Annual Reporting and Disclosure
[07/21/2006]
Volume 71, Number 140, Page 41392-41407
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2520
RIN 1210-AB06
Annual Reporting and Disclosure
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Proposed rule.
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SUMMARY: This document contains proposed amendments to Department of
Labor (Department) regulations relating to annual reporting and
disclosure requirements under Part 1 of Subtitle B of Title I of the
Employee Retirement Income Security Act of 1974, as amended (ERISA or
Act). The proposed amendments contained in this document are necessary
to conform the annual reporting and disclosure regulations to proposed
revisions to the Form 5500 Annual Return/Report of Employee Benefit
Plan forms and instructions. The proposed changes to the Form 5500 and
implementing regulatory amendments are intended to facilitate the
transition to an electronic filing system, separately proposed at 70 FR
51542 (August 30, 2005), reduce and streamline annual reporting
burdens, especially for small businesses, and update the annual
reporting forms to reflect current issues and agency priorities. The
regulatory amendments thus would, upon adoption, apply for the
reporting year for which the electronic filing requirement is
implemented. The proposed regulatory amendments will affect the
financial and other information required to be reported and disclosed
by employee benefit plans filing the Form 5500 Annual Return/Report of
Employee Benefit Plan under Part 1 of Subtitle B of Title I of ERISA.
DATES: Written comments must be received by the Department of Labor on
or before September 19, 2006.
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 Regulation Revisions (RIN 1210-
AB06). Comments also may be submitted electronically to e-ori@dol.gov
or by using the Federal eRulingmaking Portal http://www.regulations.gov
(follow instructions 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: Elizabeth A. Goodman or Michael Baird,
Office of Regulations and Interpretations, Employee Benefits Security
Administration, U.S. Department of Labor, (202) 693-8523 (not a toll-
free number).
SUPPLEMENTARY INFORMATION:
A. Background
Under Titles I and IV of ERISA, and the Internal Revenue Code
(Code), as amended, pension and other employee benefit plans are
generally required to file annual returns/reports concerning, among
other things, the financial condition and operations of the plan.
Filing the Form 5500 ``Annual Return/Report of Employee Benefit Plan,''
together with any required attachments and schedules (Form 5500 Annual
Return/Report) generally satisfies these annual reporting requirements.
The Form 5500 Annual Return/Report is the primary source of information
concerning the operation, funding, assets, and investments of pension
and other employee benefit plans. In addition to being an important
disclosure document for plan participants and beneficiaries, the Form
5500 Annual Return/Report is a compliance and research tool for the
Department and a source of information and data for use by other
federal agencies, Congress, and the private sector in assessing
employee benefit, tax, and economic trends and policies.
[[Page 41393]]
B. Discussion of the Proposed Revisions to Part 2520
1. Section 2520.103-1
The Department of Labor (Department) annual reporting regulations,
including Sec. 2520.103-1, are promulgated under the provisions of
ERISA that authorize the creation of limited exemptions and simplified
reporting and disclosure for welfare plans under ERISA section
104(a)(3), simplified annual reports under ERISA section 104(a)(2)(A)
for pension plans that cover fewer than 100 participants, and
alternative methods of compliance for all pension plans under ERISA
section 110(a). Various changes are being proposed to the Form 5500
Annual Return/Report and its instructions in a Notice of Proposed Form
Revisions published today in the Federal Register. To accommodate those
form and instruction changes, the regulatory amendments to 29 CFR
2520.103-1 are being proposed to update the references to the annual
report to reflect the new structure and components of the Form 5500
Annual Return/Report.
The following subsections outline major changes to the Form 5500. A
more comprehensive discussion of the form and instructions changes is
in the above-referenced Notice of Proposed Forms Revisions. Facsimiles
of the proposed form revisions and proposed form instructions can be
viewed on the EBSA's Web site at http://www.dol.gov/ebsa.\1\ To avoid
unnecessary duplication, only a general summary of the form and
instruction changes is included in this notice as background for the
required cost/benefit and regulatory analysis discussions. For a
comprehensive discussion of form and instruction changes, see the
Notice of Proposed Forms Revisions published concurrently in today's
Federal Register.
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\1\ Paper copies of the proposed form revisions and proposed
instructions may be obtained by telephoning 1-866-444-EBSA (3272)
(this is a toll-free number).
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(a) Short Form 5500 (Eligible Small Plan Filers)
A new two-page Form 5500 Annual Return/Report of Employee Benefit
Plan--the Form 5500-SF (Short Form 5500)--is being proposed in an
effort to streamline the reporting requirements for certain small
pension and welfare plans (generally, plans with fewer than 100
participants) that have investment portfolios in which their assets are
held by regulated financial institutions and the investments have a
readily determinable fair market value as described in the proposed
regulation at Sec. 2520.103-1(c)(2)(iii). A detailed description of
the proposed Form 5500-SF and a facsimile of the form is in the Notice
of Proposed Forms Revisions being published concurrently in today's
Federal Register. Substantially all of the information required to be
reported by employee benefit plans on the proposed Short Form 5500
currently is included in that information required to be reported as
part of the Form 5500 Annual Return/Report under the simplified
reporting options presently available to small plans. The proposal
would not eliminate the existing simplified reporting options for small
plans but, rather, would add the Short Form 5500 as another simplified
reporting option for eligible small plans.
The Internal Revenue Service (IRS) has advised the Department that,
although there are no mandatory electronic filing requirements for the
Form 5500 under the Code or the regulations issued thereunder, to ease
the burdens on plans that are not subject to Title I of ERISA but that
file the Form 5500-EZ to satisfy the annual reporting and filing
obligations imposed by the Code, the IRS is proposing to permit certain
Form 5500-EZ filers to satisfy the requirement to file the Form 5500-EZ
with the IRS by filing the proposed Short Form 5500 electronically
through the EFAST processing system. Therefore, under the IRS'
proposal, certain Form 5500-EZ filers will be provided both electronic
and paper filing options. The electronic option will allow 5500-EZ
filers to complete and electronically file with EFAST selected
information on the Short Form 5500. 5500-EZ filers will also be able to
choose instead to file a Form 5500-EZ on paper with the IRS.\2\
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\2\ Under the voluntary electronic filing option, 5500-EZ filers
filing an amended return for a plan year must file the amended
return electronically using the Form 5500-SF if they initially filed
electronically for the plan year and must file with the IRS using
the paper Form 5500-EZ if they filed for plan year with the IRS on a
paper Form 5500-EZ.
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(b) Removal of Internal Revenue Service-Only Schedules From the Form
5500 Annual Return/Report
Under the proposal the Form 5500 Annual Return/Report will no
longer include any of the schedules from the current Form 5500 Annual
Return/Report that are required only for the IRS. This will effectuate
the adoption of a wholly electronic filing requirement for the Form
5500 Annual Return/Report given the current limitations on the IRS's
authority to mandate electronic filing of certain tax returns.
Accordingly, under the proposal, the following schedules will no longer
be required to be filed as part of the Form 5500 Annual Return/Report:
Schedule E (ESOP Annual Information), Schedule P (Annual Return of
Fiduciary of Employee Benefit Trust), and Schedule SSA (Annual
Registration Statement Identifying Separated Participants With Deferred
Vested Benefits). The IRS, however, has advised the Department that it
intends that plan administrators, employers, and certain other entities
that are subject to filing and reporting requirements under the Code
will have to continue to satisfy any applicable requirements in
accordance with IRS revenue procedures, regulations, publications,
forms, and instructions. In that regard, the IRS has independently
eliminated the Schedule P from the 2006 Form 5500 in anticipation of
the transition to a wholly electronic filing environment. Further, as
described elsewhere in this document, the Department is proposing to
move to the Schedule R three questions on ESOP information formerly
reported on the Schedule E, and the IRS has advised the Department that
it does not anticipate requiring separate filings by ESOPs on the
remaining questions from the Schedule E. The IRS is evaluating the
information collected on Schedule SSA, and considering whether other
existing information collections could be used in place of the Form
5500 Annual Return/Report.
(c) Schedule A (Insurance Information)
Schedule A must be attached to the Form 5500 Annual Return/Report
for an ERISA-covered plan if any pension or welfare benefits under the
plan are provided by, or if the plan holds any investment contracts
with, an insurance company or other similar organization. Although the
proposal would retain most of the Schedule A data substantially
unchanged, the Department is proposing to add a line item to give
administrators a specific space on the Schedule A to report the failure
by an insurance carrier to provide necessary information. Certain other
technical changes are being proposed to the Schedule A form and
instructions to improve Schedule A as a tool for disclosure of
insurance fees and commissions.
(d) Schedule B (Actuarial Information)
Schedule B is required for defined benefit pension plans subject to
the minimum funding standards (see Code section 412 and Part 3 of Title
I of ERISA). The Pension Benefit Guaranty Corporation (PBGC) proposes
adding questions to the Schedule B designed to
[[Page 41394]]
obtain a ``look-through'' allocation of plan investments in certain
pooled investment funds for certain very large defined benefit plans.
Under the proposal, defined benefits plans with more than 1,000
participants would be required to breakout the percentage of total plan
assets held as ``stock,'' ``debt,'' ``real estate,'' and ``other.'' The
underlying investments in master trusts, common or collective trusts,
pooled separate accounts, and other pooled investment vehicles, would
be required to be broken out and could not be treated merely as
``other,'' regardless of how they are listed on Schedule H. For
investments in ``debt,'' plans would be required to provide the
``Macaulay duration'' and break out the percentages held as government
debt, investment-grade corporate debt, and high-yield corporate debt.
(e) Schedule C (Service Provider Information)
Schedule C must be attached to the Form 5500 Annual Return/Report
filed by large plan filers to report any person who rendered services
to the plan that received directly or indirectly $5,000 or more in
compensation from the plan during the plan year, and to report
terminated accountants or actuaries. Consistent with recommendations of
the ERISA Advisory Council Working Groups and the Government
Accountability Office (GAO), EBSA has concluded that more information
should be disclosed on the Form 5500 Annual Return/Report regarding
plan fees and expenses. See ERISA Advisory Council Report of the
Working Group on Plan Fees and Reporting on Form 5500 (November 10,
2004) (available on the Internet at: http://www.dol.gov/ebsa/publications
) and the Government Accountability Office (See Private
Pensions: Government Actions Could Improve the Timeliness and Content
of Form 5500 Pension Information, GAO-05-491) (available on the
Internet at: http://www.gao.gov). EBSA's proposal would continue to
limit Schedule C reporting to large plan filers and would retain the
$5,000 reporting threshold, but would revise the Schedule C and
accompanying instructions to clarify the requirements regarding
reporting of direct and indirect compensation (i.e., money or anything
else of value) received during the plan year in connection with
services rendered to the plan or the person's position with the plan.
Also, a new section would be added requiring that the source and nature
of compensation in excess of $1,000 received from parties other than
the plan or the plan sponsor be disclosed for certain key service
providers, including, among others, investment managers, consultants,
brokers, and trustees, as well as all other fiduciaries.
(f) Schedule R (Retirement Plan Information)
In light of the proposed removal of the Schedule E (ESOP Annual
Information), certain questions from the Schedule E are being
incorporated into the Schedule R in order to continue to collect
certain information regarding ESOPs as part of the Form 5500 Annual
Return/Report. In addition, multiemployer defined benefit pension plans
would have to provide a list identifying each employer contributing an
annual amount equal to or greater than five percent of all annual
contributions to the plan (measured in dollars) and setting forth (1)
the name of the contributing employer; (2) employer's employer
identification number (EIN); (3) dollar amount contributed; (4)
contribution rate; (5) whether the contribution base unit measure was
hourly, weekly, unit of product, or other; and (6) expiration date for
the collective bargaining agreement pursuant to which contributions are
required to be made to the plan.
(g) Technical and Conforming Changes for Forms and Instructions
Various other technical and conforming changes are being proposed
as part of the restructuring of the Form 5500 Annual Return/Report.
Several of the more significant changes include: (1) Revision of the
instructions for the Form 5500 Annual Return/Report and development of
instructions for the Short Form 5500 to reflect the new structure of
the reports and electronic filing requirements; (2) addition of
questions regarding compliance with the Department's blackout notice
regulation in 29 CFR 2510.101-3; (3) addition of a compliance question
on whether the plan failed to pay benefits when due under the plan; (4)
expansion of the use of codes to report plan feature information on
pension and welfare benefit plans; (5) elimination of the optional
entry of the name and the EIN of the preparer; (6) requiring
administrative expenses to be reported separately from other expenses
on the Schedule I; (7) addition of a question on whether any minimum
funding amount reported for a pension plan will be met by the funding
deadline; and (8) adoption of a standard format for use in connection
with an independent qualified public accountant (IQPA) rendering an
opinion on the supplemental schedule information on Line 4a of Schedule
H and I relating to delinquent participant contributions.
2. Section 2520.104-44
Section 2520.104-44 and the current Form 5500 Annual Return/Report
instructions provide for limited reporting for pension plans
exclusively using a tax deferred annuity arrangement under Code section
403(b)(1), custodial accounts for regulated investment company stock
under Code section 403(b)(7), or a combination of both. Under the
proposal, the exemption in Sec. 2520.104-44(b)(3) would be eliminated,
with the result that Code section 403(b) pension plans subject to Title
I would be treated the same as any other Title I pension plan for
purposes of the annual reporting requirements under Title I of ERISA.
With the growth in the size and number of Code section 403(b)
arrangements, and the advent of Code section 401(k) plans, the Code
403(b) arrangements have become more like Code section 401(k) plans. In
this regard, the IRS has undertaken to update certain of its
regulations. See 69 FR 67075, 67076 (November 16, 2004). For those
section 403(b) plans that are subject to Title I of ERISA, the
Department has detected violations in a high percentage of its
investigations of Code section 403(b) plans. The predominant issue has
been improper handling of employee contributions. The Department
believes that these developments warrant amending the annual reporting
requirements to put Code section 403(b) plans on par with other ERISA-
covered pension plans. Small Code section 403(b) plans generally would
be 100 percent invested in eligible assets for purposes of filing the
proposed Short Form 5500.
3. Section 2520.104-46
In accordance with the Department's authority under section
104(a)(2)(A) and 104(a)(3) of ERISA, the Department has adopted, at 29
CFR 2520.104-41, simplified annual reporting requirements for pension
and welfare benefit plans with fewer than 100 participants. In
addition, the Department, at 29 CFR 2520.104-46, has prescribed for
such small plans a waiver from the requirements of section 103(a)(3)(A)
to engage an IQPA and to include the opinion of the accountant as part
of the plan's annual report. The waiver of the IQPA requirements for
pension plans was conditioned, among other requirements, on enhanced
disclosure in the Summary Annual Report (SAR) provided to participants
and beneficiaries. In that regard, the Department prepared a model
notice
[[Page 41395]]
that plans could use to satisfy the enhanced SAR disclosure conditions.
That model notice has been available at the EBSA's Web site at http://www.dol.gov/ebsa.
In order to provide plan administrators with
additional access to the model notice and facilitate compliance with
the audit waiver and Short Form 5500 eligibility conditions, the
Department is proposing to add the model notice as an appendix to Sec.
2520.104-46.
4. Section 2520.104b-10
Section 104(b)(3) of ERISA provides in part that, each year,
administrators must furnish to participants and beneficiaries receiving
benefits under a plan materials that fairly summarize the plan's annual
report. Section 2520.104b-10 sets forth the requirements for the SAR
and prescribes formats for such reports. The amendments being proposed
do not include any change to the SAR requirements. However, in order to
facilitate compliance with the SAR requirement for Short Form 5500
filers, the Department is updating its cross-reference guide to
correspond to the line items of the SAR to the relevant line items on
the Short Form 5500. The cross-reference guide, as before, would
continue to be an appendix to Sec. 2520.104b-10.
C. Findings on the Revised Form 5500 Annual Return/Report (including
Short Form 5500) as a Limited Exemption and Alternative Method of
Compliance
Section 104(a)(2)(A) of the Act authorizes the Secretary of Labor
(Secretary) to prescribe by regulation simplified reporting for pension
plans that cover fewer than 100 participants. Section 104(a)(3)
authorizes the Secretary to exempt any welfare plan from all or part of
the reporting and disclosure requirements of Title I of ERISA or to
provide simplified reporting and disclosure if the Secretary finds that
such requirements are inappropriate as applied to such plans. Section
110 permits the Secretary to prescribe for pension plans alternative
methods of complying with any of the reporting and disclosure
requirements if the Secretary finds that: (1) The use of the
alternative method is consistent with the purposes of Title I of ERISA,
provides adequate disclosure to plan participants and beneficiaries,
and provides adequate reporting to the Secretary; (2) application of
the statutory reporting and disclosure requirements would increase
costs to the plan or impose unreasonable administrative burdens with
respect to the operation of the plan; and (3) the application of the
statutory reporting and disclosure requirements would be adverse to the
interests of plan participants in the aggregate.
For purposes of Title I of ERISA, the filing of a completed Form
5500 Return/Report, including the filing of the proposed Short Form
5500, in accordance with the instructions and related regulations,
generally would constitute compliance with the limited exemption and
alternative method of compliance in 29 CFR 2520.103-1(b). The findings
required under ERISA sections 104(a)(3) and 110 relating to the use of
the proposed revised Form 5500 Annual Return/Report, including the
proposed Short Form 5500, as alternative methods of compliance,
simplified report, and limited exemption from the reporting and
disclosure requirements of part 1 of Title I of ERISA are set forth
below.
In proposing revisions to the Form 5500 Annual Return/Report and
the amendments in this proposed rulemaking, the Department has
attempted to balance the needs of participants, beneficiaries, and of
the Department to obtain information necessary to protect ERISA rights
and interests with the needs of administrators to minimize costs
attendant with the reporting of information to the federal government.
The Department makes the following findings under sections 104(a)(3)
and 110 of the Act with regard to the use of the revised Form 5500
Annual Return/Report as a simplified report, alternative method of
compliance, and limited exemption pursuant to 29 CFR 2520.103-1(b).
The use of the proposed revised Form 5500 Annual Return/Report,
including the proposed Short Form 5500, is consistent with the purposes
of Title I of ERISA and provides adequate disclosure to participants
and beneficiaries and adequate reporting to the Secretary. While the
information that would be required to be reported on or in connection
with the revised Form 5500 Annual Return/Report and the proposed Short
Form 5500 deviates, as before, in some respects, from that delineated
in section 103 of the Act, the information essential to ensuring
adequate disclosure and reporting under Title I is required to be
included on or as part of the Form 5500 Annual Return/Report, as
proposed to be revised, and the proposed Short Form 5500.
The use of Form 5500 Annual Return/Report, as revised, or the
proposed Short Form 5500 will relieve plans subject to the annual
reporting requirements from increased costs and unreasonable
administrative burdens by providing a standardized format that
facilitates reporting, eliminates duplicative reporting requirements,
and simplifies the content of the annual report in general. The Form
5500 Annual Return/Report, under the proposed revision, including the
proposed Short Form, is intended to further reduce the administrative
burdens and costs attributable to compliance with the annual reporting
requirements.
Taking into account the above, the Department has determined that
application of the statutory annual reporting and disclosure
requirements without the availability of the Form 5500 Annual Return/
Report, including the proposed Short Form 5500, would be adverse to the
interests of participants in the aggregate. The proposed revised Form
5500 Annual Return/Report provides for the reporting and disclosure of
basic financial and other plan information described in section 103 of
ERISA in a uniform, efficient, and understandable manner, thereby
facilitating the disclosure of such information to plan participants
and beneficiaries.
Finally, the Department has determined under section 104(a)(3) of
ERISA that a strict application of the statutory reporting
requirements, without taking into account the proposed revisions to the
Form 5500 Annual Return/Report and the proposed Short Form 5500, would
be inappropriate in the context of welfare plans for the same reasons
discussed above (i.e., the streamlined form reduces filing burdens
without impairing enforcement, research, and policy needs, while at the
same time providing adequate disclosure to participants and
beneficiaries).
D. Regulatory Impact Analysis
Executive Order 12866 Statement
Under Executive Order 12866, the Department must determine whether
the 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 Executive Order
12866, the order defines a ``significant regulatory action'' as 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
[[Page 41396]]
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 Order.
Pursuant to the terms of the Executive Order, it has been
determined that this regulatory action will have an annual effect on
the economy of more than $100 million. Therefore, this action is
``economically significant'' and subject to OMB review under section
3(f)(4) of Executive Order 12866. The Department accordingly has
undertaken to assess the costs and benefits of this regulatory action
in satisfaction of the applicable requirements of the Executive Order.
In accordance with OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf
), Table 1 below depicts
an accounting statement showing the net annual cost reduction
associated with the provisions of this proposed rule. The Department
believes that some employee benefit plans will see a decrease in costs
and others might see an increase in costs due to this proposed rule.
Further information about the amount of increase and decrease in costs
for particular plan types is displayed in the cost section later on in
this document. On aggregate, the Department estimates a cost reduction
of up to $174 million in the first year.
Table 1.--Accounting Statement: Estimated Cost Reduction From the
Current Reporting Requirements to the Proposed 2008 Reporting
Requirements
[In millions]
------------------------------------------------------------------------
Net cost
Category reduction
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Annualized Monetized Benefit............................... $174
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Need for Regulatory Action
The annual reporting regulations for which amendments are being
proposed provide specific limited exceptions, for certain types of
welfare benefit plans, from the statutory reporting requirements;
simplified reporting and disclosure requirements for other types of
small plans; and an alternative method of compliance in general for all
pension plans. In providing these special rules, the Department and the
other Agencies intend to reduce the overall burden of the statutory
reporting requirements without sacrificing the quality of the
information collected.
As described in the preamble to the Department's proposal to
require electronic filing of the Form 5500 (70 FR 51542) (E-Filing
Proposal), the Department is in the process of creating a fully
electronic filing system to receive the annual reports filed by
employee benefit plans. In addition, as noted above, the Department has
received reports from the GAO and the ERISA Advisory Council that
suggest the need for some substantive changes to the annual reporting
forms and the reporting regulations. The Department, in coordination
with the IRS, and the PBGC (Agencies), also conducted a thorough review
of the content requirements for the Form 5500. The Agencies believe the
proposed regulatory and form changes, in conjunction with adoption of
the electronic filing system, will substantially reduce plan
administrators' reporting compliance burdens and also enhance the
utility and accessibility of reported information to the government,
participants and beneficiaries, and others.
The Form 5500 Annual Return/Report serves as the primary source of
information concerning the operation, funding, assets, and investments
of pension and other employee benefit plans. The Form 5500 Annual
Return/Report is an important disclosure document for participants and
beneficiaries, an enforcement and research tool for the Department, and
a source of information and data for use by other federal agencies,
Congress, and the private sector in assessing employee benefit, tax,
and economic trends and policies. The Department in this proposal has
attempted to balance the interests of participants, beneficiaries, and
the Department in the protection of ERISA rights, as well as the
public's interest in the availability of information on benefit plans,
with plan administrators' and sponsors' interest in minimizing costs
attendant with the reporting of information to the federal government.
The Department believes that the proposed regulations' benefits justify
the costs. The basis for this conclusion is explained below.
As stated in this preamble, the Department has determined that the
use of the revised Form 5500 Annual Return/Report, including the
proposed new Short Form 5500, would relieve plans subject to the annual
reporting requirements from increased costs and administrative burdens
by providing a standardized format that facilitates reporting,
eliminates duplicative reporting requirements, and simplifies the
content of the annual report in general.
Moreover, the Department believes that the revisions to the Form
5500 Annual Return/Report implemented by these proposed regulations, as
compared to the existing form and schedules, will both reduce the cost
of reporting, on aggregate and for a large majority of affected plans,
and enhance the protection of ERISA rights.
Regulatory Alternatives
Executive Order 12866 directs Federal Agencies promulgating
regulations to evaluate regulatory alternatives. The Department has
concluded that, in connection with its proposal to move to a wholly
electronic filing environment for employee benefit plan annual reports,
form revisions and implementing regulatory changes should be made to
facilitate the transition to an electronic filing system, reduce and
streamline annual reporting burdens, especially for small businesses,
and update the annual reporting forms to reflect current issues and
agency priorities.
In developing the forms revisions and implementing regulatory
changes, the Department was informed by recommendations made by GAO and
the ERISA Advisory Council and conducted a thorough-going review of the
current regulations and the scope of information collected, which
included consideration of alternative methods of reaching its goals.
The Department's consideration included, for example, different
approaches to eligibility for the Short Form 5500, (see discussion in
preamble to the Notice of Proposed Forms Revisions under the heading
``Short Form 5500 as New Simplified Report for Certain Small Plans''),
different approaches to reporting for welfare plans (see id. under the
heading ``F. Other Welfare Plan Issues''), and different approaches to
improving the reporting of direct and indirect compensation paid to
service providers (see id. under the heading ``Schedule C: Compensation
received by plan service providers''). Similarly, the Notice of
Proposed Forms Revision discusses the assessments on how to balance the
need for information to help the PBGC evaluate the financial solvency
of multiemployer plans and the potential burden on administrators of
multiemployer plans (see id. under the heading ``Schedule R:
Contributors to Multiemployer Pension Plans''). Inasmuch as the
regulatory amendments contained in this Notice are intended to
implement the forms revisions contained in the Notice of Proposed
[[Page 41397]]
Forms Revisions, the discussions in the Notice of Proposed Forms
Revisions are directly relevant to the Department's analysis under
Executive Order 12866 and should be read as part of the Department's
compliance with the requirements of the Executive Order. The Department
therefore incorporates those discussions by this reference.
The public is invited to comment specifically on the decision
points for the several categories of proposed revisions, and on the
adequacy of the models, assumptions, and data developed in order to
evaluate regulatory burden. In considering these alternatives, the
Department weighted the objective of reduced regulatory burden against
the need for adequate reporting and disclosure to insure the protection
of plan participants, quantifying impacts where possible. For example:
Establishment of a Short Form 5500 for certain small
plans: In considering criteria of eligibility for filing the Short Form
5500 the Department evaluated both less stringent and more stringent
criteria. If, for example, the Department had relied solely on the
conditions for a waiver of the audit requirements for small plans, the
Department believes that as many as 95 percent of small plans (612,000
plans) would meet the Short Form 5500 requirements. Because of concern
about the need to limit eligibility to small plans with easy to value
investment portfolios, however, the Department added the requirements
of small plans that invest in secure assets that are held or issued by
regulated financial institutions and that have a fair market value that
is easily determined. In so doing, the Department estimates that
approximately 90 percent of small plans (571,000 plans) that formerly
were able to file under the simplified requirements would qualify as
eligible to file the Short Form 5500. An additional 9,000 small Code
section 403(b) plans would also qualify.
Addition of certain asset allocation and duration
information to Schedule B: Schedule B is filed by defined benefit
pension plans subject to the minimum funding standards. As noted below,
this revision will increase reporting costs for affected plans. The
Agencies, however, believe that these costs are justified by the need
to better monitor plan funding. In developing this proposed revision,
the PBGC considered the approach that could balance the need for better
monitoring of plan funding and the increased burden that would be
incurred to provide additional information on the breakdown of assets
and duration of debt instruments held by defined benefit plans. While
the PBGC initially considered the application of the additional
requirements to all large defined benefit plans (15,000 plans), it
subsequently determined that additional information for the largest
plans, i.e., those with more than 1,000 participants (5,000 plans), on
the level and types of assets in the plan and the sensitivity of these
assets to changes in market conditions would suffice for the desired
improvement in the monitoring of plan funding.
Benefits and Costs
Benefits--These regulations and the Form 5500 Annual Return/Report
and Short Form 5500 that the regulations implement will provide a
standardized, streamlined alternative means of compliance with
applicable statutory reporting requirements. In so doing, they will
both ease plan administrators' compliance with reporting requirements
and greatly enhance the utility and accessibility of information
reported to the government, participants and beneficiaries, and others.
In particular, the regulations and forms, together with the
Department's planned program for assisting filers in the preparation
and electronic submission of filings, will give plan administrators
clear guidance and a supportive, routine mechanism for satisfying their
reporting obligations. They also will make it possible to efficiently
capture and assemble the information into an electronic data system.
The data can then be processed and analyzed in the service of many
beneficial activities. These include monitoring compliance with ERISA's
reporting and other requirements, targeting, and carrying out prompt
and effective enforcement actions; informing participants and
beneficiaries of the characteristics, operations, and financial status
of their benefit plans; producing statistics on the employee benefit
system and monitoring trends therein and informing the public; and
assembling information and conducting research that advances knowledge
and fosters the formulation of sound public policies toward employee
benefits. The Department believes that the benefits of the proposed
regulations justify the costs.
The Department further believes that the revisions to the existing
reporting requirements contained in the proposed regulations will both
reduce aggregate reporting costs and enhance protection of ERISA
rights. The former anticipated effect is quantified in the discussion
of costs below. With respect to the latter, the Department developed
each of the revisions contained in the proposed regulations either to
enhance protections, or to reduce costs in ways that do not compromise
protections. The revisions are considered separately below.
Removal of the IRS-only schedules: As explained in the Notice of
Proposed Forms Revisions published simultaneously with these proposed
regulations, this change is intended partly to facilitate a change to
mandatory electronic filing--a change which is expected to yield
substantial benefits. As also explained therein, to the extent that
some Title I information may have been collected in these schedules,
these proposed regulations provide for the ongoing collection of that
information in other parts of the Annual Return/Report. In addition, it
is the Department's understanding that some of the IRS-only information
that will no longer be collected as part of the annual return/report
may be collected in the future via other Treasury or IRS vehicles. The
Department expects this revision to preserve protections of ERISA
rights, while reducing Form 5500 Return/Report filing reporting costs
as estimated below. From a broader societal perspective, the reduction
in reporting costs may be less than what has been assumed here if IRS
elects to collect some of this information through other channels.
Establishment of a Short Form 5500 for certain small plans: The
Short Form 5500 is being developed with the specific intent of reducing
reporting costs (as estimated below) while continuing to collect
sufficient information to preserve ERISA protections, satisfying the
enforcement, research, and regulatory needs of the Department and the
other Agencies, and the disclosure needs of participants and
beneficiaries. The Agencies determined that less information is needed
in the case of small plans that invest in secure assets that are held
or issued by regulated financial institutions and that have a fair
market value that is easily determined. The Agencies believe that the
eligibility conditions for Short Form 5500 filers, including the
requirements relating to security and valuation of the plan's
investments, ensure that the Short Form 5500 will provide adequate
disclosure to the participants and beneficiaries in the plan and
adequate annual reporting to the Agencies. The Notice of Proposed Forms
Revisions published simultaneously with these proposed regulations
details the content of the Short Form 5500 and elaborates on its
adequacy for its intended purpose. Small plans that are not eligible to
file the Short Form 5500 would continue to be able to file
[[Page 41398]]
simplified reports as under the current system.
Elimination of the special reporting rules for Code section 403(b)
plans: As noted below, this revision is expected to increase reporting
costs for affected plans. However, the Department believes these added
costs are justified by the need to enhance ERISA protections in
connection with these plans the Department believes that developments
with respect to Code section 403(b) plans, described above in
connection with the proposed amendment to 2520.104-44, warrant amending
the annual reporting requirements to put Code section 403(b) plans on
par with other ERISA-covered pension plans. Small Code section 403(b)
plans generally would be 100 percent invested in eligible assets for
purposes of filing the proposed Short Form 5500. This would result in
only a modest increase in the annual reporting burden on small Code
section 403(b) plan filers.
Addition of certain asset allocation and duration information to
Schedule B: As noted below, this revision will increase reporting costs
for affected plans. The Agencies, however, believe that these costs are
justified by the need to better monitor plan funding. The PBGC has
found that it needs more information on the breakdown of assets and
duration of debt instruments held by defined benefit plans. A plan's
funded status is highly dependent on the level and types of assets in
the plan and the sensitivity of these assets to changes in market
conditions. Thus, the additional information required by this revision
will improve the PBGC's ability to estimate the impact of economic
changes on the financial status of the plans it insures, and by
extension, on the future financial status of the PBGC. Much of the
information newly required by this revision is typically in the
immediate possession of the committee or authority that oversees the
investments of plans sponsored by privately held companies, and
generally is already required to be provided to the United States
Securities and Exchange Commission by public company sponsors of
defined benefit plans.
Adding Multiemployer Plan Contributing Employer Information: The
Form 5500 Annual Return/Report currently does not require plans to
state the number or identities of employers participating in a
multiemployer plan. Multiemployer plans are, however, currently
required to keep a list of participating employers on file and to make
such information available to participants on request. Accordingly,
requiring multiemployer plans to provide the number of participating
employers will not create any new recordkeeping requirements. This
information will be useful to various governmental and private firms
that use the Form 5500 Annual Return/Report data for policy and
research purposes. The Form 5500 Annual Return/Report also currently
lacks information that shows a multiemployer plan's basis for employer
contributions. This information is particularly important with respect
to multiemployer defined benefit pension plans, as this information is
needed by the PBGC in order for it to assess the financial risk posed
to the plan by the financial collapse or withdrawal of one or more
contributing employers. Over the past several years, the financial
condition of many multiemployer plans has been deteriorating. The PBGC
believes it is prudent to begin monitoring those companies that are
major contributors to the multiemployer plans. To do so, the PBGC must
be able to identify these companies. Because multiemployer plans are
most at risk when a major contributing sponsor encounters financial
difficulties, this proposed revision would require identification only
of major contributors.
Other Improvements and Clarifications of Existing Form 5500
Reporting Requirements: Some of the revisions that come under this
heading are technical clarifications or conforming changes to more
substantive proposed revisions. These entail no material benefits or
costs. Other revisions make small adjustments to the instructions or
reporting requirements to reflect changing market or compliance trends.
Some of these entail small increases in reporting costs that are
justified by the need to stay current. These include, for example, the
addition of feature codes to identify plans with certain default
features, compliance questions directed at the provision of blackout
notices, and fuller instruction on the reporting of certain indirect
plan expenses. Others, such as the elimination of the requirement for
self-insured health benefit plans to separately report certain payments
to individual health care providers, may reduce reporting costs without
compromising protections. These revisions and their respective intents
are detailed in the Notice of Proposed Forms Revisions published
simultaneously with these proposed regulations.
Costs
Although the costs to plans of satisfying their annual reporting
obligations will be lower under these proposed regulations than they
would be under existing regulations, they will still be substantial.\3\
As shown in Table 2 below, the aggregate cost of such reporting under
the existing regulations is estimated to be $1,062 million annually,
shared across the 833,000 filers subject to the filing requirement. The
Department estimates that the proposed regulations, however, impose an
annual cost burden on the 833,000 filers of only $888 million.\4\
---------------------------------------------------------------------------
\3\ The Department believes, however, that the annual cost
burden on filers would be higher still in the absence of the
existing regulations, because the filers would then be required to
comply with the statutory filing requirements without the benefit of
any regulatory exceptions, simplified reporting, or alternative
methods of compliance.
\4\ More detail about the cost estimates can be found in the
section ``Assumptions, Methodology, and Uncertainty''.
Table 2.--Summary of Costs: Current Requirements vs. Proposed
Requirements
------------------------------------------------------------------------
Total burden
Total costs hours (in
(in millions) millions)
------------------------------------------------------------------------
Current Reporting Requirements.......... $1,062 13.51
Change due to Revisions for 2008........ 174 2.26
Proposed Reporting Requirement, 2008.... 888 11.25
------------------------------------------------------------------------
Note: Number of affected plans: 833,000.
[[Page 41399]]
Because these proposed regulations make substantial revisions to
the existing reporting requirements, they will entail some one-time
transition costs. The Department examined such transition costs in
connection with the last major revision to the Form 5500 Annual Return/
Report, which revised the Annual Return/Report for plan years beginning
in 1999. See 65 FR 5026 (Feb. 2, 2000). Based on information provided
by plan service providers and Form 5500 Annual Return/Report software
developers at that time, the Department concluded that such costs are
generally loaded into the prices paid by plans for affected services
and products, spread both across plans and across the expected life of
the service and product changes. The Department's estimates provided
here are therefore intended to reflect such spreading and loading of
these transition costs. That is, the gradual defrayal of the transition
costs is included in the annual cost estimates here.
In addition to estimating the total impact of the proposed
revisions on aggregate costs, the Department has broken down the change
in cost by individual revisions. This apportioning of costs to
individual revisions could be potentially done in several ways, as some
types of plans are affected by more than one revision and therefore
sequencing of the changes becomes important for the calculations. For
example, large and small Code section 403(b) plans are affected by the
elimination of the special reporting rules, but small Code section
403(b) plans are affected also by the introduction of the Short Form
5500. For the purpose of quantifying the impact of the individual law
changes, the Department carried out the calculations in the following
way:
1. Removal of the IRS-only schedules: Under the proposed
regulations some of the information formerly collected in these
schedules will be collected by the Department elsewhere in the Form
5500 Annual Return/Report filing. On net, however, this revision will
substantially reduce the amount of information collected. Relative to
the current filing requirement, this revision will reduce the total
annual burden hours for 740,000 affected filers by 1.2 million hours.
Applying an hourly labor rate of $84 for service providers and $59 for
plan sponsors, the Department estimates that this will lower the
aggregate annual reporting cost by an estimated $90 million.\5\
---------------------------------------------------------------------------
\5\ A discussion on the appropriateness of the labor rates used
in the calculations as well as on other assumptions can be found in
the Technical Appendix.
---------------------------------------------------------------------------
2. Establishment of a Short Form 5500 for certain small plans: A
large majority of small plans, or 580,000 of the 640,000 total small
plan filers, are estimated to be eligible to use the Short Form 5500,
thereby saving an estimated $154 million (1.9 million hours) annually.
This estimate includes about 9,000 small Code section 403(b) plans that
under the proposed rule would be subjected to increased filing
requirements.
3. Addition of certain asset allocation and duration information to
Schedule B: The provision of this information, and its certification by
an actuary, will entail estimated additional annual costs of $1.5
million (19,000 hours) for 5,000 affected defined benefit pension plans
with more than 1,000 participants.
4. Revision of Schedule C (Service Provider Information): This
revision intends to clarify the reporting requirements and improve the
information plan officials receive regarding amounts being received by
plan service providers. This is anticipated to add an estimated $3
million (41,000 hours) for 79,000 affected plans to annual reporting
costs.
5. Addition of requirements for certain multi-employer plans to
report certain information about contributing employers: This is
anticipated to add an estimated $300,000 (3,500 hours) to annual
reporting costs for 10,000 multiemployer plans.
6. Adoption of various technical revisions and other miscellaneous
revisions to the Form 5500 Annual Return/Report to improve and clarify
existing reporting requirements: Together these are estimated to add an
estimated $12 million (154,000 hours) to annual reporting costs and
affect approximately 250,000 plans.
7. Elimination of the special reporting rules for Code section
403(b) plans: Approximately eighteen thousand Code section 403(b) plans
are subject to the annual reporting requirements. It is anticipated
that all 9,000 small Code section 403(b) plans will be eligible to use
the new Short Form and will be eligible for waiver of the audit
requirement. The impact of the proposed changes on the small Code
section 403(b) plans is quantified above. Nine thousand large Code
section 403(b) plans will be newly subject to the audit requirement and
required to file a Form 5500 Annual Return/Report similar to those
filed by similar Code section 401(k) plans. This revision will increase
annual reporting costs for large Code section 403(b) plans by an
estimated $54 million (or 690,000 hours).
A summary of the changes in costs and burden hours that were
allocated to the groups of proposed changes as outlined above, as well
as the number of affected employee benefit plans, can be found in Table
3 below.
Table 3.--Summary of Proposed Changes to the Reporting Requirements: Cost, Burden, and Affected Plans
----------------------------------------------------------------------------------------------------------------
Change in costs Change in Number of
Revisions for 2008 (in millions) burden hours affected plans
----------------------------------------------------------------------------------------------------------------
IRS-only Schedules, Short Form and small....................... -$90.1 -1,226,000 739,000
Code Section 403(b) plans...................................... -154.3 -1,938,000 580,000
Schedule B..................................................... 1.5 19,000 5,000
Schedule C..................................................... 3.2 41,000 79,000
Multi-employer plans........................................... 0.3 3,500 10,000
Technical and Miscellaneous Revisions.......................... 11.9 154,000 253,000
Large Code Section 403(b) plans................................ 53.9 689,000 9,000
------------------------------------------------
Total...................................................... -173.6 (2,258.30) 833,000
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers might not sum up to the totals due to rounding.
[[Page 41400]]
The proposed regulation otherwise generally does not alter
reporting costs. Plans currently exempt from annual reporting
requirements (such as certain small unfunded or fully insured welfare
plans and certain Simplified Employer Pensions) will remain exempt.
Also, except for Code section 403(b) plans, plans eligible for limited
reporting options (such as certain IRA-based pension plans) will
continue to be eligible for that annual reporting relief. The revisions
continue the Form 5500 Annual Return/Report structure that is familiar
to individual and corporate taxpayers--a simple two-page main form with
basic information necessary to identify the plan for which the report
is filed, along with a checklist of the schedules being filed that are
applicable to the filer's plan type. The structure is designed to aid
filers by allowing them to assemble and file a return customized to
their plan.
Assumptions, Methodology, and Uncertainty
The cost and burden associated with the annual reporting
requirement for any given plan will vary according to a variety of
factors, including the plan's characteristics, practices, and
operations, which in turn determine what information must be provided.
A small, single-employer defined contribution pension plan filing a new
Short Form 5500 generally will incur far lower costs than a large,
multiemployer defined benefit pension plan that holds multiple
insurance contracts, engages in numerous reportable transactions, and
pays large fees to a number of service providers. Therefore, in
arriving at its aggregate cost estimates, the Department separately
considered the cost to different types of plans of providing different
types of information. The basis for the Department's estimates is
elaborated below.
Assumptions Underlying this Analysis--The Department's analysis of
the costs and benefits of these proposed amendments assumes that all
benefits and costs will be realized in the first year of the reporting
cycle to which the amendments apply and within each year thereafter.
This assumption is based on the nature of the statutory reporting
provisions, which require that each plan complete a filing within a
yearly period. The Department has used a ``status quo'' baseline for
this analysis, assuming that the world absent the regulations will
resemble the present.\6\
---------------------------------------------------------------------------
\6\ Further detail can be found in the Technical Appendix.
---------------------------------------------------------------------------
Methodology--The underlying cost data was developed by Mathematica
Policy Research, Inc. (MPR), and has been used by the Agencies in
various burden estimates related to the Form 5500 Annual Return/Report
during recent years. See, 65 FR 21068, 21077-78 (April 19, 2000);
Borden, William S., ``Estimates of the Burden for Filing Form 5500: The
Change in Burden from the 1997 to the 1999 Forms,'' Mathematica Policy
Research, submitted to U.S. Dept. of Labor May 25, 1999.\7\ It is
grounded in surveys of filers and their service providers, which
measured the unit cost burden of providing various types of
information. Aggregate estimates were produced by interacting these
unit cost measures with historical counts of Form 5500 Annual Return/
Report filers.
---------------------------------------------------------------------------
\7\ The Mathematica report can be accessed at the Department's
Web site at http://www.dol.gov/ebsa.
---------------------------------------------------------------------------
A new burden estimating model, based on the Form 5500 Burden Model
that MPR most recently used for estimating burdens in October 2004, was
assembled by Actuarial Research Corporation (ARC). ARC assembled a
simplified model, drawing on implied burdens associated with subsets of
filer groups represented in the MPR model. The model used the level of
detail consistent with reflecting burden differences associated with
the various proposed forms revisions. In the following, the ARC model
is described in broad terms. Further details about the model are
explained in the Technical Appendix that can be accessed at the
Department's Web site at http://www.dol.gov/ebsa.
To estimate aggregate burdens, the types of plans that have similar
reporting requirements were grouped together. Thus, calculations were
prepared for different subsets of types of plans as appropriate based
on the specifics of the revisions to the reporting requirements. Table
4 below shows the particular types of plans considered, the number of
plans affected by the proposed revisions, as well as the aggregate
costs under current and proposed requirements. As can be seen from the
Total line in Table 4, aggregate cost under current and proposed
regulations add up to $1,062 million and $888 million, respectively.
The universe of filers was divided into three basic plan types: Defined
benefit pension plans, defined contribution pension plans, and welfare
plans, and each of these major plan types was further subdivided into
multiemployer and single-employer plans. Defined contribution Code
section 403(b) plans were treated separately from other defined
contribution plans. Since the filing requirements differ substantially
for small and large plans, the plan types were also divided by plan
size. For large plans (100 or more participants), the defined benefit
plans were further divided between very large (1000 or more
participants) and other large plans (at least 100 participants, but
less than 1000 participants). For each of these sets of respondents,
burden hours per respondent were estimated for the Form 5500 Annual
Return/Report itself and for up to eight schedules.
Table 4.--Number of Affected Filers and Cost Under Current vs. Proposed Requirements
----------------------------------------------------------------------------------------------------------------
Aggregate cost Aggregate cost
Number under current under proposed
Type of plan affected requirements requirements
(in millions) (in millions)
----------------------------------------------------------------------------------------------------------------
5500 Large Plans (> = 100 participants)--189,000:
DB, ME, 100-1,000 participants.............................. 800 7.6 7.2
DB, ME, > 1,000 participants................................ 1,100 13.3 13.2
DB, SE, 100-1,000 participants.............................. 8,900 80.2 74.2
DB, SE, > 1,000 participants................................ 4,200 38.8 39.2
DC, ME, non-403(b).......................................... 2,300 14.4 13.7
DC, ME, 403(b).............................................. 400 0.016 2.4
DC, SE, non-403(b).......................................... 70,000 437.1 401.3
DC, SE, 403(b).............................................. 8,600 0.350 51.9
Welfare, ME................................................. 5,700 14.3 14.8
Welfare, SE................................................. 86,600 124.3 127.9
[[Page 41401]]
5500 Small Short Form Eligible--580,000:
DB.......................................................... 30,800 30.3 21.2
DC, non-403(b).............................................. 533,000 263.9 87.8
DC, 403(b).................................................. 8,800 0.36 1.4
Welfare..................................................... 7,000 3.4 1.2
5500 Small Short Form Ineligible--64,000:
DB.......................................................... 4,000 3.8 3.7
DC, non-403(b).............................................. 60,200 29.3 26.9
DC, 403(b).................................................. .............. .............. ..............
Welfare..................................................... 100 0.079 0.080
-----------------------------------------------
Total................................................... 832,500 1,061.5 888.08
----------------------------------------------------------------------------------------------------------------
Note: The displayed numbers might not sum up to the totals due to rounding.
DB--defined benefit plans.
SE--single-employer plans.
Large plans--100 participants or more.
DC--defined contribution plans
ME--multi employer plans.
Small plans--less than 100 participants.
In addition to separating plans by type and size, costs were
estimated separately for the form and for each schedule. When items on
a Form 5500 Annual Return/Report schedule are required by more than one
Agency, the estimated burden associated with that schedule is allocated
among the Agencies. This allocation is based on whether only a single
item on a schedule is required by more than one agency or whether
several or all of the items are required by more than one agency.
Filers must read not only the instructions for particular items but
also instructions pertaining to the general filing requirements, and
the burden associated with reading the instructions is tallied and
allocated accordingly.
A plan's reporting burden is estimated in light of the specific
items and schedules it must complete as well as its size, funding
method, and investment structures. For example, the annual report for a
large fully insured welfare plan generally would consist of only a few
questions on the Form 5500 and the Schedule A (Insurance Information).
The requirement that this plan provide very limited information on the
Form 5500 Annual Return/Report is reflected in the estimates of
reporting burden time. By contrast, a large defined benefit pension
plan that is intended to be tax-qualified and that uses a trust fund
and invests in insurance contracts would be required to submit an
annual report completing almost all the line items of the Form 5500,
plus Schedule A (Insurance Information), Schedule B (Actuarial
Information), Schedule C (Service Provider Information), Schedule D
(DFE/Participating Plan Information), Schedule H (Financial
Information), and Schedule R (Retirement Plan Information), and would
be required to submit an IQPA's report and opinion. The Agencies'
methodology attempts to capture, through its categorization, these
different reporting burdens, thereby providing meaningful estimates of
significant differences in the burdens placed on different categories
of filers.
Burden estimates for each schedule were adjusted for the proposed
revisions, reflecting the numbers of items added or deleted in each
schedule or moved from one schedule to another, and the average burden
currently attributable to items on each of the corresponding current
schedules. The burden for the proposed Short Form 5500 was built from
the estimated current burden associated with the various line items
included in it.
The Department has not attributed a recordkeeping burden to the
Form 5500 Annual Return/Report either here or in its Paperwork
Reduction Act analysis because it believes that plan administrators'
practice of keeping financial records necessary to complete the Form
5500 Annual Return/Report arises from usual and customary management
practices that would be used by any financial entity, and does not
result from ERISA or Code annual reporting and filing requirements.
The aggregate baseline burden is the sum of the burden per form and
schedule filed multiplied by the estimated aggregate number of forms
and schedules. The simplified model draws on Form 5500 Annual Return/
Report data representing each plan's filing for plan year 2002 (the
most recent year for which complete data is available), both for
estimating the impact of changes in the numbers of filings associated
with the introduction of the Short Form 5500 for most small filers as
well as for estimating the impact of changes in filing obligations
associated with other schedules. In summary, the model estimates that
due to $174 million in cost reductions the proposed revisions would
lead to aggregate costs of $888 million. While there is a net reduction
in costs, the Department estimates that some large plans might
experience cost increases, while small plans will experience cost
reductions. The total burden estimates, as well as the burden broken
out by type of plan can be found in Table 4 above.
Uncertainty within Estimates--The Department acknowledges that
there are several areas of uncertainty that might affect the estimates,
in particular the unit cost estimates. While the Department has a good
sense for the filing universe and for the number of filers that file
the different schedules of the Form 5500, the unit costs under the
current requirements as well as the way they would change due to the
proposed revisions are more uncertain. The Department has no direct
measure for the unit costs, but rather uses a proxy adapted from the
existing MPR model, which was developed in the late 1990s. Additional
uncertainty is added due to the proposed revisions. Some of the
revisions delete items or move them from certain schedules to others.
The impact of these changes can be estimated more accurately than the
impact of the revisions that require the
[[Page 41402]]
reporting of new items like fees. Consequently, the unit cost estimates
would benefit from updated information and the Department welcomes
comments that would provide information on this matter.
Peer Review
In December 2004, the Office of Management and Budget (OMB) issued
a Final Information Quality Bulletin for Peer Review, 70 FR 2664
(January 14, 2005) (Peer Review Bulletin), establishing that important
scientific information shall be peer reviewed before it is disseminated
by the Federal government. The Peer Review Bulletin applies to original
data and formal analytic models used by agencies in Regulatory Impact
Analyses. The Department determined that the data and methods employed
in its regulatory analysis of this proposal constitutes ``influential
scientific information'' as defined in the Peer Review Bulletin.
Accordingly, a peer review was conducted under Section II of the
Bulletin. The peer review report concluded that the methodology and
data generally were sound and produced plausible estimates, which
supports the Department's conclusion that the proposed form changes
should reduce the aggregate burden relative to the previous forms. The
Peer Review Report can be accessed at the Department's Web site at
http://www.dol.gov/ebsa.
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 that are likely
to have a significant economic impact on a substantial number of small
entities. Unless an agency certifies that a proposed rule will not, if
promulgated, 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 ERISA section 104(a)(3), the Secretary may also
provide for exemptions or for simplified reporting and disclosure for
welfare benefit plans. Pursuant to the authority of ERISA 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. EBSA has consulted with the SBA Office of Advocacy
concerning use of this participant count standard for RFA purposes. See
13 CFR 121.902(b)(4). The following seven subsections address specific
requirements of the RFA.
(1) The Department is proposing to amend the regulations relating
to the annual reporting and disclosure requirements of section 103 of
ERISA to conform existing regulations to proposed revisions to the Form
5500 Annual Return/Report forms that are included in the Notice of
Proposed Forms Revisions published simultaneously with these
regulations.
The Department continually strives to tailor reporting requirements
to minimize reporting costs while ensuring that the information
necessary to secure ERISA rights is adequately available. The optimal
design for reporting requirements to satisfy these objectives changes
over time. Benefit plan designs and practices evolve over time in
response to market trends, including trends in labor markets, financial
markets, health care and insurance markets, and markets for various
services used by plans. Partly as a result, the nature and mix of
compliance issues and risks to ERISA rights change over time. Frequent
amendments to ERISA, the Code, and to associated regulations also
change the parameters of ERISA rights and the methods needed to protect
those rights. In addition, the technologies available to manage and
transmit information continually advance. It is incumbent on the
Department to revise its reporting requirements from time to time to
keep pace with such changes. The Department is proposing these
regulations and associated forms revisions to readjust its reporting
requirements to take into account certain recent changes in markets,
the law, and technology, many of which are referenced above in this
preamble and/or in the Notice of Proposed Forms Revision published
simultaneously with these regulations.
(2) Section 103 of ERISA requires every employee benefit plan
covered under part 1 of Subtitle B of Title I of ERISA to publish and
file an annual report concerning, among other things, the financial
conditions and operations of the plan. Section 109 of ERISA authorizes
the Secretary to prescribe forms for the reporting of information that
is required to be included in the annual report. Section 104(a)(2)(A)
of ERISA authorizes the Secretary to prescribe by regulation simplified
annual reporting for pension plans that cover fewer than 100
participants. Section 104(a)(3) of ERISA authorizes the Secretary to
exempt any welfare plan from all or part of the reporting and
disclosure requirements of Title I of ERISA or to provide simplified
reporting and disclosure if the Secretary finds that such requirements
are inappropriate as applied to such plans. Section 110 of ERISA
permits the Secretary to prescribe for pension plans alternative
methods of complying with any of the reporting and disclosure
requirements if the Secretary finds that: (1) The use of the
alternative method is consistent with the purposes of Title I of ERISA,
and it provides adequate disclosure to plan participants and
beneficiaries and adequate reporting to the Secretary; (2) application
of the statutory reporting and disclosure requirements would increase
costs to the plan or impose unreasonable administrative burdens with
respect to the operation of the plan; and (3) the application of the
statutory reporting and disclosure requirements would be adverse to the
interests of plan participants in the aggregate.
The Department proposes to find that use of the Form 5500 Annual
Return/Report, as revised, along with the
[[Page 41403]]
proposed Short Form 5500, constitutes an alternative method of
compliance, an exemption, and/or a simplified report, as applicable,
consistent with these conditions. Generally, the Department believes
that use of the revised Form 5500 Annual Return/Report and the proposed
Short Form 5500 would relieve plans of all sizes of increased costs and
burdens by providing a standard format that facilitates reporting
required by the statute, eliminating duplicative reporting
requirements, and streamlining the content of the annual return/report.
The objectives of these proposed, amended regulations and the
associated proposed forms revisions are to streamline reporting and
reduce aggregate reporting costs, particularly for small plans, while
preserving and enhancing protection of ERISA rights. These purposes are
detailed above in this preamble and in the Notice of Proposed Forms
Revisions published simultaneously with these regulations.
(3) These proposed regulatory amendments do not alter the number of
small plans required to comply with the annual reporting requirements,
but do implement a new Short Form 5500, which is designed specifically
to further streamline the limited reporting requirements presently
applicable to small plans. The Department estimates that more than six
million small, private-sector employee pension and welfare benefit
plans are covered under Title I of ERISA. However, a large majority of
these are fully insured or unfunded welfare benefit plans, which
currently are exempt from annual reporting requirements and will
continue to be exempt under these proposed regulations and the
associated forms revisions. Approximately 644,000 small plans,
including small pension plans and small funded welfare plans, currently
are required to file annual reports and will continue to be so required
under these proposed regulations and the associated forms revisions. Of
these, an estimated 580,000 will be eligible to use the proposed new
Short Form 5500. Use of the Short Form 5500 is expected to reduce these
plans' reporting costs while preserving or enhancing the protection of
their participants' ERISA rights.
Among small plans, perhaps the most acutely affected will be the
approximately 9,000 small Code section 403(b) plans. As explained
above, such plans are currently subject only to limited annual
reporting requirements. These proposed regulations and associated forms
revisions, which will subject these plans to the same requirements as
other covered small plans, will increase these plans' reporting costs.
As discussed above, the Department believes these added costs are
justified by the need to strengthen protections for affected
participants' ERISA rights. The numbers and types of small plans
affected by these proposed regulations and the magnitude and nature of
the proposed regulations' effects are further elaborated below.
(4) The proposed regulations' reporting requirements applicable to
small plans are detailed above and in the associated Notice of Proposed
Forms Revisions. For a large majority of the 644,000 small plans
subject to annual reporting requirements, or an estimated 549,000
plans, submission of the Short Form 5500 alone will fully satisfy their
annual reporting requirements. All of these plans are eligible for the
waiver of audit requirements, and none are defined benefit pension
plans. Therefore, for such plans satisfaction of their applicable
annual reporting requirements is not expected to require the services
of an IQPA or auditor, but will require the use of a mix of clerical
and professional administrative skills. For an additional 31,000 small
defined benefit pension plans that would be eligible to use the
streamlined Short Form 5500, satisfaction of the reporting requirements
also will require services of an actuary and submission of Schedule B.
The remaining 64,000 small plans will not be eligible to use the Short
Form 5500 and will continue to be required to file the Form 5500 Annual
Return/Report. Of these, 4,000 are defined benefit plans that must use
an actuary and file Schedule B, and 32,000 are ineligible for waiver of
the audit requirement and are required to employ an IQPA and submit an
IQPA's report. All will require a mix of clerical and professional
administrative skills to satisfy their reporting requirements.
Satisfaction of annual reporting requirements under these proposed
regulations is not expected to require any additional recordkeeping
that would not otherwise be part of normal business practices.
Table 5 below compares the Department's estimates of small plans'
reporting costs under the current requirements with those under the
proposed requirements for various classes of affected plans. As shown,
costs under the proposed requirements will be lower on aggregate and
for most classes of plans. These estimates take account of the quantity
and mix of clerical and professional skills required to satisfy the
reporting requirements for various classes of plans.
Table 5.--Small Plan Reporting Costs Under Current vs. Proposed Requirements
----------------------------------------------------------------------------------------------------------------
Aggregate cost Aggregate cost
under current under proposed
Class of plan Number affected requirements requirements
(In millions) (In millions)
----------------------------------------------------------------------------------------------------------------
Defined Benefit Pension, Short Form eligible.. 31,000.......................... $30.34 $21.24
Defined Benefit Pension, Short Form ineligible 4,000........................... 3.77 3.67
Code Section 403(b)........................... All of 9,000.................... 0.36 1.45
Other Defined Contribution, Short Form 533,000......................... 263.94 87.84
eligible.
Other Defined Contribution Pension, Short Form 60,000.......................... 29.32 26.92
ineligible.
Funded Welfare................................ All of 7,000.................... 3.52 1.24
Other Welfare................................. None of approximately 6 million. .............. ..............
-----------------------------------------------------------------
Total for All Affected Small Plans........ 644,000......................... 331.26 142.35
----------------------------------------------------------------------------------------------------------------
The Department notes that the estimated reporting costs amount to
$221 on average for each of the 644,000 small plans subject to annual
reporting requirements, or just $22 if averaged across all of the
approximately 6.6 million small plans covered by Title I of ERISA. This
compares with roughly $4,000 on average for each of the 189,000
affected large filers.
(5) The Department is unaware of any relevant federal rules for
small plans
[[Page 41404]]
that duplicate, overlap, or conflict with these proposed regulations.
(6) In developing these proposed regulations and the associated
forms revisions, the Department considered a number of alternative
provisions directed at small plans. For example, as discussed in the
Notice of Proposed Forms Revisions published simultaneously with these
regulations, the ERISA Advisory Council suggested that the Department
consider exempting welfare plans from reporting requirements, or,
alternatively, subjecting all welfare plans to new, separately designed
reporting requirements. The Department opted instead to retain both the
requirement that small funded welfare plans submit annual reports and
the exception from annual reporting requirements for other small
welfare plans. Annual reporting by the relatively small number of small
funded welfare plans is necessary, in the Department's view, to protect
ERISA rights in connection with the assets that they hold. A
requirement that the remaining approximately six million small welfare
plans report annually is not justified insofar as these plans have no
assets to protect and insofar as the vast majority of these plans are
fully insured and therefore separately protected by State oversight of
the insurance contracts they hold and the insurers that issue them. The
Department also considered both narrower and broader eligibility
criteria for use of the Short Form 5500, settling on criteria that
limit eligibility to plans holding relatively safe and protected
assets, which nonetheless includes a large majority of small plans. The
Department also considered the inclusion of more or fewer of the items
of information formerly collected from small plans in the Form 5500
Annual Return/Report, retaining only those items it believes to be
necessary and adequate to the protection of small plan participants'
ERISA rights.
(7) The Department invites interested persons to submit comments
regarding the impact on small plans of these proposed regulations and
the associated forms revisions, and on the Department's assessment
thereof. The Department also requests comments on the alternatives it
considered and its conclusions regarding those alternatives; on any
additional alternatives it should have considered; on what, if any,
special problems small plans might encounter if the proposal were to be
adopted; and what changes, if any, could be made to minimize those
problems. To avoid duplication of comments, comments submitted in
response to the Notice of Proposed Form Revisions published
simultaneously with these proposed regulations will be treated as
comments on this proposed rulemaking.
Paperwork Reduction Act Statement
The Department, as part of its continuing efforts to reduce
paperwork and respondent burden, invites the general public and Federal
agencies to comment on proposed and/or continuing collections of
information in accordance with the Paperwork Reduction Act of 1995
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested
data are provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the impact of collection requirements on respondents is
properly assessed. The Department solicits comments on the information
collection request (ICR) included in this proposed regulatory action,
as well as the Notice of Proposed Forms Revisions published
simultaneously with this Notice. In order to avoid unnecessary
duplication of public comments, the PRA information published in the
associated Notice of Proposed Forms Revisions is incorporated herein by
this reference in its entirety, and comments submitted in response to
these Federal Register publications will be treated as comments on
these proposed rules. A copy of the ICR may be obtained by contacting
the office listed under the heading ``PRA Addressee.''
The Department has submitted a copy of the proposed information
collection to OMB, in accordance with 44 U.S.C. 3507(d), for its review
of the information collection. The Department is particularly
interested in comments that:
Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the Agencies,
including whether the information will have practical utility;
Evaluate the accuracy of the Agencies' estimate of the
burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
Comments should be sent to the Office of Information and Regulatory
Affairs, OMB, Room 10235, New Executive Office Building, Washington, DC
20503; Attention: Desk Officer for the Employee Benefits Security
Administration, Department of Labor. Although comments may be submitted
through September 19, 2006, OMB requests that comments be received
within 30 days of publication of these proposed regulations to ensure
their consideration.
PRA Addressee: Written comments regarding only PRA and the ICR
should be sent to Gerald B. Lindrew, U.S. Department of Labor, EBSA/
OPR, Room N-5718, 200 Constitution Avenue, NW., Washington, DC 20210,
Telephone: (202) 693-8410; Fax: (202) 219-4745. These are not toll-free
numbers. Written comments must be submitted on or before September 19,
2006 to be assured of consideration.
Congressional Review Act
The notice of proposed rulemaking being issued here is subject to
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
For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4), as well as Executive Order 12875, the proposed rules do not
include any Federal mandate that may result in expenditures by state,
local, or tribal governments in the aggregate of more than $100
million, or increased expenditures by the private sector of more than
$100 million.
Federalism Statement
Executive Order 13132 (August 4, 1999) outlines fundamental
principles of federalism and requires adherence to specific criteria by
federal agencies in the process of their formulation and implementation
of policies that have substantial direct effects on the States, the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government. These proposed rules do not have federalism implications
because they would have no substantial direct effect on the States, on
the relationship between the national government and the States, or on
the distribution of power and responsibilities among the various levels
of government. Section 514 of ERISA provides, with certain exceptions
[[Page 41405]]
specifically enumerated, that the provisions of Titles I and IV of
ERISA supersede any and all laws of the States as they relate to any
employee benefit plan covered under ERISA. The requirements implemented
in these proposed rules do not alter the fundamental provisions of the
statute with respect to employee benefit plans, and as such would have
no implications for the States or the relationship or distribution of
power between the national government and the States.
List of Subjects in 29 CFR Part 2520
Accountants, Disclosure requirements, Employee benefit plans,
Employee Retirement Income Security Act, Pension plans, Pension and
welfare plans, Reporting and recordkeeping requirements, and Welfare
benefit plans.
In view of the foregoing, the Department of Labor proposes to amend
29 CFR part 2520 as set forth below:
PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE
1. The authority citation for 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 (February 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. In Sec. 2520.103-1, revise paragraphs (a)(2) and (c) to read as
follows:
Sec. 2520.103-1 Contents of the annual report.
(a) * * *
(2) Under the authority of subsections 104(a)(2), 104(a)(3) and 110
of the Act, a simplified report, limited exemption or alternative
method of compliance is prescribed for employee welfare and pension
benefit plans, as applicable. A plan filing a simplified report or
electing the limited exemption or alternative method of compliance
shall file an annual report containing the information prescribed in
paragraph (b) or paragraph (c) of this section, as applicable, and
shall furnish a summary annual report as prescribed in Sec. 2520.104b-
10.
* * * * *
(c) Contents of the annual report for plans with fewer than 100
participants. (1) Except as provided in paragraph (c)(2) of this
section and in paragraph (d) of this section, and in Sec. Sec.
2520.104-43 and 2520.104a-6, the annual report of an employee benefit
plan that covers fewer than 100 participants at the beginning of the
plan year shall include a Form 5500 ``Annual Return/Report of Employee
Benefit Plan'' and any statements or schedules required to be attached
to the form, completed in accordance with the instructions for the
form, including Schedule A (Insurance Information), Schedule B
(Actuarial Information), Schedule D (DFE/Participating Plan
Information), Schedule I (Financial Information--Small Plan), and
Schedule R (Retirement Plan Information). See the instructions for this
form.
(2)(i) The annual report of an employee benefit plan that covers
fewer than 100 participants at the beginning of the plan year and that
meets the conditions in paragraph (c)(2)(ii) of this section with
respect to a plan year may, as an alternative to the requirements of
paragraph (c)(1) of this section, meet its annual reporting
requirements by filing the Form 5500-SF ``Short Form 5500 Annual
Return/Report of Employee Benefit Plan'' and any statements or
schedules required to be attached to the form, including Schedule B
(Actuarial Information), completed in accordance with the instructions
for the form. See the instructions for this form.
(ii) A plan meets the conditions in this paragraph (c)(2)(ii) with
respect to the year if the plan:
(A) Does not hold any employer securities at any time during the
year;
(B) Satisfies the audit waiver conditions in Sec. Sec. 2520.104-
46(b)(1)(i)(A)(1) and 2520.104-46(b)(1)(i)(B) and (b)(1)(i)(C); and
(iii) Had at all times during the plan year 100 percent of the
plan's assets held for investment purposes invested in assets that have
a readily ascertainable fair market value. For purposes of this
section, the following shall be treated as assets that have a readily
ascertainable fair market value: Shares issued by an investment company
registered under the Investment Company Act of 1940; investment and
annuity contracts issued by any insurance company, qualified to do
business under the laws of a State, that provides valuation information
at least annually to the plan administrator; bank investment contracts
issued by a bank or similar financial institution, as defined in Sec.
2550.408b-4(c) of this chapter, that provides valuation information at
least annually to the plan administrator; securities (except employer
securities) traded on a public exchange; government securities issued
by the United States or by a State; cash or cash equivalents held by a
bank or similar financial institution, as defined in Sec. 2550.408b-
4(c) of this chapter; by an insurance company, qualified to do business
under the law of a State; by an organization registered as a broker-
dealer under the Securities Exchange Act of 1934; or by any other
organization authorized to act as a trustee for individual retirement
accounts under section 408 of the Internal Revenue Code; and any loan
meeting the requirements of section 408(b)(1) of the Act and the
regulations issued thereunder.
* * * * *
3. In Sec. 2520.104-44, remove paragraph (b)(3).
4. In Sec. 2520.104-46, add a new paragraph (e) and a new appendix
to the section to read as follows:
Sec. 2520.104-46 Waiver of examination and report of an independent
qualified public accountant for employee benefits plans with fewer than
100 participants.
* * * * *
(e) Model notice. The appendix to this section contains model
language for inclusion in the summary annual report to assist plan
administrators in complying with the requirements of paragraph
(b)(1)(i)(B) of this section to avail themselves of the waiver of
examination and report of the independent qualified public accountant
for employee benefit plans with fewer than 100 participants. Use of the
model language is not mandatory. In order to use the model language in
the plan's summary annual report, administrators must, in addition to
any other information required to be in the summary annual report,
select among alternative language and add relevant information where
appropriate in the model language. Items of information that are not
applicable to a particular plan may be deleted. Use of the model
language, appropriately modified and supplemented, will be deemed to
satisfy the notice content requirements of paragraph (b)(1)(i)(B) of
this section.
Appendix to Sec. 2520.104-46--Model Summary Annual Report Notice (Plan
Administrators Will Need To Modify the Model To Omit Information That
Is Not Applicable to the Plan)
The U.S. Department of Labor's regulations require that an
independent qualified public accountant audit the plan's financial
statements unless certain conditions are met for the audit
requirement to be waived. This plan met the audit waiver conditions
for the plan year beginning (insert year) and therefore has not had
an audit performed. Instead, the following information is provided
to assist you in verifying that the assets reported on the (Form
5500 or Form
[[Page 41406]]
5500-SF--select as applicable) were actually held by the plan.
At the end of the (insert year) plan year, the plan had (include
separate entries for each regulated financial institution holding or
issuing qualifying plan assets):
[Set forth amounts and names of institutions as applicable where
indicated]
[(insert $ amount) in assets held by (insert name of bank)],
[(insert $ amount) in securities held by (insert name of registered
broker-dealer)],
[(insert $ amount) in shares issued by (insert name of registered
investment company)],
[(insert $ amount) in investment or annuity contract issued by
(insert name of insurance company)].
The plan receives year-end statements from these regulated
financial institutions that confirm the above information. [Insert
as applicable--The remainder of the plan's assets were (1)
qualifying employer securities, (2) loans to participants, (3) held
in individual participant accounts with investments directed by
participants and beneficiaries and with account statements from
regulated financial institutions furnished to the participant or
beneficiary at least annually, or (4) other assets covered by a
fidelity bond at least equal to the value of the assets and issued
by an approved surety company.]
Plan participants and beneficiaries have a right, on request and
free of charge, to get copies of the financial institution year-end
statements and evidence of the fidelity bond. If you want to examine
or get copies of the financial institution year-end statements or
evidence of the fidelity bond, please contact [insert mailing
address and any other available way to request copies such as e-mail
and phone number].
If you are unable to obtain or examine copies of the regulated
financial institution statements or evidence of the fidelity bond,
you may contact the regional office of the U.S. Department of
Labor's Employee Benefits Security Administration (EBSA) for
assistance by calling toll-free 1.866.444.EBSA (3272). A listing of
EBSA regional offices can be found at http://www.dol.gov/ebsa.
General information regarding the audit waiver conditions applicable
to the plan can be found on the U.S. Department of Labor Web site at
http://www.dol.gov/ebsa under the heading ``Frequently Asked
Questions.''
5. Revise the Appendix to Sec. 2520.104b-10 to read as follows:
Sec. 2520.104b-10 Summary Annual Report.
* * * * *
Appendix to Sec. 2520.104b-10.--The Summary Annual Report (SAR) Under ERISA: A Cross-Reference to the Annual
Report
----------------------------------------------------------------------------------------------------------------
Form 5500--large plan Form 5500--small plan Form 5500-SF--filer
SAR item filer line items filer line items line items
----------------------------------------------------------------------------------------------------------------
A. Pension Plan:
1. Funding arrangement........... Form 5500-9a........... Same................... Not applicable.
2. Total plan expenses........... Sch. H--2j............. Sch. I--2j............. Line 8h.
3. Administrative expenses....... Sch. H--2i(5).......... Sch. I--2h............. Line 8f.
4. Benefits paid................. Sch. H--2e(4).......... Sch. I--2e............. Line 8d.
5. Other expenses................ Sch. H--Subtract the Sch. I--2i............. Line 8g.
sum of 2e(4) & 2i(5)
from 2j.
6. Total participants............ Form 5500--6f Same................... Line 5b.
7. Value of plan assets (net):
a. End of plan year.......... Sch. H--1l [Col. (b)].. Sch. I--1c [Col. (b)].. Line 7a [Col. (b)].
b. Beginning of plan year.... Sch. H--1l [Col. (a)].. Sch. I--1c [Col. (a)].. Line 7a [Col. (a)].
8. Change in net assets.......... Sch. H--Subtract 1l Sch. I--Subtract 1c Line 7c--Subtract Col.
[Col. (a)] from 1l [Col. (a)] from 1c (a) from Col. (b).
[Col. (b)]. [Col. (b)].
9. Total income.................. Sch. H--2d............. Sch. I--2d............. Line 8c.
a. Employer contributions.... Sch. H--2a(1)(A) & Sch. I--2a(1) & 2b if Line 8a(1) if
2a(2)--if applicable. applicable. applicable.
b. Employee contributions.... Sch. H--2a(1)(B) & Sch. I--2a(2) & 2b if Line 8a(2) if
2a(2) if applicable. applicable. applicable.
c. Gains (losses) from sale Sch. H--2b(4)(C)....... Not applicable......... Not applicable.
of assets.
d. Earnings from investments. Sch. H--Subtract the Sch. I--2c............. Line 8b.
sum of 2a(3), 2b(4)(C)
and 2c from 2d.
10. Total insurance premiums..... Total of all Schs.A--5b Total of all Schs.A--5b Not applicable.
11. Funding deficiency:
a. Defined benefit plans..... Sch. B--10............. Same................... Same.
b. Defined contribution plans Sch. R--6c, if more Same................... Line 12c.
than zero.
B. Welfare Plan:
1. Name of insurance carrier..... All Schs. A--1(a)...... Same................... Not applicable.
2. Total (experience rated and All Schs. A--Sum of Same................... Not applicable.
non-experienced rated) insurance 8a(4) and 9(a).
premiums.
3. Experience rated premiums..... All Schs. A--8a(4)..... Same................... Not applicable.
4. Experience rated claims....... All Schs. A--8b(4)..... Same................... Not applicable.
5. Value of plan assets (net):
a. End of plan year.......... Sch. H--1l [Col. (b)].. Sch. I--1c [Col. (b)].. Line 7c--[Col. (b)].
b. Beginning of plan year.... Sch. H--1l [Col. (a)].. Sch. I--1c [Col. (a)].. Line 7c--[Col. (a)].
6. Change in net assets.......... Sch. H--Subtract 1l Sch. I--Subtract 1c Line 7c--Subtract [Col.
[Col. (a)] from 1l [Col. (a)] from 1c (a)] from [Col. (b)].
[Col. (b)]. [Col. (b)].
7. Total income.................. Sch. H--2d............. Sch. I--2d............. Line 8c.
a. Employer contributions.... Sch. H--2a(1)(A) & Sch. I--2a(1) & 2b if Line 8a(1) if
2a(2) if applicable. applicable. applicable.
b. Employee contributions.... Sch. H--2a(1)(B) & Sch. I--2a(2) & 2b if Line 8a(2) if
2a(2) if applicable. applicable. applicable.
c. Gains (losses) from sale Sch. H--2b(4)(C)....... Not applicable........ Not applicable.
of assets.
d. Earnings from investments. Sch. H--Subtract the Sch. I--2c............. Line 8b.
sum of 2a(3), 2b(4)(C)
and 2c from 2d.
[[Page 41407]]
8. Total plan expenses........... Sch. H--2j............ Sch. I--2j............. Line 8h.
9. Administrative expenses....... Sch. H--2i(5).......... Sch. I, line 2h........ Line 8f.
10. Benefits paid................ Sch. H--2e(4).......... Sch. I--2e............. Line 8d.
11. Other expenses............... Sch. H--Subtract the Sch. I--2i............. Line 8g.
sum of 2e(4) & 2i(5)
from 2j.
----------------------------------------------------------------------------------------------------------------
Signed at Washington, DC, this 13th day of July 2006.
Ann C. Combs,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
[FR Doc. 06-6330 Filed 7-20-06; 8:45 am]
BILLING CODE 4510-29-P
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