Compliance July 12, 2016

Form 5500 Annual Report Modernization Proposed

Regulators including the DOL, PBGC and IRS are seeking to update the reporting requirements related to the Form 5500 filed by private-sector retirement plans. 

Reported by

The U.S. Department of Labor’s (DOL) Employee Benefit Security Administration (EBSA), along with the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC) are seeking public comments on proposed revisions to modernize and improve the Form 5500 Annual Return/Report filed by private-sector employee benefit plans.

EBSA also published a related notice of proposed changes to its annual reporting regulations under Title I of the Employee Retirement Income Security Act (ERISA).

Get more!  Sign up for PLANSPONSOR newsletters.

As the regulators explain, the Form 5500 is the primary source of information about the operations, funding and investments of private-sector, employment-based pension and welfare benefit plans in the U.S. The Form 5500 is also a major point of interaction between benefits plan services providers and their plan sponsors clients, as well as a source of provider opportunity, given that there are an estimated 2.3 million health plans, a similar number of other welfare plans and nearly 681,000 retirement plans—many of which file a Form 5500 every year.

The proposed revisions are intended to “modernize the financial statements and investment information filed about employee benefit plans; update the reporting requirements for service provider fee and expense information; enhance accessibility and usability of data filed on the forms; require reporting by all group health plans covered by Title I of ERISA; and improve compliance under ERISA and the Internal Revenue Code through new questions regarding plan operations, service provider relationships, and financial management of the plan.” 

PBGC, IRS and EBSA further explain the proposed regulations would make improvements to the certification requirements for the limited scope audit requirements under 29 CFR 2520.103-8, and allow group health plans to use the Form 5500 to satisfy certain reporting requirements in the Affordable Care Act. The proposed changes to the DOL regulations are also needed to implement the Form 5500 revisions, EBSA explains.

“The proposed form changes and related regulatory amendments are important steps toward improving this critical enforcement, research and public disclosure tool,” says Assistant Secretary for the EBSA Phyllis C. Borzi. “The 5500 is in serious need of updates to continue to keep pace with changing conditions in the employee benefit plan and financial market sectors. We must also remedy the form’s current gaps in collecting data from ERISA group health plans.”

NEXT: Potentially significant changes proposed  

“As Form 5500 information is open to public inspection, not only would expanded data collection assist in the agencies’ research and policymaking objectives, public access to this information would enable interested private-sector and other governmental stakeholders to perform data-based research or help plan sponsors, fiduciaries, and participants and beneficiaries better understand their plans and plan investments,” the regulators add.

Under the proposal, the form revisions would begin with the Plan Year 2019 Form 5500 series returns/reports. The form improvements and regulatory changes are generally being coordinated with a procurement process related to the Electronic Filing Acceptance System, the government’s electronic filing and processing system that a private-sector contractor operates. Some form changes may be implemented earlier or later depending on the public comments and developments in the EFAST2 procurement process, regulators note.

The pending publication of the notices in the Federal Register will mark the start of a 75-day comment period. The agencies encourage all stakeholders to submit comments on the proposals, including any suggestions about how the agencies can better achieve the goal of transforming the Form 5500 into a “21st Century” information collection tool while minimizing administrative burdens with respect to the operation of plans.

The proposals will be published in the July 21 edition of the Federal Register. The proposals and a Fact Sheet are also available on EBSA’s website at www.dol.gov/ebsa. 

Data and Research July 12, 2016

Middle-Income Boomer Retirees Saddled with Debt

By comparison, only one quarter of retirees in all age and income groups have debt.
Reported by
Bankers Life Center for a Secure Retirement took a look at the debt levels and confidence of pre-retirees and retirees, particularly middle-income Boomers, and found that they are in poor shape.

Just over half, 53%, of all Americans think that they will enter retirement debt-free, but only 23% do so. Eight in 10 middle-income Baby Boomers not yet retired currently carry some debt, and among those who are retired, 77% still carry debt.

Bankers Life defines middle-income as those with an annual household income between $25,000 and $100,000 and less than $1 million in investable assets. The research organization decided to take a look at the status of Boomer retirees as it has been five years since the first Boomer turned age 65.

Nearly four in 10 retired Boomers, 38%, have had to adjust their spending to compensate for a financial shortfall in retirement, and in 2015, 60% of non-retired Boomers are spending “as much as or more than their household incomes.” Among this group, the majority carry debt and other significant monthly expenses. Among the retired Boomers who have had to adjust their spending, 88% cut expenses, 30% sold possessions, 20% went back to work, 15% have sought help from family or friends, and 7% have either sold or remortgaged their house.

Nearly seven in 10 Boomers, 69%, do not know if they will have enough money to live comfortably until age 85, which is the Social Security Administration’s (SSA’s) projection for their life expectancy. Eighty-three percent do not think they will have the resources to live until age 95, even though the SSA says that 10% of Boomers will reach that age.

Only 9% of those surveyed said they were very prepared for retirement, yet 39% have not taken any active retirement planning steps. Only 28% of retired middle-income Boomers say they were financially prepared when they retired. Seventy-eight percent of non-retired middle-income Boomers plan to start taking Social Security when they turn 65, yet only 38% actually do so, and only 51% are confident in their understanding of annuities. About the same percentage, 48%, believe they are knowledgeable about Roth IRAs.

NEXT: How many middle-income Boomers have pensions?
Because the oldest Boomers started working at a time when pensions were commonplace and 401(k)s were only just being created, 48% of already-retired middle-income Boomers receive a pension. Conversely, among non-retired Boomers, only 33% expect to receive a pension.

Middle-income Boomers are not doing enough to plan for their retirement, the study also found. Seventy-five percent of this demographic group have not calculated a monthly retirement income goal that they need to reach, and 79% do not know what percentage of their pre-retirement income they will need to live on. Thirty-two percent did not start planning for retirement until after age 50, and 58% didn’t start planning until after age 40.

Bankers Life Center for Retirement’s study, “Paying for the New Retirement: Responsibilities and Challenges for Middle-Income Boomers,” concludes that the Boomer experience “may provide a cautionary tale for generations to follow. More education, more advice and guidance, and ultimately more retirement savings will be necessary for middle-income Americans to live comfortably in their retirement years.”

The Center recommends that middle-income Boomers research Social Security options, aggressively pay down debt, minimize monthly bills, remain in the workforce for as long as possible and develop a well-thought-out retirement plan.

“Americans tend to prepare for what they can anticipate,” says Scott Goldberg, president of Bankers Life. “Most do not anticipate the amount of debt they will carry into retirement, in addition to other unplanned expenses such as long-term care and various health-related costs. Our studies show us that few Boomers are taking the steps to plan for and overcome these hurdles.”

The full report can be downloaded here.

«