DOL Proposes Major Overhaul to Form 5500 Reporting

Millions more employers may have to start filing the forms

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The federal agencies that govern employee benefit plans have proposed revisions to Form 5500 reporting requirements in order to improve and modernize the process. Millions of employers with presently exempt plans may be compelled to file annual reports under the new rules.

The Department of Labor (DOL), Internal Revenue Service (IRS) and Pension Benefit Guaranty Corp. are seeking to collect a broader array of plan information to increase transparency, improve data mining and modernize reporting requirements, according to proposed Form 5500 revisions that were published in the July 21 Federal Register. The agencies are targeting the 2019 plan year for implementation.

The revisions would greatly expand the type and amount of information that is being collected, said Douglas Neville, an employee benefits attorney with Greensfelder, Hemker & Gale in St. Louis. The burden on employers would be greater than it is now, particularly for certain small plans that are currently exempt from filing.

Most of that burden will fall on the service provider to make sure all the required information is captured and reported correctly, he noted. But that may translate into greater costs for employers.

Key Changes

With some exceptions, plan sponsors are required to electronically file Form 5500 and related schedules each year for employee benefit plans that are subject to the Employee Retirement Income Security Act (ERISA). Commonly offered plans include medical, dental, vision, life insurance, pension and 401(k) plans.

The agencies would now be asking for a lot more information then they traditionally have with respect to health benefit information, said Timothy Jost, a law professor who specializes in consumer health at Washington and Lee University in Lexington, Va. Jost said he thinks "it's important that this information be collected and be publicly available so employees and consumers know what is going on with health plans."

A key objective of the proposal is to "help plan sponsors, fiduciaries, and participants and beneficiaries better understand their plans and plan investments," according to a DOL fact sheet.

The agencies said they intend to:

  • Modernize financial reporting to improve the reliability and transparency of investments and other financial transactions.
  • Collect more information about group health plans through, among other things, eliminating the reporting exception for small insured and self-funded employee welfare plans.
  • Enhance data mining and analytics tools through computer-processing capabilities.
  • Improve service provider fee information.
  • Improve compliance with the Internal Revenue Code and ERISA. 

"The 5500 is in serious need of updates to continue to keep pace with changing conditions in the employee benefit plan and financial market sectors," Phyllis C. Borzi, assistant secretary for the Employee Benefits Security Administration, said in a statement.

Increased Scrutiny

"Employers should be thinking about whether their plans are in compliance," Neville said. This isn't something employers can do overnight. If they start thinking about this in 2019, it's going to be too late.

The proposed revisions will improve data mining by including searchable data fields, Neville explained. Easier access to data from these forms, however, means there will be more scrutiny moving forward. More minable data means that government agencies and plaintiffs' lawyers will be looking at this information. 

The agencies are also asking for more specific information about service provider fees, which have been the subject of government scrutiny and litigation, he added.

"The proposed changes should serve as a reminder to look at plan expenses very, very carefully," said Bob Seng, an attorney with Dorsey & Whitney in Minneapolis.  Seng serves on the policy board of the American Benefits Council in Washington, D.C.

"The DOL is clearly focused on shining all sorts of regulatory spotlights on what sort of fees are being passed to individual participants.

"Remember that all information in these filings is available to the general public—that includes the plaintiffs' bar," Seng said.

Some of the proposed changes will be helpful to employers and will simplify things, Neville said. He explained that there are a lot of confusing aspects to the current Form 5500.

As an example, he said there are arcane codes used to identify the different types of plans. The agencies want to eliminate those codes and replace them with simplified descriptions that will make it easier for employers.

Impact on Small Plans

The proposed changes will greatly increase the number of plans that are subject to the Form 5500 reporting requirements.

The greatest impact will be on small welfare plans—those with less than 100 participants—that are fully insured or unfunded, Neville said. Many of these plans are currently exempt from the reporting requirements, but the exemption will no longer apply under the proposed revisions.  

That will affect millions of plans, he said. The requirements won't be as extensive as they are for larger plans, but smaller plans will still have to file reports.

"That's going to be a big change for a lot of employers," he said.

Opportunity to Comment

Employers and other stakeholders will have until Oct. 4, 2016, to submit comments on the proposal.

"Employers with benefit plans uniquely affected by the proposals (especially those with complex retirement plan investments) are well-served to review the regulations and submit comments," Seng said.

Neville said employers with plans that are currently exempt may want to comment on whether it's worth the effort to complete additional forms. "Is the additional information being captured worth the burden?"

The changes aren't targeted to take effect until the 2019 plan year, meaning that employers won't submit the information until 2020. Furthermore, the proposed revisions are subject to change.

Neville said it's too soon now, but at some point six months to a year down the road when there is a better idea of what the final changes will be, employers should think about the additional costs they may incur.

"Employers should view these proposals as a sign of a very significant development," Seng said. But other than possibly commenting, they should "sit tight for now."

"The outcome of the elections will be relevant as it will direct fundamental thinking around enforcement at the DOL," he noted. "Let's get through the elections before people start changing Form 5500 software packages."

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