Beginning with 2009 plan years, employers will be required to file Form 5500 for pension and other employee benefit plans electronically. Mandatory electronic filing — known as the ERISA Filing Acceptance System, or EFAST2 — was slated to become effective for 2008 plan year filings, but in final regulations implementing the electronic filing requirement the agencies with Form 5500 oversight (the Department of Labor, Internal Revenue Service and Pension Benefit Guaranty Corporation) delayed mandatory electronic filing to the 2009 plan year. Since Form 5500 is due at the end of the seventh month after the close of the plan year, this means that employers with calendar year plans will have a first required electronic filing deadline of July 31, 2010.
The Form 5500 Annual Return/Report is the primary source of information concerning the operation, funding, assets and investments of pensions and other employee benefit plans. Form 5500 filings serve as a disclosure document for plan participants and beneficiaries, a compliance and research tool for the agencies with 5500 oversight, and a source of information and data for assessing pension and employee benefit trends and developing policy.
Electronic filing is intended to streamline and simplify the filing process, especially for small businesses; increase the transparency of plan-related fees and expenses; and provide additional information about plan investments. To this end, some schedules associated with 5500 filing that were required only for the IRS have been eliminated, and other schedules have been modified. Specifically, Schedule E for ESOP information and Schedule SSA (identifying separated participants with deferred vested benefits) will no longer be required once e-filing is fully implemented (i.e., beginning with reporting for the 2009 plan year). Information previously included on these schedules will be captured in other ways.
Certain small plans (single-employer plans covering fewer than 100 participants, which meet specified conditions regarding their investments held or issued by regulated financial institutions, and which have a readily determinable fair market value) will be able to file a Form 5500SF (Short Form) instead of the regular 5500.
As to specific attachments:
- Schedule A (Insurance Information) is required if any pension or welfare benefits under the plan are provided by, or if the plan holds any investment contracts with, an insurance company, insurance service, or other similar organization. Schedule A remains largely unchanged, but will now include a space for administrators to report a failure or refusal by an insurance carrier to provide necessary information. Other minor changes are intended to improve Schedule A’s usefulness for reporting insurance fees or commissions.
- Schedule B (Defined Benefit Plan Actuarial Information) has been divided into two separate schedules, Schedule SB for single employer plans and Schedule MB for multiemployer plans and certain money purchase plans. These schedules are required for defined benefit plans subject to minimum funding standards. In general, the revised schedules will require more detailed information on asset allocation.
- Schedule C (Service Provider Information) is filed by large plans, to report payments made to service providers. The $5,000 reporting threshold has been retained for identifying any person who received at least this amount during the plan year, directly or indirectly, in connection with services rendered to the plan or their position with the plan. To enhance disclosure, direct compensation paid by the plan will be reported on a separate line item from indirect compensation received from sources other than the plan or plan sponsor. Additionally, current codes have expanded to better identify the types of services and types of fees. The schedule includes an alternate reporting option for service providers whose compensation in relation to the plan is limited to “eligible indirect compensation” (certain specified types of common investment-related fees). As with Schedule A, revised Schedule C includes space for plan administrators to list service providers who failed or refused to provide information necessary to complete the schedule.
- Schedule R (Retirement Plan Information) will now ask for information previously requested in the eliminated Schedule E. Other modifications include additional questions required by the Pension Protection Act of 2006 and to collect information needed by the PBGC to enable it to properly monitor the plans it insures. For example, the schedule now includes asset allocation questions for defined benefit plans with more than 1,000 participants, which now must provide a breakdown of plan assets by type of investment.
- Schedule I (Small Plan Financial Information) will require small plans to report administrative expenses separately from other expenses. On both this schedule and Schedule H (for large plans) a standard format has been adopted for use in connection with an independent qualified public accountant rendering an opinion on information relating to delinquent participant contributions.
As noted at the beginning of this article, full electronic filing begins with filings for the 2009 plan year. For many plans, compliance will require updating information management and recordkeeping systems and necessitate changes in the way plans collect and keep plan information. Consult with your plan administrator or one of our benefits professionals for what your company needs to do to prepare.