Proposed changes to Form 5500, Annual Return/Report of Employee Benefit Plan, and supporting Department of Labor (DOL) regulations would implement provisions in the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 (Div. O of Pub. L. No. 116–94). These changes include enhanced reporting for multiple-employer plans (MEPs) starting with the 2021 plan year and a new group filing alternative starting in 2022 for certain single-employer individual account and defined contribution (DC) plans. Additional changes unrelated to the SECURE Act would more broadly affect retirement and welfare plans starting in 2022. While these changes are narrower in scope than those proposed in 2016 — but never finalized — plan sponsors, administrators and service providers should review the proposal and consider submitting comments by Nov. 1.
One of the SECURE Act’s key policy goals is to encourage DC plan sponsorship — particularly among small employers — by reducing the costs and administrative burdens of offering a workplace retirement plan. With this goal in mind, the SECURE Act introduced a new category of MEPs called “pooled employer plans” (PEPs) for unrelated employers that don’t qualify for preexisting MEP structures. The SECURE Act also directs DOL and IRS to implement a simplified group annual reporting option for single-employer DC plans sharing certain characteristics.
The proposal would affect filings for all types of retirement MEPs, including association retirement plans and professional employer organization (PEO) plans in existence before the SECURE Act. The changes not only accommodate the introduction of PEPs, but also implement SECURE Act requirements for all MEPs to report enhanced information on participating employers. These changes are in effect for the 2021 plan year, but conforming updates to Form 5500 — including a new Schedule MEP — won’t be available until the 2022 plan year. For the 2021 plan year, all MEPs would report the enhanced information on an attachment.
The SECURE Act directs DOL and IRS to permit certain groups of DC plans to file a consolidated annual report starting in 2022. The proposal seeks to implement this directive by creating an optional DC group (DCG) filing arrangement. The agencies believe this provision of the SECURE Act is “primarily aimed” at single-employer DC plans sponsored by unrelated small employers that have adopted a preapproved plan with the same provider. However, the statute doesn’t restrict group filing eligibility to these plans.
Conditions for DCG eligibility. The SECURE Act makes new group filings available to DC plans that have the same trustee, named fiduciary, plan administrator, plan year and investment options. The proposal adds conditions that narrow eligibility for the DCG filing option even further:
Filing requirements. A DCG would file Form 5500 with applicable schedules and attachments reporting aggregate information for the group, along with the new Schedule DCG. The DCG filing would include a separate Schedule DCG for each participating plan, with information ordinarily reported on the 5500 for an individual plan, such as identifying information, financial information, applicable plan characteristic codes and compliance questions.
When determining whether a DC plan is subject to the annual IQPA audit requirement for plans with 100 or more participants, the current rules count all employees eligible to participate. This can lead to odd outcomes: One plan with 85 participants might be exempt from the requirement, while another plan with 70 participants and less assets might be subject to audit simply because a larger number of employees are eligible to participate but choose not to.
DOL proposes to exclude employees who are eligible but not participating from counting toward the audit threshold. DC plans would instead determine large plan status based on the number of participants with account balances at the beginning of the plan year. Though the SECURE Act doesn’t require this change, DOL notes that the act’s expanded eligibility requirements for long-term, part-time workers will take effect in 2024, potentially subjecting many small plans to the audit requirement absent this relaxation of the rules.
Funded pension and welfare benefit plans filing Schedule H, Financial Information, must include an attachment to line 4i showing assets held for investment purposes at year-end and any assets that were both acquired and disposed of during the year. Although the instructions provide a suggested format, its use is currently optional, making the financial information difficult to access and analyze.
To make the financial information more easily accessible to government agencies and the broader regulated community, the proposal would require reporting line 4i information in a standard format through IFILE or using approved third-party software. The agencies hope that making the data more mineable will also let them detect fraud and abuse more easily, particularly for MEPs, in which assets may accumulate rapidly. The sponsor would file largely the same information as required by the current form, with some adjustments and clarifications, including such items as:
The proposal would also add new categories of administrative expenses to Schedule H itself, so DOL and IRS can gather better information about service-provider fees and other plan expenses. This change furthers DOL’s goals of increasing transparency and improving reporting of fees and expenses.
Although most of the changes focus on DCGs and MEPs, the proposal also includes a few other miscellaneous changes for retirement plan filings.
Several changes would help IRS target audits toward plans likely to have compliance issues:
PBGC-insured single-employer DB plans with more than 500 participants would have to answer two new questions on Schedule SB, Single-Employer Defined Benefit Plan Actuarial Information, reporting demographic and benefit information:
The proposal would also add a new question relating to the sponsor’s election of 15-year shortfall amortization relief under the American Rescue Plan Act of 2021 (Pub. L. No. 117-2). This question would replace the now-obsolete question about funding relief under the Pension Relief Act of 2010. Tabular information, such as the benefit projection and the age/service scatter for plans with active participants, could optionally be provided in a spreadsheet rather than as a PDF or text file.
The proposal would make a slew of changes to the reporting requirements for multiemployer DB plans. The significant changes include:
Like single-employer plans, multiemployer plans that provide tabular information, such as the benefit projection and the age/service scatter for plans with active participants, could opt to supply it in a spreadsheet rather than a PDF or text file.
Under current rules, plan and non-plan MEWAs providing medical benefits must provide custodial, financial and compliance information by filing the Form M-1 annually and after certain registration events. Plan MEWAs also report the following information on an attachment to Form 5500:
The proposal would move these items from Form 5500 to Form M-1, so that both plan and non-plan MEWAs providing medical benefits would report the information. Contribution information would be required on the Form M–1 annual filing (but not registration or other filings). Unfunded or insured MEWAs would remain exempt from reporting contribution information.
Plan MEWAs that do not provide medical benefits — and therefore do not file Form M-1 — would continue to report participating employer information on an attachment to Form 5500.
Comments are due Nov. 1. The agencies have asked for comments on the following specific issues:
DOL has also added a separate project to its regulatory agenda that would involve broader changes to Form 5500 annual reporting requirements in coordination with IRS and PBGC. Comments on these broader changes are outside the scope of the proposal.