In 2016, the U.S. Department of Labor (DOL) indicated revisions would be forthcoming to the Form 5500, which has not been revised since 2009.
The Form 5500 Annual Return/Report provides information on the operation, funding, assets, and investment for pension plans and other employee benefit plans. The Form 5500 must be electronically filed with EBSA under the EFAST2 electronic system and depending on the size of the plan—an independent qualified public accountant’s report might be required to be attached along with certain schedules required by DOL.
There are five major goals related to the revisions to the annual reporting requirements.
- Modernize financial reporting: The proposed changes are meant to improve transparency and reliability in financial reporting for benefit plans. More benefit plans are investing in harder-to-value assets, alternative investments, collective funds and direct filing entities (DFEs), which makes it difficult to accurately reflect these assets in the current categories on the Schedule H. The proposed changes provide more line-item classes of investments. It has also been proposed to eliminate Schedule I (Financial Information—Small Plan) which would force smaller plans to file either a Form 5500-SF (Short-Form Annual Return/Report of Small Employee Benefit Plan), or the revised Schedule H (Financial Information) which is currently required only for large plans.
- Improving service provider fee information: 5500 preparers have been inconsistently reporting service provider information on Schedule C (Service Provider Information), which makes it difficult to understand what is being reported. The new structure of Schedule C would make the service provider fee information more uniform with the disclosure regulations under 29 CFR 2550.408b-2s.
- Enhancing data mining of information: The proposed changes include converting various elements of the Form 5500 into electronic data which can then be searched and used for data-mining purposes. This will enable users to develop tools to compare their plan with other plans in the market.
- Requiring reporting for all ERISA Title I group health plans: This change eliminates the 100-participant threshold for reporting for health plans not funded through a separate trust and requires all group health plans to file a Form 5500. A new Form Schedule J, Group Health Plan Information, will be used to report necessary information and requirements under the Affordable Care Act including participation, coverage, insurance company and basic benefits.
- Improve plan compliance: There also will be numerous new questions, drop-down menus and check boxes throughout the various schedules to disclose more fully the operations and compliance of benefit plans. This will help to increase transparency and force plan sponsors to be more diligent in the operations and monitoring of their plans, enhancing the focus when selecting service providers, and avoiding having to report noncompliance.
If these proposed changes are adopted, they are scheduled to go into effect for plan years beginning on or after January 1, 2019. To learn more about changes impacting form 5500 and how you can prepare, contact your CPA.
Karen Nasoni is a partner based out of our Syracuse, NY office.