Proposed Changes to Form 5500 and Schedules Would Expand Benefit Plan Reporting | Practical Law

Proposed Changes to Form 5500 and Schedules Would Expand Benefit Plan Reporting | Practical Law

The Department of Labor (DOL), Treasury, and the Pension Benefit Guaranty Corporation (PBGC) have issued proposed regulations and forms revisions that would update and expand Form 5500 reporting obligations for retirement and health plans, including to add a new Schedule J for group health plans.

Proposed Changes to Form 5500 and Schedules Would Expand Benefit Plan Reporting

Practical Law Legal Update w-002-7791 (Approx. 12 pages)

Proposed Changes to Form 5500 and Schedules Would Expand Benefit Plan Reporting

by Practical Law Employee Benefits & Executive Compensation
Published on 13 Jul 2016 • USA (National/Federal)
The Department of Labor (DOL), Treasury, and the Pension Benefit Guaranty Corporation (PBGC) have issued proposed regulations and forms revisions that would update and expand Form 5500 reporting obligations for retirement and health plans, including to add a new Schedule J for group health plans.
The DOL, Treasury, and PBGC (Departments) have issued proposed forms revisions and regulations (see Proposed Regulations) that would update and expand Form 5500 reporting obligations for retirement and health plans, including to add a new Schedule J for group health plans. The Departments' changes would include a "recompete" of the contract for EFAST2 (the ERISA Filing and Acceptance System), the government's all-electronic system for filing Form 5500, which is presently operated by a private-sector contractor.
The Departments' proposed forms revisions are lengthy and would impact numerous aspects of Form 5500 compliance, including substantial changes to the Form 5500 schedules. This update addresses highlights of the changes.
Along with the proposed revisions and regulations, the DOL issued a press release and a fact sheet detailing the goals that this guidance is intended to address (see Overarching Policy Goals).

Applicability Date

If adopted, the proposed revisions and regulations to Form 5500 and its accompanying schedules would apply for plan years beginning on or after January 1, 2019. According to the Departments, EFAST2 would begin processing Form 5500s under a new contract for the 2019 plan year beginning January 1, 2020.
Written comments must be received by the DOL on or before October 4, 2016.

Form 5500 Background

In general, retirement and health plans satisfy their annual reporting obligations under ERISA and the Internal Revenue Code (Code) by filing Form 5500 ("Annual Return/Report of Employee"), along with any required schedules and attachments. According to the Departments' statistics, Form 5500 data addresses the operation, funding, and investment of around 806,000 health and retirement plans:
  • Covering approximately 143 million employees, retirees, and dependents under private sector health and retirement plans.
  • Having estimated assets of $8.7 trillion.
On the health plans side, the Departments' proposed revisions are intended to reflect significant legal and regulatory changes, including under the Affordable Care Act (ACA) (see Affordable Care Act (ACA) Overview), since the last overhaul of Form 5500. The Departments suggested that the current annual reporting framework may not fully reflect other group health plan mandates, for example:

Overarching Policy Goals

The proposed regulations and forms revisions reflect several general policy objectives, which include:
  • Modernizing financial information filed regarding benefit plans.
  • Updating fee and expense information about plan service providers, including to incorporate annual reporting requirements under the DOL's final disclosure requirements.
  • Requiring reporting by all group health plans that are covered by Title I of ERISA, including adding a new Schedule J for this purpose (see Expanded Health Plan Reporting Required).
  • Expanding the "mineability" of data filed on Form 5500s.
  • Improving compliance under ERISA and the Code with new questions about plan operations, service provider relationships, and plan financial management.

Revisions to Form 5500, Schedules, and Instructions

An Appendix A to the proposed forms revisions reflects the questions and "data elements" for each form (that is, Form 5500 and Form 5500-SF) and the accompanying schedules in line-by-line order. The Departments did not provide mock-ups of the forms, schedules, and structured attachments as they would appear in final. The Departments indicated, however, that the final forms and schedules would have substantially the same format as the existing forms and schedules. Items that already appear in the existing forms and schedules, but would be changed under the proposed forms revisions, are denoted as such, as are items that are entirely new.
An Appendix B to the forms revisions shows proposed instructions that correspond to the revised Form 5500 and schedules. Some of the instructions are entirely new, while others reflect the elimination of existing line items or schedules that would be deleted under the proposed forms revisions.

New EFAST2 Contractor

The proposed revisions and regulations are being coordinated with a recompete of the contract for EFAST2, a process that apparently was driven by federal requirements involving the periodic re-bidding of long-term contracts. According to DOL, the re-bid process will:
  • Result in enhanced filing search capabilities under EFAST2.
  • Continue to include a web portal that allows for registration, file submission and acceptance, and help desk services.
Changes related to a new EFAST2 contract could begin in the spring of 2018, and processing under the new contract could start in January 2020.

Retirement Plan Changes

The proposed regulations contain numerous changes specifically applicable to retirement plans, including:
  • Changes to the Schedule H (Financial Information) balance sheet and income statement to modify the asset breakouts to enable more accurate and detailed reporting on the types of assets held by a plan, including alternative investments, hard to value assets, and investments through collective investment vehicles.
  • Schedule H, Line 4i (Schedule of Assets) to modernize the financial reporting on Schedule H to make it a data-capturable format.
  • Changes to direct filing entity (DFE) reporting, including what information about DFEs and their underlying investments needs to be reported by both the plan and the DFE.
  • Better information on plan terminations, mergers, and consolidations.
  • New information on employer matching contributions, employee participation rates, and plan design for defined contribution plans to better collect information on retirement plan coverage and performance as retirement savings vehicles.
  • Changes to Reporting on Schedule G to require more uniform and detailed information on loans, fixed income obligations, and leases in default, including swaps, options, and derivative transactions.
  • Re-introduction of Schedule E to improve information on employee stock ownership plans (ESOPs). Before 2009, Schedule E was part of Form 5500 to collect information on ESOPs.
  • Other questions where the IRS has found significant noncompliance including whether a plan:
  • Standardizing information reported on Schedule H, Line 4a, to facilitate compliance with regulations and guidance governing delinquent participant contributions and loan repayments.
  • Adding new questions to the actuarial schedules MB and SB.
  • Information on the named fiduciary under ERISA Section 3(21) (29 U.S.C. § 1002(21)).
Additional information applicable to retirement plans are proposed, including information on whether:
  • Any disqualified person under ERISA Section 411 (29 U.S.C. § 1111) was permitted to serve the plan.
  • The plan is a participant-directed account plan and if so, whether the plan provided participants with the fee disclosures required by Treas. Reg. Section 2550.404a-5 (29 C.F.R. § 2550.404a-5).
  • The employer sponsoring the plan paid administrative expenses that were not reported as service provider compensation on Schedule C or a plan administrative expense on Schedule H.
  • The plan or its affiliates provided any services to the plan in exchange for direct or indirect compensation.
  • The plan had any leveraged investment acquisitions and information regarding any acquisitions.
  • The accountant orally or in writing communicated various governance issues discovered during the audit.
  • The plan is a frozen defined contribution plan.
  • The plan engaged in any nonexempt prohibited transactions and information regarding those transactions.
  • The plan is a SIMPLE 401(k) plan.
  • The plan has a participant-directed brokerage account and how many participants are using such accounts.
  • The plan has a qualified default investment alternative.
  • The plan is selecting church plan status under Code Section 410(d) (26 U.S.C. § 410(d)).
  • The plan provides financial education and financial advice for participants.

New Information for Retirement Plans

The proposed regulations would also add new questions to the Form 5500, Form 5500-SF, and Schedule R on participation, contributions, and asset allocation by age, and participant-level diversification. Questions include the number of participants:
  • Making catch-up contributions.
  • Investing in default investment options.
  • Maximizing the employer match.
  • Deferring compensation.
  • With account balances as of the beginning of the plan year.
  • That terminated employment during the plan year that had their entire account balance distributed.

Expanded Health Plan Reporting Required

In its proposed revisions, the DOL takes the position that "all plans that provide group health benefits should be subject to some level of annual reporting." This would include:
Plans that provide group health benefits that are already required to file Form 5500 (in general, all large plans and small funded plans, or plans that are otherwise ineligible for reporting relief for unfunded and insured plans) would be required to:
  • File group health plan information on a separate schedule, Schedule J ("Group Health Plan Information").
  • Complete those aspects of Form 5500 and its accompanying schedules, as applicable, that they are currently required to complete (though both Form 5500 and the accompanying schedules would be changed under the proposed revisions).
As a result, the proposed revisions would require all ERISA plans that provide group health benefits to file Form 5500 (including new Schedule J) and applicable schedules, regardless of:
  • Size.
  • Whether funded using a trust, unfunded, or an unfunded/insured combination.

Small Plan Reporting Exemptions Would Be Eliminated

Under an existing reporting exemption, plans providing group health benefits that have fewer than 100 participants, and are fully-insured, unfunded, or a combination of unfunded and insured, are not required to file Form 5500. Citing a gap in information for these plans, however, the Departments would require these plans to file Form 5500 (though excluding questions applicable only to retirement plans) and new Schedule J. In addition, the proposed revisions would require small fully-insured plans that are currently exempt from annual reporting to file Form 5500 (with answers to specified questions) and Schedule J.
In addressing expanded Form 5500 reporting by self-funded plans, the Departments observed that the ACA requires the DOL to provide Congress an annual report with general information on self-funded health plans that is based on data from Form 5500 (see Affordable Care Act (ACA) Overview: Annual DOL Report to Congress on Self-Insured Plans). However, the Departments noted that because many self-insured plans are not required to file Form 5500 each year, Form 5500 collects only limited information to support the DOL's annual report to Congress.
Importantly, the existing exemptions from financial reporting on Schedules H (Financial Information), G (Financial Transactions), and C (Service Provider Information) for insured plans, unfunded plans, and combination unfunded/insured plans that meet certain requirements would continue to apply for all welfare plans, including group health plans, regardless of size. The existing welfare plan exemption from financial reporting on Schedule G, for plans with fewer than 100 participants, also would continue to apply.
The proposed revisions would require small funded plans to complete Schedule H, and also Schedule C (if applicable). (The proposed revisions would remove Schedule I, which is currently used by small plans to report financial information.)

New Schedule J (Group Health Plan Information)

A new proposed Schedule J would reflect information about group health plan operations and ERISA compliance, including under the ACA. However, group health plans that are part of a group insurance arrangement (GIA) and fall under a related regulatory exemption would not be required to file Schedule J.
Schedule J would require a broad array of information on the characteristics of plans that provide group health benefits, including:
  • An estimate of the number of covered participants and beneficiaries covered under the plan at the end of the plan year.
  • The number of individuals offered COBRA coverage (see Practice Note, COBRA Overview).
  • Whether the plan offers coverage for employees, spouses, children, or retirees.
  • What type of group health benefits are offered under the plan (for example, health, surgical, pharmacy or prescription drug, mental health/substance use disorder, wellness program, preventive care, vision, dental, or other benefit types).
  • Information on whether the plan is funded through a health insurer and whether benefits are paid through a trust or from an employer's general assets.
  • Whether there are participant or employer contributions.
  • Whether the plan received rebates, refunds, or reimbursements from a service provider (for example, a medical loss ratio (MLR) rebate under the ACA and offset rebates reflecting favorable claims experience) (see Legal Update, Guidance on Plan Asset Implications of Medical Loss Ratio Rebates), including:
    • the type of service provider;
    • the amount received; and
    • how the rebates were used (for example, whether they were returned to participants, used for a premium holiday or benefit payments, or for some other purpose).
  • Total premium payments for stop loss coverage, and information on the attachment points for this coverage, individual claim limits, and the policy's aggregate claim limits (see Practice Note, ERISA Litigation: Preemption of State Laws: Stop-Loss Insurance Laws).
Plans that use a prototype health insurance policy or arrangement (that is, "off-the-shelf" plans) would need to provide applicable unique identifying information (for example, a state-assigned policy identification number) of the prototype.
Plans providing group health benefits also would need to report whether:
Group health plans that are not required to complete Schedule H (that is, fully insured, unfunded, or combination insured/unfunded plans) would be required to report on Schedule J information about employer and participant contributions, including:
  • Employer and participant contributions received and receivable.
  • Other contributions received or receivable, including non-cash contributions.
  • The total of all contributions.
  • Any failure to timely transmit participant contributions to the plan.

Claims Information

Proposed Schedule J would request numerous pieces of claims payment data, including information on how many post-service benefit claims were submitted, approved, and denied during the plan year. Schedule J would also require reporting of:
  • How many benefit claim denials were appealed during the plan year.
  • How many appealed claims were upheld as denials, and how many were payable after appeal.
  • Whether any claims for benefits were not adjudicated within the required timeframes.
Proposed Schedule J would also seek data on how many pre-service claims were appealed during the plan year, and of those claims, how many were:
  • Upheld as denials.
  • Approved after appeal.
Plans would be asked to report:
  • Whether the plan was unable to pay claims at any time during the plan year (and, if so, the number of unpaid claims).
  • The total dollar amount of claims paid during the plan year.
  • For insured plans, any delinquent payments to the plan's insurer within the time required by the insurer (and whether any delinquencies led to lapses in coverage).
The DOL is considering the reporting of additional information on denied claims, for example:
  • The dollar amount of denied claims during the plan year and related denial code.
  • Whether these claims were for mental health and substance use disorder benefits or for medical/surgical benefits (see Practice Note, Mental Health Parity).

Service Provider Information

Schedule J would ask group health plans to identify any plan service providers (that are not otherwise reported on Schedules A or C) by providing the name, address, telephone number, employer identification number (EIN), and related national registry numbers. Such service providers include:
  • Third-party administrators (TPAs).
  • Claims processors, including insurers under administrative services only (ASO) contracts, and managers of mental health benefits, substance use disorder benefits, pharmacy benefit/drug provider and wellness programs, and independent review organizations (IROs) (see Practice Note, External Review Under the ACA).

Group Health Plan Compliance Information

Proposed Schedule J also would require compliance information from plans that provide group health benefits, including:

Proposed Regulations

The DOL also issued proposed regulations, which are necessary to implement the proposed forms revisions. The proposed regulations would conform the current regulations to the proposed forms revisions to implement certain changes to the Form 5500 and its schedules.
The proposed regulations would make numerous modifications to the current regulations to reflect changes made under the proposed revisions, including:
  • Certain changes to the contents of Form 5500, including to:
    • update form and schedule references;
    • require all plans that provide group health benefits, regardless of size, to file the Form 5500, including group health plans (see New Schedule J (Group Health Plan Information));
    • require pension plans with fewer than 100 participants that are required to file the Form 5500 to file Schedule C;
    • require large and small employee stock ownership plans (ESOPs) to file Schedule E (ESOP Annual Information);
    • limit filing of Schedule D (DFE/Participating Plan Information) to direct filing entities (DFEs); and
    • require that master trusts operate either on a calendar year basis or on the same fiscal year as all the plans that participate in the master trust.
  • Requiring GIAs to file the new Schedule J (see New Schedule J (Group Health Plan Information)).
  • Revising the current regulations' language to change the annual reporting requirements for plans investing in common collective trusts (CCTs), pooled separate accounts (PSAs), and master trusts to increase the transparency of plan investments in pooled investment vehicles.
  • Referencing the Schedule of Reportable Transactions' contents in the Form 5500 instructions rather than listing all of the schedule's content requirements to reflect certain additions and clarifications to the content of the schedule. The Schedule of Reportable Transactions is used to report transactions that involve more than five percent of the current value of the assets in the plan or DFE.
  • Revising the certification required by plans implementing the limited scope audit exemption.
  • Referencing the contents of certain financial schedules, including the Schedule of Assets Held for Investment and the Schedule of Assets Acquired and Disposed Within the Plan Year, in the Form 5500 instructions rather than listing all of the schedules' content requirements to reflect certain additions and clarifications to the content of the schedules.
  • Eliminating the existing exemption from the reporting requirements for certain welfare plans that provide group health benefits that cover fewer than 100 participants and are fully insured, unfunded, or a combination to implement the expansion of the annual reporting requirements described in the proposed revisions (see New Schedule J (Group Health Plan Information)). Applicable small plans would be required to file a Form 5500 including the new Schedule J.
  • Updating the DOL's cross-reference guide to facilitate compliance with the summary annual report (SAR) requirement.
  • Making various other technical and conforming changes.

Request for Comments

The DOL has requested comments regarding:
  • Information on plan characteristics that may be helpful to participants in evaluating whether to elect the coverage or opt for a different plan.
  • The proposed annual reporting requirements for plans that provide group health plans, including the new Schedule J.
As with the proposed forms revisions, comments regarding the proposed regulations must be received on or before October 4, 2016.

Practical Impact

Although the Departments' changes to Form 5500, its accompanying schedules, and instructions are significant, the revisions are only proposed at this point and are subject to change (including in response to comments from the regulated community, which must be submitted to the DOL by October 4, 2016). Practitioners, service providers, and employers would have a fair amount of lead-time to prepare for compiling and reporting the additional information that would be required under these rules, some of which (for example, new Schedule J for group health plans) would require much more detailed reporting than under the existing Form 5500 and relevant schedules.
Also, although the DOL has indicated that the re-bid of EFAST2 will not involve extensive systems changes, those who recall the challenges associated with the 2009 transition to the current all-electronic filing system may wish to note that the government plans to award a new EFAST2 contract.