Significant Changes Proposed for Employee Benefit Plan Reporting


Government auditors would have much more information to sift through under proposed changes to the annual reporting requirements for employee benefit plans.

The proposed changes relate to the Form 5500 Annual Return/Report, which retirement and health and welfare plan sponsors must file annually with the Department of Labor, which shares the data with the Internal Revenue Service and the Pension Benefit Guaranty Corporation.

The changes proposed on July 11 by these agencies would generally apply to plan years beginning on Jan. 1, 2019.

The agencies rely on the Form 5500 as the principal source of information and data concerning the operations, funding and investments of more than 806,000 pension and welfare benefit plans.

In proposing the changes, the agencies said they are needed because the Form 5500 has not kept pace with market developments and changes to employee benefit laws.

“The proposed changes will help provide the IRS a potential roadmap in case the plan is audited to highlight potential mistakes,” Joseph Urwitz, partner at McDermott Will & Emery in Boston, told Bloomberg BNA Aug. 2.

Near-Term Impact

While most of the proposed changes wouldn’t take effect until 2019, some changes could have more immediate impact, Urwitz said. The 2019 proposed changes, for example, includes language requiring plan sponsors to identify whether the plan failed to pay benefits when due, he said.  Unpaid benefits to missing participants who cannot be located using the steps specified in DOL Field Assistance Bulletin 2014-01 will not be considered a failure to pay benefits when due. However, the IRS published a clarified instruction on July 29 suggesting that these requirements might be looked at for the 2015 Form 5500 as well, Urwitz said.

The website document included a suggestion that terminated defined contribution plans, employers and plan administrators of ongoing plans might want to consider periodically using one or more of the search methods described in the FAB in connecting with making reasonable efforts to locate missing participants eligible for required minimum distributions.

“Conducting participant searches using the steps in the Field Assistance Bulletin could impose significant burdens on plan sponsors,” particularly large plans with several billions of dollars in assets or even several hundred participants, he said.

The proposed 2019 Form 5500 changes also would mandate greater transparency as to the types of investments that plans are making, including expanded categories for reporting derivatives, foreign investments and hedge fund investments, Urwitz said. Plan sponsors would also have to disclose more about various elements of plan expenses, like audit, recordkeeping and legal fees that are generally charged back to plans and plan sponsors, he said.

If plan-related expenses are passed back to the participants, the plan sponsor would have to indicate on the Form 5500 how that allocation was determined, for example, whether the plan sponsor divided the number of participants by the total fees or whether the allocation was based on each participant’s assets in the plan, he said.

Plan sponsors should put systems in place now in anticipation of the 2019 changes, particularly regarding the missing participant issue, Urwitz said. “Plan sponsors should think about how they can implement each of the search steps that are in the DOL 2014 guidance,” he said.

New Schedule J for Health Plan Sponsors

The major change for health plan sponsors under the proposal is the addition of Schedule J, Amy Gordon, a partner in McDermott Will & Emery’s Chicago office, told Bloomberg BNA Aug. 2. Information required on that form would include the number of individuals offered and receiving COBRA continuation health coverage; whether the plan covers spouses, children and/or retirees; the number of participants and beneficiaries covered at the end of the plan year; and whether the plan requires participant contributions or is 100 percent employer paid.

Health plan sponsors would also have to disclose whether the plan is grandfathered under the Affordable Care Act, and whether it offers a high-deductible health plan, health reimbursement arrangement or flexible spending arrangement, she said.

Schedule J would also require more information on refunds and compensation to service providers, and include a box to indicate whether the plan has a stop-loss policy associated with the plan’s obligation to pay health benefits as well as the attachment points (the dollar amounts when the stop loss coverage kicks in), she said.

Health plans would need to supply further detail related to claims, such as how many benefit claims were submitted, appealed, approved and denied as well as the total dollar amount of claims paid during the plan year.

Health plans also would have to affirm that the information disclosed to plan participants in the summary plan description, summary of material modifications and summary of benefits coverage is accurate, Gordon said.

Health plans also would have to make more disclosures concerning compensation paid to service providers to ensure that the compensation is reasonable. This is a way for the DOL to address the service provider compensation issue in the absence of a regulation for health plans comparable to the DOL’s 408b-2 regulation for pension plan service providers, she said.

Finally, the proposed changes would also tinker with the codes in the Form 5500 that plan sponsors have to fill in depending on which health or welfare benefit they offer, Gordon said. The codes would become more precise under the 2019 proposed changes, (e.g. wellness programs, preventive care, etc.) replacing the “other” code currently in use.

See related story, Agencies Propose Modernized Forms for Benefit Plan Reporting.

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