Current Thinking

Big Changes Expected in Form 5500 Reporting

A blog by Pete Swisher, CFP, CPC, Senior Vice President, Pentegra Retirement Services – July 28, 2016

It is impossible to figure out what a plan is paying just by looking at the Form 5500. That will still, probably, be true—but the picture will hopefully be a bit clearer in 2019 and beyond.

On July 11th, the DOL, the IRS, and the PBGC jointly issued proposed changes to the Form 5500. The comment period for the proposal ends on October 4th, 2016, and the new rules would go into effect for plan years beginning in 2019 and beyond. The proposed changes seek to improve publicly available information about employee benefit plans and reinforce the important duties plan fiduciaries have under ERISA to prudently operate plans and monitor service providers. The table below highlights our first take at what the proposal means. Short version: this is big. It goes hand-in-hand with the DOL’s efforts since 2007 to bring greater transparency to retirement plans and reduce conflicts of interest.

Current 5500 RulesProposed 5500 Rules
“Red flag” questions call for sponsors to disclose if they have committed prohibited transactions, for exampleMore red flag questions; more mandatory disclosure of the failure to follow certain rules
408b-2 disclosures bear no resemblance to Schedule A and C of the Form 5500The Form 5500 would be harmonized with the fiduciary disclosures under 408b-2
Lots of fees are missing from the 5500Disclosure loopholes are closing, including the ability to do a check-in-the-box disclosure about revenue sharing
Only large health and welfare plans need a 5500All health and welfare plans regardless of size will file
Minimal data about non-traditional investmentsMore data about Collective Investment Funds, illiquid investments, alternatives, and more
Little or no separate reporting on self-directed brokerage accounts (SDBA)Mandatory inclusion of amounts in SDBA and a breakdown by underlying assets
Service providers making less than $5,000 need not be included on Schedule C service provider disclosureThey kept this one, which we find curious. But they changed the rule about who files Schedule C—all plans regardless of size, will have to file it. They just won’t have to include providers under $5,000.
Indirect compensation can be reported by formula or “check box”Not anymore. Must provide dollar amounts paid by source.
The audit requirement is based on a definition of “eligible participant” that no one but us pension professionals understandsThe new trigger for an audit would be 100 participants with account balances as of the beginning of the year. Much simpler.
The old Schedule E for ESOPs was eliminated in 2009It’s back.
Minimal reporting on the types of investment and how they are usedMust disclose how many DIAs, how many are index funds, and usage of QDIAs.

To summarize the big picture:

  • Providers will need to collect much more information
  • Sponsors will have to answer more questions
  • Indirect compensation will be much more transparent and explicit
  • More plans will have to file
  • The filings will be much more detailed
  • The regulators are relying increasingly on the 5500 as an oversight tool, and it behooves providers to get it right.


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