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Departments Propose Changes to Form 5500 and Schedules to Reflect SECURE Act and Additional Changes
Practical Law Legal Update w-032-6030 (Approx. 7 pages)
Departments Propose Changes to Form 5500 and Schedules to Reflect SECURE Act and Additional Changes
by Practical Law Employee Benefits & Executive Compensation
| Published on 20 Sep 2021 • USA (National/Federal) |
The Department of Labor (DOL), Treasury, and the Pension Benefit Guaranty Corporation (PBGC) have issued proposed regulations and forms revisions that would update and expand Form 5500 reporting obligations for retirement plans to reflect changes made by the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) and certain other revisions. The proposed changes affect defined contribution group (DCG) reporting arrangements, pooled employer plans, and multiple employer welfare arrangements (MEWAs), among others.
The DOL, Treasury, and PBGC (collectively, Departments) have issued proposed form revisions and regulations that would update and expand Form 5500 reporting obligations for retirement and health plans to reflect changes made by the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) and certain other revisions (86 Fed. Reg. 51488 (Sept. 15, 2021) and 86 Fed. Reg. 51284 (Sept. 15, 2021); see related press release, fact sheet, and Legal Update, Government Funding Legislation Includes the SECURE Act, Which Changes Retirement Plan Requirements).
For more information on Form 5500, see Practice Notes, Form 5500 for Employee Benefit Plans: Overview and Form 5500 Requirements for Retirement Plans.
SECURE Act Changes
As background, the SECURE Act allows all members of a group of plans to file a single annual report (the Form 5500) instead of multiple reports for each plan. The plans eligible are individual account or defined contribution plans that have the same:
- Trustee.
- Fiduciary or fiduciaries.
- Plan administrator.
The IRS and DOL were also directed to modify the Form 5500 requirements to implement the change by January 1, 2022. These changes apply to returns for plan years beginning after December 31, 2021.
In addition, the SECURE Act created a new multiple employer plan (MEP) called a pooled employer plan that allows unrelated employers to join together to participate in one MEP (see Practice Note, Multiple Employer Retirement Plans (MEPs)). The SECURE Act amends ERISA to define pooled employer plans and pooled plan providers, which administer this type of MEP.
Proposed Revisions to Form 5500, Schedules, and Instructions
The proposed changes would be the first significant change to the Form 5500 series since the 2009 forms. The 2021 changes are intended to reflect the SECURE Act changes affecting annual reporting and improve oversight and transparency.
(Although the Departments issued proposed regulations in July 2016 that would have expanded Form 5500 reporting obligations for health and retirement plans (including to add a new Schedule J for group health plans), those proposals were never finalized (81 Fed. Reg. 47534 (July 21, 2016); see Legal Update, Proposed Changes to Form 5500 and Schedules Would Expand Benefit Plan Reporting).)
Combined Annual Report for Group of Plans
The proposed revisions would implement the SECURE Act provision allowing groups of defined contribution pension plans to file a combined annual report. Specifically, the proposal would:
- Amend the Form 5500 and instructions to add "defined contribution group (DCG) reporting arrangements" as direct filing entities (DFEs).
- Add a new proposed Schedule DCG (Individual Plan Information) that would need to be included for each plan included in the DCG filing.
DCGs would generally be subject to similar rules as large defined contribution pension plans. Under the proposal, small DCGs would not have an option to file as small plan filers, though the Departments request comments on this topic. In addition, plans included in the DCG must be defined contribution pension plans and meet certain other requirements (for example, having the same plan administrator and named fiduciaries).
Additionally, an independent qualified public accountant (IQPA) audit would be required for the DCG's trust (see Practice Note, Audit By Independent Qualified Public Accountant for Qualified Retirement Plans). If the participating plans are large plans, each individual plan would also be subject to a separate IQPA audit.
Multiple Employer Retirement Plans (MEPs) Reporting
The proposed revisions would also update the Form 5500 and instructions to reflect the SECURE Act's addition of pooled employer plans as a type of MEP (see Practice Note, Multiple Employer Retirement Plans (MEPs): Pooled Employer Plans Under SECURE Act). A new proposed Schedule MEP (Multiple-Employer Pension Plan Information) would include information on:
- The type of MEP (for example, pooled employer plan, association retirement plan, or professional employer organization (PEO) plan).
- Participating employers, including their aggregate account balances.
- If applicable, whether the pooled employer provider has filed Form PR (Pooled Plan Provider Information).
Schedule MEP would be used for 2022 plan year filings. As an interim method for the 2021 plan year, MEPs would include the required information as a non-standard attachment to their Form 5500.
Under the proposal, all MEPs would be required to file the Form 5500 even if they would otherwise be eligible to file Form 5500-SF.
The SECURE Act permitted the DOL to issue regulations implementing a simplified report for MEPs with fewer than 1,000 total participants, if each participating employer had fewer than 100 participants. The DOL indicated it is not planning to issue regulations permitting a simplified report but invites comments on this topic.
Tax-Qualified Retirement Plans
Regarding tax-qualified retirement plans, the Departments have proposed amending 2022 Form 5500, Form 5500-SF, and proposed Schedule DCG to include questions asking whether:
- The employer aggregated plans when performing nondiscrimination and coverage testing under Internal Revenue Code Sections 401(a)(4) and 410(b) (26 U.S.C. §§ 401(a)(4), 410(b); see Practice Note, Requirements for Qualified Retirement Plans: Nondiscrimination Rules).
- 401(k) plan sponsors used design-based safe harbor rules or the "prior year" or "current year" Actual Deferral Percentage (ADP) Test.
- The employer adopted a pre-approved plan with a favorable IRS opinion letter and, if so, the opinion letter's date and serial number (see Practice Note, Pre-Approved Plans: Design Choices, Tax-Qualification Rules, and Best Practices).
PBGC-Covered Defined Benefit Plans
The proposed changes would also affect reporting by PBGC-covered defined benefit plans. These changes include modifying:
- Schedule MB (Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information) to:
- add a requirement to report the interest rate used in determining the present value of vested benefits, for purposes of withdrawal liability determinations (if applicable);
- ask whether an expense load is included in normal cost and, if so, whether it is determined as a percentage of normal cost, a dollar amount, or another method;
- require additional demographic, benefit, and contribution information for plans with 500 or more participants on the valuation date;
- change the "age/service" scatter attachment; and
- clarify the language concerning when plans in critical status or critical and declining status are projected to become insolvent or emerge from insolvency.
- Schedule MB instructions to require an attachment detailing total withdrawal liability by date and distinguishing between periodic withdrawal liability amounts and lump sum withdrawal liability amounts.
- Schedule SB (Single-Employer Defined Benefit Plan Actuarial Information) to:
- require additional demographic, benefit, and contribution information for plans with 500 or more participants; and
- require information about elective funding relief under the American Rescue Plan Act of 2021 (ARPA-21), rather than under the Pension Relief Act of 2010.
- Schedule R (Retirement Plan Information) to require multiemployer pension plans subject to minimum funding standards to provide information about the ten employers with the largest contributed amounts, even if the employer's contribution was less than 5% of the total contribution amounts (see Practice Note, Multiemployer Pension Plans: Funding Rules).
MEWA Reporting of Participating Employer Information
The proposed changes also result in a reporting requirement for participating employer information for MEWAs that varies depending on the type of benefits provided by the MEWA.
For plan years beginning on or after January 1, 2022, the DOL would require MEWAs (both plan and non-plan MEWAs) that offer or provide coverage for medical benefits to provide participating employer information on Form M-1, rather than as an attachment to Form 5500. Form M-1 (Report for Multiple Employer Welfare Arrangements (MEWAs) and Certain Entities Claiming Exception (ECEs)) is the annual report used to furnish information about MEWAs. Form M-1 would include additional questions requiring plan and non-plan MEWAs that offer medical benefits to:
- Identify each participating employer in the MEWA by name and EIN.
- Provide a good faith estimate of each participating employer's percentage of total contributions made by all participating employers during the plan year.
Contribution information would not be required from unfunded or insured MEWAs.
Under the proposals, reporting of participating employer information on Form 5500 for plan MEWAs that provide other benefits (for example, life or disability benefits) would continue to be required as an attachment to Form 5500. Unless unfunded or insured, these arrangements would continue reporting:
- Employer identifying information.
- A good faith estimate of each participating employer's percentage of total contributions made by all participating employers during the plan year.
For the 2021 plan year, all plan MEWAs would still report participating employer information as a non-standard attachment to the 2021 Form 5500.
Other Changes
Other proposed changes include amending:
- Form 5500, Form 5500-SF, and the instructions to provide that filers should use the number of participants and beneficiaries with account balances at the beginning of the plan year, rather than the number of eligible participants, in determining whether a defined contribution plan may file as a small plan.
- Schedule H (Financial Information) to require a standardized electronic filing format for schedules of assets held for investment that must be attached to the schedule.
- Form 5500, Form 5500-SF, and IRS Form 5500-EZ to require additional information about the plan's trust, including the trust's name, the trust's employer identification number (EIN), and the trustee's or custodian's name and telephone number.
Proposed Regulations
The DOL also issued proposed regulations, which are necessary to implement the proposed forms revisions. The proposed regulations would conform the current regulations to the proposed forms revisions to implement the changes to the Form 5500 and its schedules.