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IRS, DOL & PBGC issue proposed revisions to Form 5500 series for employee benefit plans

Proposed Revision of Annual Information Return/Reports (July 11, 2016).

IRS, the Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC) (collectively, the Agencies) have issued proposed changes to the Form 5500 Annual Return/Report forms and schedules used by certain employee benefit plans. The revisions generally would apply for plan years beginning on or after Jan. 1, 2019.

Background. Under Code Sec. 6058(a), every employer maintaining a pension, annuity, stock bonus, profit-sharing, or other funded plan of deferred compensation, or the plan administrator, must file an annual return stating the information required by regs with regard to the plan’s qualification, financial condition, and operations. This reporting requirement is satisfied by filing a return in the Form 5500 series. Form 5500 serves as the principal source of information and data available to the Agencies concerning the operations, funding, and investments of approximately 806,000 pension and welfare benefit plans and is essential to each Agency’s enforcement, research, and policy formulation programs.

Under Code Sec. 6059(a), a plan administrator of each defined benefit plan to which Code Sec. 412 (dealing with minimum funding standards) applies must file an actuarial report for the first plan year for which the provision applies to the plan and for each third plan year afterwards (or more frequently, if IRS determines). The schedules used to file this actuarial report are Schedule SB, Single-Employer Defined Benefit Plan Actuarial Information, and Schedule MB, Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information (which are required to be filed as part of Form 5500, Annual Return/Report of Employee Benefit Plan, or Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan).

Under final regs issued in October of 2014, a plan administrator (or, in some cases, an employer maintaining a plan) who is required to file at least 250 returns during the calendar year that includes the first day of the plan year must use magnetic media to file certain statements, returns, and reports under Code Sec. 6058 and Code Sec. 6059. The regs are generally effective for plan years beginning on or after Jan. 1, 2015, but only for filings with a filing deadline (not taking into account filing extensions) after Dec. 31, 2015. For more details, see Weekly Alert ¶  27  10/02/2014.

New proposed revisions. The proposed changes to the Form 5500 Annual Return-Report forms are intended to improve employee benefit plan reporting for filers, the public, and the Agencies by: (1) modernizing financial information filed regarding plans; (2) updating fee and expense information on plan service providers, with a focus on harmonizing annual reporting requirements with the DOL’s final disclosure requirements; (3) enhancing mineability of data filed on annual return/reports; (4) requiring reporting by all group health plans covered by Title I of ERISA, including adding a new Schedule J (Group Health Plan Information); and (5) improving compliance under ERISA and the Code through selected new questions regarding plan operations, service provider relationships, and financial management of the plan.

The revisions are being proposed in conjunction with IRS’s ERISA Filing and Acceptance System II (EFAST2), the wholly electronic system operated by a private-sector contractor for the processing of Form 5500 Annual Return/Report. In addition to EFAST2-related concerns, in proposing the Form 5500 changes, the Agencies have also taken into account intervening law and regulatory changes for employee benefit plans, plan sponsors, plan service providers and others since the last major revision of the Form 5500.

One of the proposed changes is the re-introduction of Schedule E (ESOP Annual Information) to improve information on Employee Stock Ownership Plans (ESOPs). Prior to 2009, the Schedule E was an IRS component of the Form 5500 used to collect information regarding ESOPs. Although most Schedule E filers would be required to file electronically using EFAST2, others who are not subject to IRS’s electronic filing requirements could elect not to answer the questions on Schedule E through EFAST2 and instead use Form 5500 SUP “Annual Return of Employee Benefit Plan Supplemental Information,” which is a separate paper based IRS-only information collection system.

There are also a number of specific changes designated as “IRS-Only” (generally, questions on the relevant form or schedule that pertain specifically to IRS filing requirements), some of which are anticipated to be implemented in connection with the 2016 plan year forms. Specifically, for the 2016 plan year, IRS added to the Form 5500 and related schedules various questions related to common compliance problems; those questions, including questions relating to the preparer of the annual return/report, the plan’s trust, qualifications for safe harbors, etc., will promote better IRS administration, IRS also proposes to add more questions for later plan years, including ones that would insure that filers are “aware of certain Code requirements in areas where the IRS has found significant noncompliance” and that would identify plans that have added Roth contribution features.

The Agencies propose to enable filers to file IRS Form 5500-EZ, “Annual Return of One-Participant (Owners and Their Spouse) Retirement Plan,” (generally, for one-participant plans and certain foreign plans) and Form 5558, “Application for Extension of Time To File Certain Employee Plan Returns,” through EFAST2 by creating an electronic version of each of these forms. Form 5500-EZ filers would, except to the extent they are subject to IRS’s electronic filing mandate, be able to elect to file either the paper or electronic version, and would no longer be allowed to file the Form 5500-SF. IRS believes that creating an electronic version of the Form 5500-EZ to replace the Form 5500-SF for one-participant and foreign plans would encourage these filers to file electronically because they would no longer need to deal with the longer Form 5500-SF and its instructions.

The 777-page-long proposed revision document, rather than showing “mock-ups” of the final forms and schedules, shows the questions and data elements that are on each form and schedule in the line-by-line sequence in which the items would appear, as well as newly “structured” attachments, with notations indicating whether the data element is current (i.e., the same question with the same line number on both the proposal and current version), current but re-numbered, current with revisions, or new. This approach is intended to reduce costs associated with publication of the proposed form changes in the Federal Register and provide greater flexibility for the related EFAST2 development processes.

References: For Form 5500 series, see FTC 2d/FIN ¶  S-3353; United States Tax Reporter ¶  60,334; TaxDesk ¶  813,002; TG ¶  9101.

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