filing requirements under the Code. See
instructions to the Form 5500-EZ to determine who may currently file
the Form 5500-EZ.
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Currently, the Department of Labor, the Pension Benefit Guaranty
Corporation, and the Internal Revenue Service (the Agencies) use an
automated document processing system--the ERISA Filing Acceptance
System (EFAST)--maintained by the Department of Labor (the Department)
to process annual reports. Using the EFAST system, the Department
annually receives and processes approximately 1.4 million filings. For
the 2002 plan year, these filings translated into approximately 25
million paper pages.
Developed in 1998 and 1999, the EFAST system relies on a mixture of
filing and processing methods to accept, compile, and monitor the Form
5500 filings. The EFAST system currently accepts filings generated
using any of three different formats: (1) Government printed ``hand-
print'' forms, which must be filed on paper; (2) computer-generated
paper forms identical in format to government-printed hand-print forms,
which also must be filed on paper and are treated in processing the
same as hand-print forms; and (3) computer-generated forms in which 2D
bar code technology is used to encode filer data (known as the
``machine-print'' version of the forms), which may be filed either on
paper or electronically. As indicated, only the computer-generated
machine-print forms may be filed electronically, and the Agencies
currently accept machine-print filings through any of the following
electronic methods of transmission: (1) Via modem using file transfer
protocol (FTP), or (2) on magnetic or optical media, such as CD-ROM,
computer diskette, or magnetic tape. To process the different filing
formats, the system uses a variety of computer technologies, such as
optical character recognition technology to read data from the hand-
print forms; 2D bar-coding technology to read coded filer information
printed on the ``machine-print'' forms submitted on paper; scanning
technology to retain images of paper filings; etc.
A private contractor performs the EFAST processing under a time-
limited contract with EBSA. The end of the time-limited contracting
cycle and the
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beginning of another contracting cycle present a significant
opportunity for EBSA to evaluate the system and to make changes to take
advantage of technological advances. In connection with that process,
in March, 2004, the Department posted a request for public comments
(Request for Comment) on its website relating to updating the current
EFAST processing system.\3\
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\3\ The Request for Comment may be reviewed at: http://www.efast.dol.gov/efastrfc.html
.
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The Request for Comment set out the Department's preference for
enhanced electronic filing and described in detail its understanding of
the deficiencies in the EFAST design that impede use of the current
electronic filing option. The Request for Comment stated that the
Department's goal in developing a new processing system is to make it
``more accessible to its user base through Internet and Web-based
technology, devoid of paper to the greatest extent possible, faster,
less expensive, and more accurate'' and to ensure that ``electronic
filing becomes more convenient and beneficial for all users and
stakeholders.'' The Department noted that ``[t]he full benefits of
electronic processing have not * * * been realized * * * because
[EFAST's] electronic filing option has been underutilized.'' \4\ The
Request for Comment noted the benefits to be gained from electronic
filing, explaining that, compared with electronic filings, using paper-
based forms is less accurate in terms of data capture and less
efficient in terms of processing--paper filings take three times as
long as electronic filings to process and have nearly twice as many
errors, which often trigger follow-up letters from the Agencies seeking
corrections or clarifications concerning the filed information. Such
filings may also result in the imposition of penalties under ERISA and
the Code.
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\4\ The Department specifically identified technical
deficiencies involving the process for obtaining and using
electronic signatures, the use of outdated transmission methods, and
the continued use of paper for post-filing communications. The
Request for Comment suggested various technical design changes to
address these and other deficiencies, including creating an
Internet-based method of filing; requiring that approved software be
designed only for Internet transmission of computer-generated
filings; adopting improved data exchange technology based on widely-
accepted standards, such XML; improving the technical handling of
third-party attachments and attestations; and eliminating
differences in treatment between paper and electronic filings with
respect to acceptance and rejection.
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Signaling the Department's interest in moving to an electronic
filing system for the Form 5500 Series, the Request for Comment
specifically requested comment on whether a reduction in the available
filing methods, up to and including adoption of an electronic filing
mandate, would be an appropriate solution to the problems caused by
underutilization of electronic filing.
In response to the Request for Comment, the Department received
many constructive and useful comments from a diverse group of
interested parties, including small business owners, sponsors and
administrators of small and large plans, actuaries, accountants,
entrepreneurs involved in the development and sale of EFAST-approved
software, and firms that prepare Form 5500 filings for a wide variety
of employee benefit plans.\5\ Public comment was largely in accord with
the Department's analysis of EFAST's technical deficiencies as laid out
in the Request for Comment.
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\5\ Comments received in response to the Request for Comment may
be reviewed at: http://www.dol.gov/ebsa/regs/cmt_efastrfc.html.
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Based on what appears to be a consensus as to the current technical
deficiencies of EFAST, the Department has begun the technical process
necessary for the development of a new processing system. At the same
time, the Agencies separately are undertaking a comprehensive review of
the Form 5500 Series in an effort to determine what, if any, design or
data changes should be made, in anticipation of the new processing
system. Neither the technical project for development of a new
processing system, nor the Form 5500 Series project, however, is the
subject of this proposal.\6\ Any Form or related regulation changes
will be proposed for public comment as part of a separate rulemaking.
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\6\ In connection with this proposal, the Department is
providing in this document further information respecting the
technical design and Form 5500 content projects underway within the
Department concerning the Form 5500 Series. The Department believes
the information about those two other projects will assist the
public in evaluating this proposal; however, the Department notes
that it is not asking for public comment at this time on those two
separate projects. The proposal contained in this notice concerns
only the mandate of electronic filing. The public will have adequate
separate opportunity for public comment on the Form 5500 regulatory
initiative prior to its finalization and ample time to make
necessary practical changes prior to implementation of the new
processing system.
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The subject of this proposal is the Department's determination that
any new processing system designed to replace EFAST must have as its
core component a requirement that all Form 5500s be submitted through
electronic means. The Department's determination that electronic filing
must be the sole method available under the new processing system is
not dependent on the extent or type of data that will be required of
filers or the form or forms in which it must be provided; nor is it
dependent on the exact software or hardware that will ultimately be
devised to accommodate electronic filing, either by the Federal
government or by the private sector. Rather, this determination arises
from the Department's conclusion that electronic filing will benefit
plan sponsors, participants and beneficiaries, and the taxpayer, based
on the Department's investigation and analysis, described more fully
below, of the practical alternatives. The proposal for an electronic
filing requirement contained in this notice is therefore being
published in advance of the other projects related to the Form 5500
Series and processing because the Department has concluded, based on
considerations explained more fully below, that it is essential to the
success of any redesign of EFAST that it provide filers and other
affected parties adequate time to make the transition to a fully
electronic method of filing the Form 5500 Series. Given the importance
of the contemplated transition, the Department is publishing this
proposal separately to describe the reasoning behind its conclusion and
to solicit public comment on how best to proceed with the transition to
electronic filing.
B. Public Comment and Alternatives
Virtually all of the public comments submitted in response to the
Request for Comment recognized the value of electronic filing over
paper filing and expressed support for increasing the use of electronic
filing. The majority of comments also endorsed the concept of a gradual
transition to 100 percent electronic filing. A clear consensus among
commenters further favored the development of a secure Internet website
on which a filer could file the Form 5500 through direct input of data,
provided it was cost-free to the filer. Nonetheless, the commenters
opposed an immediate mandate of electronic filing as the next step in
EFAST development. The commenters argued that an immediate mandate
would impose economic burdens on small businesses and small plans,
which may not have easy access to the Internet. The commenters urged
the Department to make only incremental changes, building on the
current system and taking into account the substantial investments that
the filing public has already made to accommodate EFAST. One
representative commenter, speaking on behalf of a large number of large
employers and service providers to employers of all sizes, suggested
that, although electronic filing provides
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many advantages to both the public and the government, the Department
should phase in any mandate over time by market segment, starting first
with the largest employers who are already familiar with electronic
filing, such as is required by the Securities and Exchange Commission.
Other commenters asked the Department to allow sufficient time for
experimentation and testing before inaugurating a mandate.
In developing this proposed regulation, the Department sought to
advance two main goals. One was to maximize the speed, efficiency, and
accuracy with which annual reports are transmitted, accepted, and
processed, thereby enhancing the protection of participants' rights.
The other was to minimize the burden placed on filers. In pursuit of
these goals, the Department considered and analyzed several
alternatives, taking into account the costs and benefits attendant to
each. These included the following: (1) Creating a new processing
system that could continue to process both electronic and paper
submissions without limitation; (2) continuing the present, primarily
paper-based processing system on an interim basis alongside a new,
solely electronic processing system; (3) developing a new, primarily
electronic processing system with a temporary capacity to process a
limited number of paper filings, which would be made available under
criteria targeting those filers most likely to desire a longer
transition period; and (4) transitioning to a new, solely electronic
processing system under a uniformly applicable requirement to file
electronically.
The Department considered the costs and benefits of each of these
alternatives, and its economic analysis is described below under the
heading ``Regulatory Impact Analysis.'' Based on its analysis of the
alternatives, the Department has concluded that the maintenance of any
paper filing system, even on a reduced scale and/or for limited periods
of time, which would be required under any of the first three
alternatives, would be inherently inefficient and unnecessarily costly.
It is also the Department's view that any economic benefit that might
accrue to some class of filers under those alternatives would be
outweighed by the benefits to participants and beneficiaries at large,
and to the Department and taxpayers generally, of implementing a
single, wholly electronic system. Accordingly, the Department has
decided to propose adoption of a uniform requirement to file
electronically, as detailed further below.\7\
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\7\ This approach is congruent with recommendations of the
Government Accountability Office, which, in a June, 2005, Report to
Congressional Committees, stated that ``[g]iven the improved
timeliness and reduced errors associated with electronic filing,
Labor, IRS and PBGC should require the electronic filing of the Form
5500.'' See Private Pension--Government Actions Could Improve the
Timeliness and Content of Form 5500 Pension Information (GAO-05-491)
at 44. The Report went on to state ``[i]n doing so, Labor should
also make improvements to the current electronic filing process to
make it less burdensome, such as revising the procedure for signing
and authenticating an electronic filing.''
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In so doing, the Department believes that transitioning to a new
wholly electronic processing system will not present the problems
suggested by the public responses to the Request for Comment. First, as
explained more fully below, the Department intends to ensure that the
new processing system will remedy the existing technical difficulties
that underlie the perceived limitations of EFAST's current electronic
filing design and will provide an electronic filing process that will
be simpler, easier, and more attractive to filers.
Second, the Department does not believe that transitioning to the
new processing system will impose undue burdens on small plans or small
employers. Rather, the Department's analysis indicates that filers'
costs of transitioning from paper filing to electronic transmission
will be relatively modest and surpassed by benefits that will accrue in
subsequent years.
Finally, the Department intends to delay implementation of any
electronic mandate until the due date for the filing of Form 5500
Series for the plan year beginning in 2007, generally July 2008 or
later. The Department believes that this substantial time delay of the
proposed full electronic mandate will provide the public with adequate
time to make adjustments in advance of the implementation of the new
filing system.
The Department's conclusions concerning the public comments and
alternatives are grounded in the Regulatory Impact Analysis presented
below.
The Department invites comment on the need for an exception to
accommodate any potentially significant impediments to some filers'
transition to electronic filing. Commenters are encouraged to provide
specific examples of such impediments, as well as to address the
specific conditions for, and necessary scope of, relief under a
hardship exception.
C. Electronic Filing
After careful consideration of the comments on the Request for
Comment, as well as the need to develop a more efficient, cost-
effective processing system for annual return/reports, the Department
has determined, consistent with the goals of E-government, as
recognized by the Government Paperwork Elimination Act \8\ and the E-
Government Act of 2002,\9\ to require electronic filing of the Form
5500 to satisfy the reporting requirements of section 104(a) of Title I
of ERISA. A mandate of electronic filing of benefit plan information,
among other program strategies, will facilitate EBSA's achievement of
its Strategic Goal of ``enhancing pension and health benefits of
American workers.'' EBSA's strategic goal directly supports the
Secretary of Labor's Strategic Goals of ``protecting workers benefits''
and of ``a competitive workforce,'' as well as promoting job
flexibility and minimizing regulatory burden.\10\ A cornerstone of our
enforcement program is the collection, analysis, and disclosure of
benefit plan information. Requiring electronic filing of benefit plan
information, with the resulting improvement in the timeliness and
accuracy of the information, would, in part, assist EBSA in its
enforcement, oversight, and disclosure roles, which ultimately enhance
the security of plan benefits. As the Government Accountability Office
noted in its June, 2005, report on the Form 5500 Series,\11\ the
current necessity for handling paper filings under EFAST creates a
substantial delay between receipt of a filing and the availability of
its information for any enforcement and oversight purposes. Stating
that ``the abundance of paper filings results in long processing
times,'' the GAO estimated, for purposes of illustration, that the
processing time for a paper filing under EFAST averages 90 days from
date of receipt where no filing errors are detected.\12\ Electronic
filing would eliminate virtually all of this processing time, improving
outcomes for all of the users of the Form 5500 information. In this
regard, the PBGC has advised the Department that
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electronic filing will enable PBGC to receive important information
about defined benefit plans more quickly and efficiently, improving the
PBGC's ability to monitor plan funding; calculate bankruptcy claims;
estimate the impact of non-bankruptcy reportable events; evaluate
exposure and expected claims; study plan formation and termination
trends; and assess compliance with PBGC premium requirements.
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\8\ Title XVII, Pub. L. 105-277, 112 Stat. 2681 (Oct. 21, 1998).
\9\ Pub. L. 107-347, 116 Stat. 2899 (Dec. 17, 2002).
\10\ For further information on the Department of Labor's
Strategic Plan and EBSA's relationship to it, see http://www.dol.gov/_sec/stratplan/main.htm
.
\11\ See fn. 7, above.
\12\ See Private Pensions--Government Actions Could Improve the
Timeliness and Content of Form 5500 Pension Information (GAO-05-491)
at 28, fig. 9 at 32. GAO also noted that, where errors in a filing
are detected, additional processing delays of up to 120 more days
occur.
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In order to ensure an orderly and cost-effective migration to an
electronic filing requirement and a new processing system, the
requirement to file the Form 5500 electronically would apply only to
annual return/reports required to be filed under ERISA section 104(a)
for plan years beginning on or after January 1, 2007.
For purposes of the annual reporting requirements under section
4065 of Title IV of ERISA, the Pension Benefit Guaranty Corporation
(PBGC) has advised the Department that a plan administrator's
electronic filing of a Form 5500 for purposes of ERISA section 104(a),
together with the required attachments and schedules and otherwise in
accordance with the instructions to the Form, will be treated as
satisfying the administrator's annual reporting obligation under
section 4065 of Title IV of ERISA.\13\ Similarly, for purposes of the
annual filing and reporting requirements of the Code, the Internal
Revenue Service (IRS) has advised the Department that, although there
are no mandatory electronic filing requirements for a Form 5500 under
the Code or the regulations issued thereunder, the electronic filing of
a Form 5500 by plan administrators, employers, and certain other
entities for purposes of ERISA section 104(a), together with the
required attachments and schedules and otherwise in accordance with the
instructions to the Form, will be treated as satisfying the annual
filing and reporting requirements under Code sections 6058(a) and
6059(a). The IRS intends that plan administrators, employers, and
certain other entities that are subject to various other filing and
reporting requirements under Code sections 6033(a), 6047(e), and
6057(b) must continue to satisfy these requirements in accordance with
IRS revenue procedures, publications, forms, and instructions.
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\13\ It should be noted that all administrators of plans
required to file reports under ERISA sec. 4065 also are required to
file reports for purposes of sec. 104(a) of ERISA.
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With respect to annual reporting and filing obligations imposed by
the Code but not required under section 104(a) of ERISA, such as are
currently satisfied by the filing of the Form 5500-EZ, the IRS has
advised the Department that it is currently working with taxpayers to
explore how best to make a transition from paper filing to electronic
filing in a manner that minimizes the burdens on taxpayers and
practitioners. In this regard, the IRS has promulgated regulations
mandating or permitting electronic filing of certain returns filed by
pension and welfare benefit plans.\14\
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\14\ See, e.g., 26 CFR 301.6033-4T (mandating electronic filing
of certain corporate income tax returns and returns of organizations
required to be filed under Code sec. 6033); 26 CFR 1.6033-4T
(returns required to be filed on magnetic media under 26 CFR
301.6033-4T must be filed in accordance with IRS revenue procedures,
publications, forms, or instructions).
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With regard to the development of a new annual return/report
electronic processing system, the Department is committed to resolving
the electronic filing impediments identified by commenters on the
Request for Comment, in particular those impediments relating to
electronic signatures, attachments, and attestations furnished by third
parties (e.g., accountants, actuaries, etc.).
It is anticipated that the new electronic filing system will
incorporate the Internet as the sole medium for transmission of all
filings and that the system will incorporate immediate validity and
accuracy checks that will reduce both the error and rejection rate of
filings and eliminate much of the costly post-filing paper
correspondence and related potential penalties. The Department does not
anticipate charging any filing fees in connection with the new system.
It is intended that the new electronic filing system will provide
more than one vehicle for the electronic submission of annual return/
reports. First, it is intended that the new filing system will offer
users of approved, privately developed Form 5500 computer software
(service providers to plans as well as plan administrators) a secure
Internet-based method for transmission of Form 5500s created through
the use of the software. This Internet-based transmission process will
supercede all of the other currently available methods of transmitting
machine-print versions of the Form 5500, including use of computer
diskette, CD-ROM, magnetic tape, and modem. As the Department made
clear in the Request for Comment, in making a transition to 100 percent
electronic filing, the Department does not intend to supplant private
software developers, vendors, or service providers to plans. Rather, it
is contemplated that the new system will continue to provide support to
these private industries, and the Department believes that filers will
continue to rely on a variety of privately developed software products
and services to facilitate plan administration, including the
preparation and filing of the annual return/report. Indeed, it is
expected that third-party software will remain the primary means of
producing Form 5500s, with the simple difference that the reports will
be filed electronically rather than through the use of paper. It is
intended that service providers and software developers that provide
value-added services for plan sponsors will be able to incorporate the
new system's method of transmission into their services effectively and
efficiently. Software file specifications will be non-proprietary so
that users of different software may freely share information across
different platforms. In this regard, the Department specifically
invites public comment on how best to configure the new electronic
filing architecture to provide the necessary flexibility to accommodate
the needs of the diverse community of employee benefit plans.
Second, the Department also intends to include in the new system,
as a separate filing method, a dedicated, secure Internet website
through which plan administrators (or other return/report preparers)
will be able to input data and to complete and submit Form 5500 filings
on an individual plan-by-plan basis. It is anticipated that the
Internet website will provide the filer with the capability of entering
and saving data for an individual filing through multiple sessions,
authorizing input for that filing from multiple parties (service
providers, accountants, actuaries, etc.), uploading attachments, saving
return/reports to a repository, and retrieving, updating, and editing
stored filings, as well as creating and submitting amended filing data
to EBSA.
As mentioned above, in connection with implementation of the
redesign of EFAST, the Department, in coordination with the IRS and the
PBGC, is conducting a thorough content review of the Form 5500. This
review will be conducted as a three-agency regulatory initiative and
will provide notice and comment opportunities for the public. The
Department intends to consider, in conducting the content review of the
Form 5500, changes that would facilitate electronic filing, as well as
recommendations made by the ERISA Advisory Council on electronic
reporting and on reporting by health
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and welfare plans.\15\ That regulatory project will undertake to
produce revised forms to be used for annual return/reports for the 2007
plan year, which will be due to be filed in 2008, when the new
processing system will be implemented and the electronic filing
requirement will begin to apply. Within the next few months, the
Department intends to publish a separate notice inviting public comment
on proposed changes to the Form 5500 and related rules.
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\15\ See, e.g., Report of the ERISA Advisory Council Working
Group on Electronic Reporting (Nov. 8, 2002), at http://www.dol.gov/ebsa/publications/AC_1108a02_report.html
.
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D. Proposed Rule
The proposed rule contained in this notice is necessary to
establish a requirement for the electronic filing of the Form 5500 for
purposes of the annual reporting provisions of Title I of ERISA.
Although at this time it is not possible to provide full technical
details regarding the new electronic filing system, as many of the
technological aspects of the redesign are still in development, filing
requirements and compliance instructions will be provided to filers in
advance of any due date for filing the Form 5500 under a final
regulation requiring electronic submissions.
The proposal, upon adoption, would add a new section 2520.104a-2,
Electronic Filing of Annual Reports, to Subpart E of Part 2520 of Title
29 of the Code of Federal Regulations. The proposal provides that any
Form 5500 Annual Return/Report to be filed with the Secretary of Labor
(Secretary) for any plan year beginning on or after January 1, 2007,
shall be filed electronically in accordance with instructions and such
other guidance as the Secretary may provide, applicable to such annual
report. Because the Form 5500 is also filed by certain non-plan
entities, such as common or collective trusts, pooled separate
accounts, and entities described in 29 CFR 2520.103-12, which file for
the fiscal year ending with or within the plan year for which a plan's
annual report is filed, the proposal makes further reference to the
first ``reporting year'' beginning on or after January 1, 2007, for
such entities.
The proposal is intended to ensure that all Form 5500s filed with
the Department, as well as any statements or schedules required to be
attached to the report, including those filed by administrators (29 CFR
2520.103-1(a)(2) and (e)), group insurance arrangements (29 CFR
2520.103-2), common or collective trusts and pooled separate accounts
(29 CFR 2520.103-3, 2520.103-4, and 2520.103-9), and entities described
in 29 CFR 2520.103-12, are required (to the extent of the Department's
authority) to be filed electronically. Following the development of a
new electronic filing system, the Department intends to provide
specific instructions and guidance concerning methods of filing in the
instructions for the annual report form(s) and via its website.
As indicated above in the discussion under ``Electronic Filing,''
the proposal would not apply to any reporting requirements imposed
solely under the Code (i.e., not required under section 104(a) of
ERISA). As discussed above, issues relating to transition from paper
filing to electronic filing for such reporting requirements are under
consideration at the IRS. Accordingly, the regulation would not apply
to any attachment, schedule, or report required to be completed by a
tax-qualified pension benefit plan solely in order to provide the IRS
with information concerning compliance with Code section 410(b) for a
plan year, even if such attachment, schedule, or report is required to
accompany the Form 5500 Annual Report/Return for that year. The
proposal also would not apply to attachments, schedules, or reports
that the IRS requires (1) under Code section 6033(a) to be filed by a
trustee of a trust created as part of an employee benefit plan
described in Code section 401(a) or by a custodian of a custodial
account described in Code section 401(f), or (2) under Code section
6047(e) to be filed with respect to an employee stock ownership plan
(ESOP).
The proposal, at 29 CFR 2520.104a-2(b), makes clear that the
requirement to file annual reports electronically does not affect a
person's record retention or disclosure obligations. In other words,
the obligations of persons to retain records for purposes of sections
107 and 209 of ERISA would not be altered by the fact that the annual
report would be required to be filed in electronic form. Similarly, a
plan administrator's obligation to make the latest annual report
available for examination and to furnish copies upon request, in
accordance with sections 104(b)(2) and 104(b)(4) of ERISA, will not be
affected by an electronic filing requirement.
Conforming changes are being proposed to 29 CFR 2520.103-1(f)
[contents of the annual report], 2520.103-2(c) [contents of the annual
report for a group insurance arrangement], 2520.103-9(d) [direct filing
for bank or insurance carrier trusts and accounts], and 2520.103-12(f)
[limited exception and alternative method of compliance for annual
reporting of investments in certain entities].
E. Regulatory Impact Analysis
Summary
The Department has considered the potential costs and benefits of
this proposed regulation. Costs to plans would consist mainly of a one-
time, transition or start-up cost to make the change to electronic
filing, generally to be incurred in 2008, which is estimated to be $23
million. Benefits to plans would include ongoing savings on material
and postage and efficiency gains from the early detection and
correction of more potential filing errors in the course of electronic
filing, estimated to total $10 million annually, and realized each
succeeding year beginning in 2008. Over time the ongoing savings
attributable to this proposed regulation are expected to outweigh its
one-time transition costs. Aggregate savings are estimated to exceed
aggregate costs by $23 million over the first five years (discounting
future savings at a rate of 7 percent).
Additional benefits are expected to accrue to the government and
the public in the forms of substantially reduced processing costs and
more timely availability of accurate filing data for use in enforcement
and for other purposes of benefit to plans and participants.
Executive Order 12866 Statement
Under Executive Order 12866, the Department must determine whether
a regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Under section 3(f) of the Executive
Order, a ``significant regulatory action'' is an action that is likely
to result in a rule (1) having an annual effect on the economy of $100
million or more, or adversely and materially affecting a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or tribal governments or communities
(also referred to as ``economically significant''); (2) creating
serious inconsistency or otherwise interfering with an action taken or
planned by another agency; (3) materially altering the budgetary
impacts of entitlement grants, user fees, or loan programs or the
rights and obligations of recipients thereof; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in the Executive
[[Page 51547]]
Order. OMB has determined that this action is significant under section
3(f)(4) because it raises novel legal or policy issues arising from the
President's priorities. Accordingly, the Department has undertaken
below an analysis of the costs and benefits of the proposed regulation.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to Federal rules that are subject to
the notice and comment requirements of section 553(b) of the
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are
likely to have a significant economic impact on a substantial number of
small entities. Unless an agency determines that a proposed rule is not
likely to have a significant economic impact on a substantial number of
small entities, section 603 of the RFA requires that the agency present
an initial regulatory flexibility analysis at the time of the
publication of the notice of proposed rulemaking describing the impact
of the rule on small entities and seeking public comment on such
impact. Small entities include small businesses, organizations, and
governmental jurisdictions.
For purposes of analysis under the RFA, EBSA proposes to continue
to consider a small entity to be an employee benefit plan with fewer
than 100 participants. The basis of this definition is found in section
104(a)(2) of ERISA, which permits the Secretary to prescribe simplified
annual reports for pension plans that cover fewer than 100
participants. Under section 104(a)(3) of ERISA, the Secretary may also
provide for exemptions or simplified annual reporting and disclosure
for welfare benefit plans. Pursuant to the authority of section
104(a)(3), the Department has previously issued at 29 CFR 2520.104-20,
2520.104-21, 2520.104-41, 2520.104-46, and 2520.104b-10 certain
simplified reporting provisions and limited exemptions from reporting
and disclosure requirements for small plans, including unfunded or
insured welfare plans that cover fewer than 100 participants and
satisfy certain other requirements.
Further, while some large employers may have small plans, in
general small employers maintain most small plans. Thus, EBSA believes
that assessing the impact of these proposed rules on small plans is an
appropriate substitute for evaluating the effect on small entities. The
definition of small entity considered appropriate for this purpose
differs, however, from a definition of small business that is based on
size standards promulgated by the Small Business Administration (SBA)
(13 CFR 121.201) pursuant to the Small Business Act (15 U.S.C. 631 et
seq.). EBSA therefore requests comments on the appropriateness of the
size standard used in evaluating the impact of these proposed rules on
small entities.
These proposed rules may have a significant impact on a substantial
number of small entities. The Department has therefore prepared an
initial regulatory flexibility analysis, presented below under the
heading ``Small Plans.'' Additional relevant material also appears
below under the heading ``Alternatives Considered.''
Costs and Benefits
The Department has considered the potential costs and benefits of
this proposed regulation. Costs to plans would include a one-time
transition or start-up cost to make the change to electronic filing,
estimated to be $23 million. Benefits would include ongoing savings on
material and postage and efficiency gains from the early detection and
correction of more potential filing errors in the course of electronic
filing, estimated to total $10 million annually. Over time the ongoing
savings attributable to this proposed regulation are expected to
outweigh its one-time transition costs. Aggregate savings are estimated
to exceed aggregate costs by $23 million over the first five year
(discounting future savings at a rate of 7 percent). Additional
benefits are expected to accrue to the government and the public in the
forms of reduced processing costs and more timely availability of
accurate filing data. Beyond that, it is not immediately clear how the
costs and benefits of mandatory electronic filing will compare with
that of current filing modes, and the Department invites comments on
this point.
The costs and benefits of this proposed regulation would accrue
primarily to 832,000 plans that file Form 5500.\16\ Non-plan entities
that file Form 5500 generally do so in their capacity as service
providers to plans and therefore are expected to pass their own costs
and benefits from the regulation on to the plans they serve.\17\
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\16\ The economic analysis of the proposed regulation pertains
only to those plans that file a Form 5500 to satisfy filing
requirements under Title I of ERISA. Because the Form 5500-EZ is
filed to satisfy filing requirements under the Code, data related to
Form 5500-EZ filers is not included in this analysis.
\17\ Economy theory predicts that producers in competitive
markets pass costs and savings on to buyers.
---------------------------------------------------------------------------
Transition Costs
The proposed regulation would entail some one-time transition
costs, incurred in making the transition to electronic filing. The
magnitude of the transition costs is likely to vary with filers'
previous filing methods, reflecting the extent to which their existing
filing infrastructure supports electronic filing. It is also expected
that different filers will make the transition to electronic filing in
different ways, depending on their circumstances and preferences. It is
intended that all filers will have a number of methods of electronic
filing from which to choose. For example, filers may enter information
directly into a government-provided web site (using their own Internet
service or one available for a fee at a local business center or free
of charge at a public library or other facility). They may use
commercial software equipped for electronic filing. They may hire a
service provider (or rely on an existing relationship with a service
provider) to provide electronic filing services.
In 2002, the bulk of all filings, 87 percent, were submitted on
machine-print forms; 12 percent were submitted on hand-print forms; and
1 percent were submitted electronically.
Hand-print Filers--Hand-print filers as a group are likely to face
larger transition costs than others. These filers by and large
currently file government printed forms, filled out by hand or by using
a typewriter.\18\ Like all other filers, they will have the option of
preparing and submitting their filings via a government provided web
site. It is likely that many (but not all) already have the electronic
infrastructure (mainly a personal computer and Internet service) to
support electronic filing. It is also likely that others will have
access to the Internet at no charge at a local library or other
location.\19\ Nonetheless, hand-print filers are likely to incur some
expense to learn about the new requirement, and some will incur
additional costs, such as in locating and becoming familiar with
Internet access,
[[Page 51548]]
as well as in establishing a secured filing account.
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\18\ A very small fraction of all hand-print filers, typically a
few percent, files computer-generated forms that are similar to and
processed in the same way as government printed forms. These filers
might tend to incur smaller transition costs than other hand-print
filers. Because of their small numbers and the difficulties in
separately identifying them in the data used for this analysis, the
Department did not attempt to adjust its estimates to reflect this
possible difference. This omission may slightly bias upwards the
estimated aggregate transition cost for hand-print filers.
\19\ This assumption is consistent with observations made by the
ERISA Advisory Council Working Group on Electronic Reporting in its
Nov. 8 Report. See fn. 15, above.
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For the 104,000 current hand-print filers, the Department estimates
a one-time, aggregate transition cost to electronic filing of $12
million. This assumes that a professional-level employee, who costs the
plans on average $58.80 per hour in wages, benefits, and overhead,\20\
would require on average two hours to make the transition to electronic
filing. The cost might be devoted to one or more one-time, transition
activities such as learning about the electronic filing system,
registering for a secure filing account, selecting and acquiring
software, selecting and hiring a service provider, or locating an
Internet access site and becoming familiar with a web-based interface.
Different types of transition activities will have different costs.
Selecting and hiring a service provider might be an example of a
potential activity that would cost more than average, while registering
for a secure account might be an example of one that would cost less.
The activities and the cost will vary from filer to filer. For example,
transition activities might be limited and costs low for a filer that
is a highly experienced Internet user already carrying out other
aspects of business management (such as buying supplies and selling
products, reporting wages to SSA, etc.) on line. Activities might be
more extensive and costs higher for a filer lacking Internet and
computing expertise who needs to acquire a computer and Internet
connection or select and hire a service provider. The Department
invites comments on transitional activities and costs.
---------------------------------------------------------------------------
\20\ The total labor cost is derived from wage and compensation
data from the Bureau of Labor Statistics' (BLS) 2004 National
Occupational Employment and Wage Estimates from the Occupational
Employment Survey and BLS 2004 Employment Cost for Compensation.
This data can be found at: http://www.bls.gov/news.release/ocwage.t01.htm and http://www.bls.gov/news.release/archives/ecec_
e/archives/ecec_
compensation growth and includes an overhead component which is a
multiple of compensation based on the Government Cost Estimate.
---------------------------------------------------------------------------
Machine-print Filers--Machine-print filers as a group are likely to
incur smaller transition costs than hand-print filers. It is likely
that a large proportion of machine-print filings are prepared by
service providers, while the remainder are prepared by filers using
commercial software. Filers that currently rely on service providers to
prepare and submit their filings may opt to continue in this manner,
relying on the service provider to file electronically. Service
providers' transition costs will be passed back to and spread across
the filers they serve. Other machine-print filers may rely on the
vendors of their software to incorporate electronic filing features
into the 2007 plan-year software (probably as part of an otherwise
normal annual software update typically carried out to incorporate any
form and instruction changes). It is likely that a majority already
have the Internet service required for such software features to
function, and some that currently do not have such service would have
acquired it by the time the plan-year 2007 filings are due (for reasons
unrelated to this regulation). For many machine-print filers the
transition to electronic filing will be largely transparent, but will
nonetheless entail at least some activities, such as registration for a
secure filing account.
For the 726,000 current machine-print filers, the Department
estimates a one-time, aggregate transition cost to electronic filing of
$11 million. This assumes that one-half of machine-print filers will
rely entirely on their existing service providers to make the
transition and that the service providers will spread their own
transition costs across the filers they serve. The Department, lacking
data on the number of affected service providers, did not attempt to
estimate their transition cost, and such costs are not included here.
Because these costs would be spread across filers, the amount passed on
to any single filer is expected to be minimal. The remaining one-half
of machine-print filers are assumed to shoulder the transition costs
themselves. The Department's estimate assumes that these filers will
require on average thirty minutes of a professional-level employee's
time to make the transition to electronic filing. The Department
invites comments on these transition costs.
Ongoing Costs and Benefits
Preparation Costs--This proposed regulation pertains to the filing,
and not to the preparation, of the Form 5500. However, it is possible
that, for some filers, mandatory electronic filing would prompt changes
in preparation methods. For example, hand-print filers may currently
prepare their filings using a government printed form and a typewriter.
Such filers might prepare future filings by entering information into a
government website. The Department considered the cost of making such
transitions in preparation methods to be part of the overall transition
cost of the proposed regulation, included in the estimates presented
above.
With respect to ongoing preparation costs, it is likely that some
filers will incur higher costs in connection with new preparation
methods prompted by this regulation and enabled by the new electronic
filing system than with their current methods, but that others will
incur lower costs. For example, it is not immediately determinable
whether entering information into a website will take more or less time
than typing it onto a paper form. The Department expects that
commercial preparation software will incorporate features that ease
preparation, such as integrated access to form instructions and
automatic filling of data fields based on entries in other fields or in
prior filings. The Department also intends that the new government
filing website interface will be designed with attention to ease of
preparation. Lacking an immediate basis to quantify the magnitude or
costs and savings from possible changes in preparation methods, the
Department did not attribute any such costs or savings to this proposed
regulation, but invites comments on the potential magnitude of any such
costs and benefits.
Filing Cost Savings--Filing costs generally are expected to be
reduced by the implementation of this proposed regulation. Savings are
foreseen from the elimination of materials and mailing costs and from a
reduction in filing errors and subsequent corrections.
Electronic transmission will eliminate certain costs otherwise
attendant to paper filing, including materials and postage. The
Department estimates that, by changing to electronic filing, 829,000
plans will benefit from approximately $900,000 in cost-savings
annually, assuming savings of $0.0167 per sheet of paper and $0.57 for
postage per filing.
In addition, automated checks for errors and omissions upon
electronic transmission, together with automated error checks and
integrated instructions common to filing preparation software, will
ease compliance with reporting requirements. Importantly, these
features will reduce the need for subsequent amendments to submitted
filings, as well as helping to avoid reporting penalties that might
otherwise be assessed for deficient filings.
Historically, filers that use a software-based system generally
have fewer filing errors. In 2002, 7 percent and 16 percent of
electronic and machine-print filings, respectively, had filing errors
compared to 40 percent of hand-print filings. The filing errors include
items such as missing signatures, attestations, schedules, or back-up
documents that resulted in an incomplete filing. As a result of filer
errors and the need for
[[Page 51549]]
additional information or clarifications about Form 5500 filings for
the 2002 plan year, the Department mailed 160,000 letters to filers
requesting corrections or additions. This process ultimately delays the
final submission and requires plans to incur additional costs to
address deficiencies. The electronic filing system's intended error
detection capability may largely eliminate the Department's need to
forward correspondence to plans with deficient filings. This
enhancement is likely to save time for filers. If the need for
correspondence can be eliminated, the aggregate annual cost savings to
affected filers could be as high as $10 million, assuming elimination
of correspondence with the Department saves an average of one hour of a
professional's time, at an average of $58.80 per hour, plus the value
of associated postage and materials. A disproportionate share of this
savings, estimated at $2.4 million, would accrue to current hand-print
filers (reflecting their historically higher filing error rates), while
$7.1 million would accrue to machine-print filers. The Department (and
by extension taxpayers) would realize additional savings from this
reduced need to correct filing errors.
Societal Benefits
Additional benefits are expected to accrue to the government and
the public in the forms of reduced processing costs and more timely
availability of accurate filing data.
Participants will benefit from the transition to a fully electronic
method of filing. The new filing procedures will provide participants
and beneficiaries with access to more accurate plan information since
software-based forms are generally less prone to error, the new system
will process filings more quickly, and reports disclosing information
about plans' administrative and financial status will be available to
the public sooner than would otherwise be possible. This improved
access can enhance the quality of interaction between plans,
participants, and beneficiaries.
The Federal government and the public at large will also benefit
from the change to electronic filing. The decrease in correspondence
will constitute immediate savings to the Federal government that will,
in turn, yield savings to the taxpayers. Finally, improvements in the
accuracy of the data contained in submitted filings and the expected
acceleration in processing may make possible more timely production of
reliable national statistics on private employee benefit plans. Such
statistics historically have been produced at a substantial lag of up
to four years after the end of the filing year.
Additional Considerations
Proliferation of Technology--In proposing this regulation, and in
assessing its economic impacts, the Department took into consideration
the high and increasing rates of use of electronic information
technologies by businesses, including by small businesses in
particular. Such technologies include office computing hardware and
software that process, organize, store, and transmit information
electronically. The proliferation of such technologies, and of
expertise and familiarity with using them, is expected to moderate the
cost of compliance with this proposed regulation.
The Department believes that most filers already have access to a
computer and the Internet. The use of computers and the Internet has
become the norm among U.S. businesses. Most or all industries in the
economy are beginning to use the Internet as a means of conducting at
least some of their daily operations and to remain competitive.
Moreover, it is possible that plan sponsors as a group are more likely
than other companies to be using information technologies. The
Department believes that few, if any, plan sponsors will purchase a
computer or subscribe to Internet service for the sole purpose of
electronically filing their Form 5500. (If some do, they may realize
collateral benefits as they put their newly acquired technologies to
additional uses.) Furthermore, the Department believes that the number
of firms offering pension and welfare plans that do not have a computer
and/or Internet access is a relatively small number, especially given
the substantial growth of computer and Internet usage over the past
decade. The Department also believes that the number of plans that will
not have a computer or Internet access by the year 2008 will be small.
The Department's views on the proliferation of technologies are
grounded in its review of various studies of the topic.
According to a 2002 study for the SBA,\21\ the Internet offers
unparalleled new opportunities for small businesses. Fifty-seven
percent of small businesses already used the Internet; of those most
had their own websites; and more than one-third were selling their
products on line.\22\ Of those not using the Internet, two-thirds did
use computers.\23\
---------------------------------------------------------------------------
\21\ Joanne H. Pratt, ``E-Biz: Strategies for Small Business
Success'' 32 (2002) (prepared for the SBA Office of Advocacy),
available at http://www.ecec_
sba.gov/ advo/ research/ rs220tot.pdf.
\22\ Id. at 6.
\23\ Id.
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The most popular uses of the Internet among small firm users were
communicating with customers and suppliers (83 percent), gathering
business information (80 percent), and purchasing goods and services
(61 percent).\24\ Some also used the Internet to conduct banking or
other financial transactions (27 percent) or bid on contracts (21
percent). Most firms with websites either broke even financially or
made money through use of the sites.
---------------------------------------------------------------------------
\24\ Id. at 6-8.
---------------------------------------------------------------------------
Also according to this study, use of Internet technology is
growing. Among small firms with websites, two-thirds had been operating
the site for less than one year.\25\ Business use of on-line
technologies is being driven up by increasing use of such technologies
by consumers. Increasing availability and use of affordable, fast
broad-band Internet services is helping to drive both trends. Market
forecasters predicted rapid growth in world e-commerce, reaching as
much as several trillion dollars by 2004.\26\
---------------------------------------------------------------------------
\25\ Id. at 11.
\26\ Id. at 23-24.
---------------------------------------------------------------------------
A 2003 report by SBA \27\ found that self-employed computer users
numbered 10.5 million in 2000, up from 9.2 million two years earlier.
Over the same two years, self-employed individuals' access to the
Internet increased by 50 percent, reaching 83 percent of all such
individuals.
---------------------------------------------------------------------------
\27\ SBA Office of Advocacy, ``Self Employment and Computer
Usage,'' 3 (2003), available at http://www. sba.gov/ ADVO/stats/
sepc.pdf.
---------------------------------------------------------------------------
A 2004 study for SBA \28\ of small firms with fewer than 500
employees found that only 27 percent did not currently subscribe to
Internet service.
---------------------------------------------------------------------------
\28\ Stephen B. Pociask, TeleNomic Research, LLC, ``A Survey of
Small Businesses' Telecommunications Use and Spending'' 71 (2004)
(prepared for SBA Office of Advocacy), available at http://www.
sba.gov/ advo/research/ rs236tot.pdf.
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Benefits of E-government--The proposed regulation will advance the
goals of administration articulated in the Government Paperwork
Elimination Act and the E-Government Act of 2002.
The Department expects this proposed regulation to advance the
general trend toward the efficiencies of E-government. Federal, State,
and local government agencies have already implemented numerous E-
government initiatives.\29\ These initiatives reduce
[[Page 51550]]
the government's burden on businesses by eliminating redundant
collection of data. Citizens receive faster, more convenient services
from a more responsive and informed government.\30\ According to one
study, citizens see the most important benefits of E-government as
increased government accountability to citizens (36 percent), greater
public access to information (23 percent), and more efficient/cost-
effective government (21 percent).\31\ The GAO has indicated that
government agencies that reported using the Internet as a medium for
core business operations delivered information and services more
quickly, less expensively, and to wider groups of users.\32\
---------------------------------------------------------------------------
\29\ See, e.g., ``Electronic Government: Challenges Must Be
Addressed with Effective Leadership and Management,'' Hearing on
S.803 Before the Senate Comm. in Governmental Affairs, 106th Cong. 1
(July 11, 2001) (statement of David McClure, Director, Information
Technology Management Issues, GAO), available at http://www.
gao.gov/ new.items/ d01959t.pdf.
\30\ Susie Trinkle, Capella Univ., ``Moving Citizens from in
line to Online: How the Internet is Changing How Government Serves
its Citizens'' (Sept. 10, 2001, available at http://oma. od.
nih.gov/ ma/ bps/ bpkm/Resource/ Y-- Moving Citizens FromLineOn.
doc.
\31\ Hart-Teeter, ``E-Government: the Next American Revolution''
(Sept. 28, 2000) available at http://www. excelgov. org/
displaycontent. asp?keyword=m Releases& NewsItemID= 2559.
\32\ Testimony of David A. McClure, GAO, before the Subcommittee
on Government Management, Information and Technology, Committee on
Government Reform, House of Representatives (2000), as reported in
Karen Laynea and Jungwoo Leeb, Government Information Quarterly 18
(2001), 122-136.
---------------------------------------------------------------------------
Another study suggests that one of the most powerful ways to reduce
compliance costs is through E-government. Web-enabling can save
businesses and citizens a considerable amount of time and money, as the
following examples demonstrate: (1) The State of Oregon's on-line
permitting and reporting process for building construction approvals
saved Oregon's construction industry $100 million annually. Deloitte's
estimate suggests that if governments at all levels were to follow
Oregon's lead, the United States' construction industry, as a whole,
could save in the range of $15 billion to $20 billion annually. (2) The
SBA's Business Compliance One Stop website saves businesses about $526
million a year, by helping them find, understand, and comply with
regulations. (3) In Canada, the province of British Columbia's
OneStopBC website cuts down on government paperwork costs for
businesses by allowing on-line business license registrations. The cost
savings to businesses are estimated to be in the range of $14 million
to $27 million annually.\33\
---------------------------------------------------------------------------
\33\ William D. Eggers, Global Director, Deloitte Research-
Public Sector, ``Citizen Advantage: Enhancing Economic
Competitiveness Through e-Government'' 1 (2004).
---------------------------------------------------------------------------
Time Rebates--Time considerations affect all interactions and
activities in business. When citizens and businesses can go on line,
instead of waiting in line, they can obtain faster, more convenient
access to government services.\34\ E-government can provide what has
come to be described as a ``time rebate''--cutting down on the time it
takes to comply with government regulations and to complete
transactions.
---------------------------------------------------------------------------
\34\ Gassan Al-Kibsi; Kito de Boer; Mona Mourshed; Nigel P. Rea;
``Putting citizens on-line, not in line,'' McKinsey Quarterly 2001
no. 2.
---------------------------------------------------------------------------
For example, the Commonwealth of Pennsylvania's ``PA Open for
Business'' website allows a business to enter all the information
needed to register with the State in one place, instead of having to go
to five different agencies. A process that once took days or weeks has
been reduced to one hour.\35\
---------------------------------------------------------------------------
\35\ See Eggers, supra note 25 at 7, 14.
---------------------------------------------------------------------------
The Department intends that the new electronic filing system will
be equipped to streamline submissions and reduce time and burden on
filers. The proposed regulation should benefit all parties because the
information contained in the Form 5500 would be directly entered into
the Department's records. This would improve transaction accuracy,
reduce cycle times, improve cost efficiencies, enhance information
accessibility, and provide more timely availability of the information
contained in the Form 5500 return/reports.
Alternatives Considered
As noted earlier in this preamble, before electing to pursue the
approach taken in this proposed regulation, the Department considered
alternative options for reconfiguring the filing methods for the Form
5500 Series, focusing in particular on the gradual approach advocated
generally in the public comments. The following discusses three such
alternatives that the Department considered but rejected, along with
the reasons why each was rejected in favor of a uniform requirement to
file electronically beginning with filings for the 2007 plan year.
Fuller discussion of the third alternative, which would provide a time-
limited exception from mandatory electronic filing for certain small
plans, follows under the heading ``Small Plans.''
First, the Department considered developing a new processing system
that could continue to process both electronic and paper submissions
without limitation. Such a system might be popular with the filing
public and might result over time in virtually complete conversion to
electronic filing, provided that the new system successfully
incorporated the contemplated technological advances. Such a ``dual
method'' processing system would permit filers to choose between
electronic and paper filing. It therefore would likely appear to some
filers to be more cost-efficient than the uniform requirement to file
electronically that the Department is proposing. However, while a
``dual method'' processing system might be popular with some filers,
such a system would perpetuate the inefficiencies inherent in paper
filings--larger number of filing errors, required correspondence with
filers, increased likelihood of civil penalties, delays in reviews of
filings, and increased risks to participants and beneficiaries
resulting from erroneous data or delayed enforcement. It therefore does
not appear to be in the interest of plans or participants to maintain
such a system. In addition, the maintenance of such a system would
entail additional costs for the Federal government (and by extension
taxpayers) because it would be necessary to incorporate into the system
the ability to receive and process a potentially large number of paper
filings. In the Department's view, the additional costs for such a
complex processing system would be virtually prohibitive for the
Federal government in light of current budgetary constraints on the
Federal government generally and on the Department in particular. Under
such constraints, maintaining a paper filing system would consume
resources that would be better devoted to enhancing the system's
electronic filing capabilities or carrying out other Department
functions.
Second, the Department considered the alternative of continuing the
present paper processing system on a short-term interim basis during
the initial years of operating a new, solely electronic processing
system. This alternative would enable filers to gain familiarity with
the new paperless system as part of the transition process. As with the
prior approach, this approach would continue, albeit for a limited
period, the current inefficiencies of a paper system and the
substantial costs of maintaining tandem operations, particularly since
continuing the old processing system would require ``sole source'' non-
competitive yearly contractual negotiations with the current
contractor, with ever increasing additional costs. For example, in
fiscal year 2006 the Department requested an additional $2.1 million to
maintain current
[[Page 51551]]
operations in the first year of a sole source contract.
Third, the Department considered developing a new processing system
that would have the temporary capacity to process paper filings from a
targeted group of filers under an exception from the electronic filing
requirement. For reasons described below under ``Small Plans,'' the
Department considered it appropriate to limit the exception to small
plans that had previously filed government printed ``hand-print'' forms
and that are not subject to the audit requirement. The Department
believes that making such an exception available, at least for the
first few years of operating the new processing system, might provide a
small net benefit to at least some proportion of this class of filers.
However, the Department believes this potential benefit, which could
amount (as explained further below) to as little as $14 per plan on
average for 74,000 plans or as much as $249 per plan on average for
7,400 plans, is outweighed by the benefits to participants and
beneficiaries at large, and to the Department and taxpayers generally,
of implementing a single, wholly electronic filing system beginning
with reports for the 2007 plan year. The maintenance of any paper
system, even on a reduced scale, is inherently inefficient and
unnecessarily costly and could undermine full realization of the
potential benefits of electronic filing for ERISA compliance and
enforcement, thereby exposing some plans and participants to
unnecessary risk. Accordingly, the Department rejected this
alternative, along with the other two considered alternatives, in favor
of a uniform requirement to file electronically.
The Department's consideration of this third alternative, and its
basis for rejecting it in favor of a uniform requirement to file
electronically, is detailed below under the heading ``Small Plans.''
Small Plans
The Department believes this regulation may have a significant
impact on a substantial number of small plans. As for all other plans,
costs and benefits for small plans are expected to vary with the plans'
circumstances. Most will likely incur moderate transition costs and
subsequently realize moderate ongoing savings. Some, however, may
experience larger impacts, including both larger transition costs and/
or ongoing net cost increases rather than ongoing net savings. For
example, some small plans may lack experience with or easy access to
the Internet. Such plans may incur larger than typical transition costs
to gain access to the Internet (or to enlist a service provider with
access) and may find it more time consuming, and therefore more costly,
to prepare their filing on a government website (or to interact with a
service provider) than to prepare their filing using a government
printed form that is completed ``by hand'' and filed on paper through
the mails. The Department expects that only a minority of plans might
be so affected, but that minority might nonetheless represent a
substantial number.
The Department therefore conducted an initial regulatory
flexibility analysis, repeating the above analysis while limiting the
scope to include only small plans--that is, those with fewer than 100
participants. On that basis, it is estimated that 667,000 small plans
will incur one-time transition costs of $18 million, including $9
million for 78,000 current hand-print filers and $9 million for 589,000
current machine-print filers. It is further estimated that small plans
would realize ongoing materials and postage savings of approximately
$700,000 annually and could realize up to $7 million in savings
annually from the elimination of the need to correct deficient filings
(including $2 million accruing to hand-print filers and $5 million to
machine-print), for a total of approximately $8 million in annual
savings. As with all other plans, over time the aggregate ongoing
savings realized by small plans are expected to outweigh their
aggregate one-time transition costs. Over five years, savings are
estimated to exceed costs by $17 million (discounting future savings at
a rate of 7 percent). The Department believes that impacts may vary
among small plans, depending for example on their (or their service
providers') access to and familiarity with associated technologies, and
possibly on their size. The Department, however, lacks a basis on which
to estimate such variations. The Department invites comments on this
assessment of the impact of the proposed regulation on small plans.
The Department also assessed the costs and benefits of alternative
approaches. As noted above, the Department considered proposing a
temporary exception from the requirement to file electronically for
certain small plans. The Department undertook to develop as an
alternative to a uniform electronic filing requirement an exception
provision that would maximize benefits and minimize costs to affected
parties including plans, participants, and taxpayers.
The Department first considered the criteria that should be adopted
to designate filers eligible to continue to file on paper under the
exception. The Department selected as the first criterion plan size.
Small plans (and the small businesses that sponsor them) may be less
likely than large ones to use computers and the Internet or to have
current expertise in such usage. They may be harder pressed to devote
resources to making a transition to electronic filing. Moreover,
transition costs may be largely fixed costs (invariant to plan size)
and therefore more burdensome to small than to large plans. The
Department considered alternative plan size thresholds, including plans
with fewer than 100, fewer than 25, or fewer than 10 participants. The
threshold of fewer than 100 participants seemed most desirable. It is
consistent with the threshold used for other distinctions in annual
reporting requirements and therefore would not add additional
complexity to reporting requirements. In addition, the overall systems
requirements associated with an exception for plans with fewer than 100
participants would be expected to differ little from those associated
with an exception limited to smaller plans. The cost of building,
maintaining and periodically updating a system capable of accepting and
processing paper filings is largely invariant to the number of paper
filings to be accepted. Moreover, the number of plans eligible for the
exception would not vary much across the thresholds considered. Among
plans not subject to the audit requirement and filing by the hand-print
method, the Department estimates that 74,000 have fewer than 100
participants, 59,000 fewer than 25, and 46,000 fewer than 10.
The second criterion identified by the Department was past filing
method. As noted above, it is likely that hand-print filers will
confront higher average transition costs than machine-print filers.
Machine-print filers currently prepare their filings electronically,
even if they do not file them electronically. In contrast, some
fraction of hand-print filers may be entirely without computing
infrastructure.
A third criterion identified by the Department was potential risk
to participants. As noted above, hand-print filings are more prone to
error than machine-print or electronic filings. In addition, processing
of paper filings is inherently slower than processing of electronic
filings. Therefore, continued acceptance of paper filings has the
potential to slow both detection of ERISA violations and enforcement
[[Page 51552]]
actions to address such violations.\36\ The Department therefore
considered approaches that would limit the exception to situations
where risks of violations (and associated threats to participants) were
less, such as in connection with plans that, because of the presence of
other safeguards and/or absence of certain risks, were not required to
provide financial audits with their annual reports.
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\36\ This concerns not merely reporting violations, but all
potential ERISA violations, including those which might directly
jeopardize plan assets or participants' benefits.
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Finally, the Department considered the appropriate duration of such
an exception. To accommodate such an exception, the Department's new
processing system would need to incorporate an ability to receive and
process some number of paper filings. The incorporation of this ability
into the system would entail a relatively large, up-front development
cost, followed by smaller but substantial ongoing costs to process
paper filings. It therefore seemed reasonable to consider as the
duration of such an exception the expected minimum ``lifetime'' of the
new system (which corresponds to the expected duration of the contract
that will develop and maintain it), which is five years. The Department
next considered whether a five-year exception would be sufficient to
accomplish the exception's goal of easing small plans' transition to
electronic filing. Assuming continued rapid proliferation of computer
and Internet usage, it seems likely that five years would be sufficient
to accomplish this goal.
Based on this reasoning, the Department considered, as an
alternative to a uniform 100 percent electronic filing requirement, a
five-year exception for plans that: (1) Have fewer than 100
participants, (2) previously filed their annual reports using
government printed ``hand-print'' forms, and (3) are not subject to the
audit requirement for annual reporting under Title I of ERISA. The
Department estimates that use of these criteria would create a class of
74,000 filers eligible for the temporary exception from electronic
filing.
As noted above, small plans are estimated to face an aggregate
transition cost of $18 million, followed by ongoing annual savings of
$8 million. Over time the aggregate savings will outweigh the cost.
But, also as noted above, a disproportionate share of the transition
cost, $9 million, is estimated to accrue to the small minority of small
plans that file via the hand-print method. The savings accruing to
these filers, being attributable to reduced materials and postage and,
more important, reduced filing errors, if proportionate to their
numbers, will amount to $2 million.
The Department undertook to carefully consider the potential costs
and benefits to small plans of the exception defined above.
Approximately 74,000 plans could be eligible for the exception. The
Department considered two potential scenarios.
In the first scenario, the Department assumed that all eligible
plans would file on paper, for an average of three of the five years
for which paper filings would be permitted. The Department assumed
further that these plans' average transition costs and ongoing savings
would be the same as the average assumed earlier for all small plan
hand-print filers.\37\ The Department also assumed that, by taking
advantage of the exception, these filers would reduce their transition
cost to the level assumed earlier to be incurred by machine-print
filers, but would delay commencement of the ongoing savings available
through electronic filing until they began filing electronically (on
average after three years). In this scenario, the 74,000 filers taking
advantage of the exception would reduce their transition costs by $6.5
million on aggregate, while sacrificing $5.5 million in potential
ongoing savings, thereby realizing a net benefit of approximately $1
million, or $14 per filer.
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\37\ This assumption seems reasonable insofar as an estimated 94
percent of all small hand-print filers were not subject to the audit
requirement and therefore would be eligible for the exception.
---------------------------------------------------------------------------
In the second scenario, the Department considered the possibility
that the transition cost might vary widely across filers. The
Department assumed that just 10 percent of eligible filers would take
advantage of the exception (again for an average of three years), but
that these filers would face a transition cost (absent the exception)
of three times the average assumed for all hand-print filers. Other
assumptions were the same as in the first scenario. In this scenario,
7,400 filers taking advantage of the exception would reduce their
transition costs by $2.4 million on aggregate, while sacrificing
$550,000 in potential ongoing savings, thereby realizing a net benefit
of approximately $1.8 million, or $249 per filer.
On the basis of these scenarios, the Department believes that some
filers would likely benefit from the exception. However, as noted
above, the potential net benefit to a given filer from the exception
would be modest. In the first scenario, the average net benefit would
amount to just $12 per plan using the exception; in the second, $249
per plan. Further, the availability of the exception would create
significant risks to participants and costs to the government (and
taxpayers). As discussed above, the maintenance of any paper system,
even on a relatively small scale, is inherently inefficient and costly.
Also, as discussed above, paper filings take longer to process and
therefore pose unnecessary compliance risks. Therefore, the Department
concluded that the potential benefit of a limited exception would be
outweighed by the associated cost to the government (and to taxpayers)
and the potential risks to participants and that adoption of a limited
exception could not be justified. For these reasons, the Department
rejected the alternative of providing an exception in favor of a
uniform requirement to file electronically.
Paperwork Reduction Act
This proposed regulation does not introduce, or materially modify,
any information collection requirement, but furthers the Department's
goal of automating the submission of the Form 5500 return/report. As
such, this notice of proposed rulemaking is not subject to the
requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et
seq.) because it does not contain a ``collection of information'' as
defined in 44 U.S.C. 3502(3).
Congressional Review Act
The notice of proposed rulemaking being issued here is subject to
the provisions of the Congressional Review Act provisions of the Small
Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et
seq.) and, if finalized, will be transmitted to the Congress and the
Comptroller General for review.
Unfunded Mandates Reform Act
Pursuant to provisions of the Unfunded Mandates Reform Act of 1995
(Pub. L. 104-4), this rule does not include any Federal mandate that
may result in expenditures by State, local, or tribal governments, or
the private sector, which may impose an annual burden of $100 million
or more.
List of Subjects in 29 CFR Part 2520
Employee benefit plans, pensions, reporting and recordkeeping
requirements.
For the reasons set forth in the preamble, the Department proposes
to amend 29 CFR part 2520 as follows:
[[Page 51553]]
1. The authority section of Part 2520 continues to read as follows:
Authority: 29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134, and
1135; Secretary of Labor's Order 1-2003, 68 FR 5374 (Feb. 3, 2003).
Sec. 2520.101-2 also issued under 29 U.S.C. 1132, 1181-1183, 1181
note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.102-3, 2520.104b-
1, and 2520.104b-3 also issued under 29 U.S.C. 1003, 1181-1183, 1181
note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.104b-1 and
2520.107 also issued under 26 U.S.C. 401 note, 111 Stat. 788.
2. Add Sec. 2520.104a-2 after Sec. 2520.104a-1 to read as
follows:
Sec. 2520.104a-2 Electronic Filing of Annual Reports.
(a) Any Form 5500 Annual Return/Report (including accompanying
statements or schedules) to be filed with the Secretary for any plan
year (or reporting year, in the case of common or collective trusts,
pooled separate accounts, and similar non-plan entities) beginning on
or after January 1, 2007, shall be filed electronically in accordance
with the instructions, and such other guidance as the Secretary may
provide, applicable to such report.
(b) Nothing in paragraph (a) of this section is intended to alter
or affect the duties of any person to retain records or to disclose
information to participants, beneficiaries, or the Secretary.
3. Amend Sec. 2520.103-1 by revising paragraph (f) as follows:
Sec. 2520.103-1 Contents of the annual report.
* * * * *
(f) Electronic filing. Except as provided in Sec. 2520.104a-2 of
this chapter, the Form 5500 ``Annual Return/Report of Employee Benefit
Plan'' may be filed electronically or through other media in accordance
with the instructions accompanying the form, provided the plan
administrator maintains an original copy, with all required signatures,
as part of the plan's records.
4. Amend Sec. 2520.103-2 by revising paragraph (c) as follows:
Sec. 2520.103-2 Contents of the annual report for a group insurance
arrangement.
* * * * *
(c) Electronic filing. Except as provided in Sec. 2520.104a-2 of
this chapter, the Form 5500 ``Annual Return/Report of Employee Benefit
Plan'' may be filed electronically or through other media in accordance
with the instructions accompanying the form, provided the trust or
other entity described in Sec. 2520.104-43(b) maintains an original
copy, with all required signatures, as part of the trust's or entity's
records.
5. Amend Sec. 2520.103-9 by revising paragraph (d) as follows:
Sec. 2520.103-9 Direct filing for bank or insurance carrier trusts
and accounts.
* * * * *
(d) Method of filing. Except as provided in Sec. 2520.104a-2 of
this chapter, the Form 5500 ``Annual Return/Report of Employee Benefit
Plan'' may be filed electronically or through other media in accordance
with the instructions accompanying the form, provided the bank or
insurance company which maintains the common or collective trust or
pooled separate account maintains an original copy, with all required
signatures, as part of its records.
6. Amend Sec. 2520.103-12 by revising paragraph (f) as follows:
Sec. 2520.103-12 Limited exemption and alternative method of
compliance for annual reporting of investments in certain entities.
* * * * *
(f) Method of filing. Except as provided in Sec. 2520.104a-2 of
this chapter, the Form 5500 ``Annual Return/Report of Employee Benefit
Plan'' may be filed electronically or through other media in accordance
with the instructions accompanying the form provided the entity
described in paragraph (c) of this section maintains an original copy,
with all required signatures, as part of its records.
Signed at Washington, DC, this 23d day of August, 2005.
Ann L. Combs,
Assistant Secretary, Employee Benefits Security Administration.
[FR Doc. 05-17185 Filed 8-29-05; 8:45 am]
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