Groups Say Form 5500 Proposed Updates Too Burdensome

The American Benefits Council, the Committee on Investment of Employee Benefit Assets (CIEBA), the Society for Human Resource Management (SHRM) and the ERISA Industry Committee (ERIC) have asked regulators to lighten up on some of the requirements that would be imposed on plan sponsors by proposed modifications to Form 5500.

Last July, the U.S. Department of Labor’s (DOL) Employee Benefit Security Administration (EBSA), along with the Internal Revenue Service (IRS) and the Pension Benefit Guaranty Corporation (PBGC) published a notice of proposed changes to its annual reporting regulations under Title I of the Employee Retirement Income Security Act (ERISA).

The proposal included improvement on reporting regarding alternative investments, hard-to-value assets, and investments through collective investment vehicles. “The proposed changes are designed to foster ongoing monitoring of employee benefit plans by employers, plan fiduciaries, and participants and beneficiaries, and improve the ability of the Agencies to fulfill their statutory oversight roles,” the agencies said in a fact sheet. 

In their letter, CIEBA, SHRM and ERIC suggested the agencies should make investment disclosures consistent with other reporting requirements. They noted that in Accounting Standards Update 2015-12, the Financial Accounting Standards Board (FASB) changed its reporting requirements so that employee benefit plans only have to report their investment holdings by their general type, not by other, hard-to-measure information such as the nature of the investments and their risks. “The Agencies are now proposing to create a new, more burdensome system for investment-related disclosures. As a result, employers will have to expend resources to report the same assets in two separate ways. Not only is that costly and confusing, but it is also redundant to what is already being disclosed in the plan financial statements under the FASB requirements,” the groups argue.

The agencies’ proposal would harmonize reporting on Form 5500 Schedule C with the now final disclosure requirements in DOL’s service provider disclosure regulation. “The proposed updates are intended to provide a powerful tool for improved evaluation of service arrangements involving investments, recordkeeping, and other administrative services. The Schedule C reporting requirements for employee benefit plans would also more closely track the information that plan service providers are required to disclose to plan fiduciaries,” the agencies said.

In their letter, the groups say they agree that this will help decrease the burden of having to report on a large number of entities. However, the large amount of information about the service providers that’s being required in Schedule C and in other parts of the revised form is still far too extensive, and it will only add to the high reporting burden, they say. Employers do not currently collect much of the data required to answer the new questions. They will have to develop new systems not only to collect information but also to process and verify it. Employers will also have to spend considerably more time soliciting information from dozens or even hundreds of vendors. Moreover, since many of the new questions are ambiguous or confusing, employers will need to engage legal counsel, which will increase costs. The organizations are concerned that employers will be forced to pass that increase in cost on to plan participants and that participants may actually see their fees increase.

Likewise, the American Benefits Council says the proposed revisions significantly increase the amount of information necessary to complete the forms, as well as the number of plans required to report and the way in which such plans must report. “Virtually all of the Council’s members would face substantial implementation costs and administrative burdens to meet the requirements of the proposed revisions,” it says.