Groups Ask Agencies to Pull Back on Form 5500 Modernization

The American Benefits Council, the Committee on Investment of Employee Benefit Assets (CIEBA), the Society for Human Resource Management (SHRM) and the ERISA Industry Committee (ERIC) have asked regulators to lighten up on some of the requirements that would be imposed on plan sponsors by proposed modifications to Form 5500.

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

The proposal included improvement on reporting regarding alternative investments, hard-to-value assets, and investments through collective investment vehicles. “The proposed changes are designed to foster ongoing monitoring of employee benefit plans by employers, plan fiduciaries, and participants and beneficiaries, and improve the ability of the Agencies to fulfill their statutory oversight roles,” the agencies said in a fact sheet. 

In their letter, CIEBA, SHRM and ERIC suggested the agencies should make investment disclosures consistent with other reporting requirements. They noted that in Accounting Standards Update 2015-12, the Financial Accounting Standards Board (FASB) changed its reporting requirements so that employee benefit plans only have to report their investment holdings by their general type, not by other, hard-to-measure information such as the nature of the investments and their risks. “The Agencies are now proposing to create a new, more burdensome system for investment-related disclosures. As a result, employers will have to expend resources to report the same assets in two separate ways. Not only is that costly and confusing, but it is also redundant to what is already being disclosed in the plan financial statements under the FASB requirements,” the groups argue.

NEXT: Schedule C reporting of fees

The agencies’ proposal would harmonize reporting on Form 5500 Schedule C with the now final disclosure requirements in DOL’s service provider disclosure regulation. “The proposed updates are intended to provide a powerful tool for improved evaluation of service arrangements involving investments, recordkeeping, and other administrative services. The Schedule C reporting requirements for employee benefit plans would also more closely track the information that plan service providers are required to disclose to plan fiduciaries,” the agencies said.

In their letter, the groups say they agree that this will help decrease the burden of having to report on a large number of entities. However, the large amount of information about the service providers that’s being required in Schedule C and in other parts of the revised form is still far too extensive, and it will only add to the high reporting burden, they say. Employers do not currently collect much of the data required to answer the new questions. They will have to develop new systems not only to collect information but also to process and verify it. Employers will also have to spend considerably more time soliciting information from dozens or even hundreds of vendors. Moreover, since many of the new questions are ambiguous or confusing, employers will need to engage legal counsel, which will increase costs. The organizations are concerned that employers will be forced to pass that increase in cost on to plan participants and that participants may actually see their fees increase.

Likewise, the American Benefits Council says the proposed revisions significantly increase the amount of information necessary to complete the forms, as well as the number of plans required to report and the way in which such plans must report. “Virtually all of the Council’s members would face substantial implementation costs and administrative burdens to meet the requirements of the proposed revisions,” it says.

NEXT: Compliance questions and health plan reporting

The proposal would also enhance reporting about plan compliance to improve plan operations, protect participants and beneficiaries and their retirement benefits, and educate and provide annual discipline for plan fiduciaries. The proposal would add selected new questions regarding plan operations, service provider relationships, and financial management of plans. These questions are intended to compel fiduciaries to evaluate plan compliance with important requirements under ERISA and the Internal Revenue Code and to provide the agencies with improved tools to focus oversight and enforcement resources.  

CIEBA, SHRM and ERIC respond that the questions focus heavily on costs and agency enforcement efforts rather than on providing stakeholders with a picture of the value that is being provided. “Given the one-sidedness of this focus, more frivolous litigation will inevitably follow, and this threatens to further undermine the retirement system,” they say.

The agencies’ proposal would increase data collection for a large sector of the health plan market made up of ERISA group health plans.  This includes eliminating for group health plans the current exemption from Form 5500 reporting for small insured and self-insured welfare benefit plans. In a separate letter, ERIC suggests the proposed amendments be withdrawn at this time. ERIC asked for the current proposal to be withdrawn, to wait for more certainty until the new Administration is in place, and if there must be changes, to take a less burdensome approach, including removing questions that would reveal confidential information.

“It is inappropriate to rush through such significant changes to reporting requirements while a new Administration is preparing to take over,” says James Gelfand, senior vice president of Health Policy, ERIC. “And, with much of the proposed Schedule J reporting being reliant upon provisions of the ACA, it would be prudent to delay making changes, since there is anticipation that the law may be drastically changed.”