Welcome
Form5500help.com is designed to complement official guidance and other internet resources available to preparers of Form 5500 for qualified retirement and welfare benefit plans.

Every year, businesses and organizations that sponsor an employee benefit plan subject to ERISA must file Form 5500. These forms are filed with the Employee Benefits Security Administration’s EFAST operation in Lawrence, Kansas without regard to the plan year. All current, late, or amended filings are processed by EFAST.

Plan sponsors and practitioners -- employee benefit consultants, accountants, attorneys, and other service-providers -- often find the instructions to the Form 5500 to be vague or ambiguous resulting in many hours of frustration while preparing the reports for both pension and welfare benefit plans. Form5500HELP.com offers practical advice to consider when completing the various forms and schedules associated with these filings.

Form 5500 Update: Revisions to Instructions for
2008 Actuarial Schedules and Schedule R
and Filings for Short 2009 Plan Years
Supplemental instructions have been issued for the 2008 Form 5500, specifically with regard to Schedule MB, Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information (IRS Notice 1389); Schedule R, Retirement Plan Information (IRS Notice 1388), and Schedule SB, Single-employer Defined Benefit Plan Actuarial Information (IRS Notice 1391). The revisions have been incorporated into the 2008 instructions and, along with the notices, may be found at http://www.dol.gov/ebsa/5500main.html or http://www.irs.gov/pub/irs-pdf/i5500.pdf.

Revisions Apply to Actuarial Schedules Signed After December 17, 2009
Notices 1389 and 1391 specify that it is not necessary to file a revised 2008 Schedule MB or SB if the schedules are completed using the original instructions and signed by December 17, 2009. For multiemployer plans, if the accumulated reconciliation account reported on line 9o(3) of the 2008 Schedule MB was calculated using the originally published instructions, then the 2009 Schedule MB must include an attachment that reports the corrected accumulated reconciliation account for 2008 using these revised instructions.

Schedule SB changes affect only the following lines:
Line 2b, Actuarial Value of Assets;
Line 6, Target Normal Cost;
Line 15, Adjusted Funding Target Attainment Percentage;
Line 21b, with regard to the interest rates used to measure the funding target;
Line 25, Change in Funding Method (most plans will check “Yes” but no attachment is required);
Line 32a, Shortfall Amortization Bases and Amortization Installments; and
Line 38, Interest-Adjusted Excess Contributions for Current Year.

Revisions to Schedule R Instructions
Notice 1388 describes revisions to the instructions for the 2008 Schedule R; however, these changes affect only multiemployer plans with a Funding Improvement or Rehabilitation Plan. For the most part, the revisions clarify the reporting requirements as a result of Sections 204 and 205 of the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA).

Short 2009 Plan Year Filings
At the ASPPA annual conference, Scott Albert (Chief, Division of Reporting Compliance/EBSA) confirmed that any plan that had a short 2009 plan year may file Form 5500 for that short plan year using the 2008 paper forms so long as the filing sent to Lawrence, Kansas is postmarked no later than December 31, 2009. Thereafter, all Form 5500 reports for 2009 plan years--short or otherwise--must be filed electronically using the 2009 forms and schedules and the new EFAST2 electronic filing system.

Any defined benefit plan with a short plan year for 2009 should consider the revisions to the instructions for Schedules SB and MB, described above, in determining whether it has properly filed Form 5500 for its short plan year.

Amended and Late Filings
The current EFAST system will continue to accept paper filings for any late or amended Form 5500 reports through December 31, 2009 (postmark). Thereafter, the new EFAST2 electronic system must be used to file such reports, regardless of the filing year although there are limited exceptions for 2008 plan years.

The Voluntary Delinquent Filer Compliance (VDFC) program will continue to be available for late filers, even after the implementation of EFAST2 on January 1, 2010. You may find more information about the DFVC at http://www.dol.gov/ebsa/newsroom/0302fact_sheet.html.

Let Your Clients Know the E-Filing of
Form 5500 is Coming!
During several recent webcasts, I promised to share a draft of my client communication about EFAST2 with you. This write-up may feel bare bones, but I wanted to isolate what I thought clients would be most interested in. Clients generally don't care what my process has to be; rather, they want to know how it directly affects them.

Here it is! [click here]

Feel free to use this text in developing your own message to clients. You might want to delay the distribution of your communication until later this year since the EFAST2 and it's credential system are not operational until January 1, 2010.

Tips for July 31 Filings
The 2008 Form 5500 filings for calendar year plans are due in just a few weeks. Here are a few reminders and tips to make your work go smoothly.

Annual Funding Notice for Small PBGC-Covered Defined Benefit Plans
Small plan filers (including those filing under the 80/120 rule) are subject to a timing rule that is somewhat -- but not entirely -- similar to the SAR rule. For these plans, the annual funding notice must be provided no later than the earlier of:

the date on which the Form 5500 report is filed, or
the latest date the annual report could be filed, including extensions

It should be noted that a “small plan filer” for this purpose is determined based upon the participant count for every day of the plan year prior to the year for which the Annual Funding Notice is issued. For 2008 plan years, that means you look at the participant count during the 2007 plan year.

Ffor more discussion of the Annual Funding Notice, the EBSA has helpfully provided the model notices in Word format.
[click here] for the single-employer model notice. [Appendix A]
[click here] for the multiemployer notice. [Appendix B]

The traditional SAR format should be used for defined benefit plans that are not subject to PBGC insurance, which generally includes those plans that cover professional services companies (think lawyers and doctors, for example) with no more than 25 employees. Of course, owner-only defined benefit plans are not subject to the SAR or Annual Funding Notice rules.

Regulations for SAR content may be found at ERISA Reg. Section 2520.104b-10(d)(3).

Additional Language for Annual Funding Notice
In order for a small defined benefit plan to qualify for the waiver of the report of an independent accountant, the Annual Funding Notice must include:

the name of each regulated financial institution holding or issuing qualifying plan assets and the amount of such assets as of the end of the plan year;
the name of the surety company issuing the fidelity bond, if the plan has more than 5% of its assets in non-qualifying plan assets;
a notice that participants and beneficiaries may, upon request and without charge, examine or receive from the plan administrator evidence of the required bond and copies of statements from the regulated financial institutions; and
a notice that participants and beneficiaries should contact the EBSA Regional Office if they are unable to gain access to the information described in the last bullet point.

For more information, see page 41 of the 2008 Instructions for Schedule I, right hand column, under Condition 2.

Intranet and Internet Posting Required for Defined Benefit Plans
PPA §504(a) added new ERISA §104(b)(5) and requires internet and intranet posting of a defined benefit plan’s 2008 Form 5500 actuarial information. All Schedules SB, MB or other actuarial information schedules filed for 2008 plan years received by the Department of Labor’s EFAST center will be posted on a public disclosure website at within 90 days of EFAST’s receipt of the filing.

The law requires similar intranet posting by the plan sponsor (or the plan administrator on behalf of the plan sponsor); however, such intranet posting is only intended to be for communication with plan participants and not the public. If a plan sponsor does not maintain an intranet, then no posting is required. The statute does not clearly specify a 90-day window for intranet posting and the DOL has not issued any guidance in this regard. To be on the safe side, the intranet posting should be made within 90 days of the date the 2008 Form 5500 is submitted to EFAST for processing. Note that only the actuarial schedule (Schedule SB or MB) need be posted; attachments do not need to be uploaded to the intranet.

Caution! Actuaries should consider whether Schedule SB should be filed by one-participant plans filing Form 5500-EZ. While the actuarial certification must be maintained with the sponsor’s records, filing a one-participant Schedule SB for 2008 will subject that information to posting on the public disclosure website. The requirement to include Schedule B with Form 5500-EZ was eliminated beginning with 2005 plan year filings.

2009 Short Plan Year Filings
It’s common knowledge that mandatory electronic filing rules apply to plan years beginning in 2009. The agencies, however, have anticipated that filers with due dates before January 1, 2010 -- the date the EFAST2 filing system is expected to go “live” -- will not want to delay filing for short 2009 plan years. This is particularly true where the short plan year arises on account of a plan termination which may be coincident with cessation of business operations by the plan sponsor.

Option #1. Short 2009 plan year filers with due dates to submit their 2009 filing before January 1, 2010 may use plan year 2008 forms and submit their 2009 filing to EFAST on or before the due date for their short plan year filing. Filings received after June 30, 2010 will be manually entered into the governmental system.

Option #2. Alternatively, short 2009 plan year filers with due dates before January 1, 2010 are given an automatic extension of time to electronically file their complete 2009 Form 5500 until 90 days after the 2009 filing system is available on the DOL website. The DOL notes that this special extension is being granted to encourage short plan year filers to file electronically under the EFAST2 system thereby eliminating the need for manual data entry on their end.

Although the language suggests that only those short 2009 plan year filings with a due date before January 1, 2010 may file on paper using the 2008 form, I’ve been told that it’s reasonable to assume that DOL will not reject any filings made on paper before the cutoff date.

No More Correspondence from EFAST
Effective July 1, 2009, EFAST (in Lawrence, KS) has shut off its system that generates correspondence to plan filers when there are apparent deficiencies in the filing, based upon the system’s analysis of the report. These letters usually ask for clarification of data entry or missing schedules or other attachments and follow-up correspondence is issued about 30 days after the initial letter.

Although this correspondence protocol will cease, the EFAST system will still look for errors or inconsistencies in the filings. In some instances, correspondence may be issued by the Washington office of EBSA -- it’s important to respond to such inquiries immediately! These letters may have much stricter response time limits and it’s possible that penalties may apply for failure to act quickly.

Upcoming Webcast
Janice will be presenting a 100-minute Web cast for NIPA ( on Thursday, August 20, 2009 beginning at noon (eastern)....Is Your Firm Prepared to Manage EFAST2 and the 2009 Form 5500 Changes? By attending this Web event, you will learn:

How EFAST2 e-filing will impact your work process and your clients
What your firm should be thinking about now to prepare for 2009 filings
Which plans may use the new Form 5500-SF
How to approach the revised Schedule C
Other form and schedule changes to note
How to file Form 8955-SSA and Form 5500-EZ with IRS

This Year's Benefit Plan Audit Headache: FAS 157
What’s in store as plan sponsors and service providers gear up for the annual benefit plan audit season? For 2006 plan years, the implementation of SOP 94-4-1 affected financial statements for defined contribution plans investing in fully benefit responsive contracts. While reviewing 2007 financial statements, auditors increased scrutiny of internal controls and DOL intensified its attention to alternative investments. For 2008 plan years, you need to become familiar with FAS 157.

What is FAS 157?
The FASB Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157") establishes a framework for measuring fair value and expands disclosures about fair value measurements in the notes to a plan’s financial statements. As a practical matter, FAS 157 must be implemented for all plans that prepare financial statements, without regard to whether the auditor is engaged to perform a full scope or limited scope audit. FAS 157 applies for fiscal years beginning after November 15, 2007.

The full text of FAS 157 is available at The AICPA’s Employee Benefit Plan Audit Quality Center has developed several very useful FAS 157 tools that provide additional information for plan sponsors and service providers trying to understand the new rules.

How does FAS 157 define “fair value?”
Fair value is in the eye of the beholder -- either the buyer’s, as an acquisition or entry price, or the seller’s, as a sales or exit price. FAS 157 defines fair value as the price from the perspective of the seller - the price that would be received to sell an asset in an orderly transaction between market participants as of the valuation date.

While FAS 157 defines fair value differently than in the past, in many cases there will be no difference in the fair value amounts reported on the plan’s financial statements. The most visible change is the added disclosures that will appear in the notes to the audited financial statements.

It is important to note that, as has always been the case, the plan’s management retains the ultimate responsibility for the oversight of the fair values reported in the plan’s financial statements, including determining the adequacy of the related note disclosures. Plans that invest only in mutual funds and equity securities with readily determinable fair values should generally find it easier to implement FAS 157 than plans for which there is little, if any, market activity at the measurement date, such as limited partnerships, private equity funds, real estate and the like.

Do you understand where the numbers come from?
This is the question auditors will pose to plan sponsors and that might come back to you as the service provider. FAS 157 establishes a fair value hierarchy that distinguishes between quoted market prices and investment values based upon observable inputs compared to fair values established based on the plan’s own assumptions about the factors -- or unobservable inputs -- that market participants would take into account in pricing the asset, based on the best information available in the circumstances.

These three categories, then, translate into Level 1 Inputs (Quoted Prices), Level 2 Inputs (Observable Inputs) and Level 3 Inputs (Unobservable Inputs) and each plan investment must be dropped into one of these buckets.

By far, the easiest classification is the Level 1 Input. If the value of an asset is based on prices quoted on the NYSE, NASDAQ or the Chicago Board of Trade -- national recognized pricing services - that investment belongs in the Level 1 Input category. Exchange traded mutual funds and equity securities fall into this group. However, even if a price is quoted on a national exchange, a lightly traded security may not meet the test for Level 1.

Level 2 Inputs are inputs other than quoted market prices included in Level 1 that are either directly or indirectly observable for the asset. This is why it’s important to understand where the numbers come from. For example, common/collective trust funds (CCT) and pooled separate accounts (PSA) generally follow written procedures for establishing the unit value on a periodic basis (i.e., daily, monthly, etc.) although the CCT or PSA is not, itself, traded on an established market as described above. It also is important to know whether there are liquidity restrictions and whether the funds are open to new investors. The inputs, then, are observable but do not solely rely on quoted market prices to establish fair value.

Plans investing in CCTs and PSAs will want to review the audited financial statements of the fund to consider that fund’s FAS 157 disclosure. In addition, those financial statements may provide additional information to aid the plan’s management in designating its own FAS 157 input level.

Level 3 investments are based on inputs that are termed unobservable. Limited partnerships, hedge funds, and venture capital investments most likely fall into this category because of limited trading. Values reported on the custodial statement may be merely a pass-through of the values set by the issuer or fund manager, which may not be fair value or may not be as of the plan’s year end. In this case, the plan’s management needs to understand how the value was determined so as to evaluate whether it is a reasonable estimate of the investment’s fair value.

Are participant loans subject to FAS 157?
Yes, loans are considered “investments” and thus are subject to FAS 157. For practical reasons loans are typically recorded on the financial statements as the remaining outstanding balance as a proxy for fair value, on the assumption that the two values are not materially different. In theory, though, the outstanding loan value is not fair value because interest rates change every day. A common fair value method for loans would discount the cash flow of the loan based on an assumed interest rate; therefore, unless the assumed interest rate used in the valuation was exactly the same as the interest rate charged on the loan that is being fair valued, fair value does not equal the outstanding balance.

Beyond the issue of establishing fair value, though, what is an exit price for a participant loan? There really is no market (quoted prices or observable inputs) for participant loans, and so it’s likely these assets fall into the Level 3 Input category. This is a highly debated issue right now, so expect there will be arguments made that consumer interest rates are observable and so participant loans would be Level 2.

How should service providers prepare for FAS 157?
Most trustees and custodians are anticipating the need to assist plan sponsors in evaluating the various investments of plans in light of FAS 157. Many service providers are expanding their audit packages to include a recommended FAS 157 fair value hierarchy.

For service providers who rely on other institutions or alliance partners for investments, start gathering all of the information you can about the pricing mechanisms applied to assets held by your customers’ plans. This may include audited financial statements, annual reports, or prospectus information. Custodians generally have a written description of pricing sources and methods for each type of investment, so be sure to capture that information.

More complicated investment vehicles, such as private equity funds and venture capital investment companies or partnerships and limited partnerships typical utilize written agreements spelling out call commitments and withdrawal restrictions and, because of the fund’s potentially illiquid nature, may employ a valuation specialist to report on projected cash flows and produce an industry analysis.

Steps for the plan sponsor
Any plan sponsor drafting its plan’s financial statements would be well advised to contact their auditors to begin a dialogue about the requirements of FAS 157 and to learn how their auditors will approach this subject during the audit process. The plan’s management also should review any FAS 157 related materials provided by their service providers and ask for more information, if necessary.

The plan sponsor must classify all plan assets according to the FAS 157 fair value hierarchy and draft notes to be incorporated into the plan’s financial statements to appropriately disclose such determinations.

In Conclusion
Each year, the employee benefit plan audit work becomes more complex causing plan sponsors and service providers to devote more time and resources to the effort. Get acquainted with FAS 157 now to save yourself from headaches this summer!

UPDATE: Form 5558 Procedures Change
In the last two weeks, we provided information about a recent procedure change at IRS’s Ogden, UT facility with regard to Form 5558. Recently, plan sponsors have been receiving correspondence from IRS when a Form 5558 was properly filed to extend the due date for filing Form 5500.

I have been able to confirm that IRS is working to have the language in the notice modified to advise plan sponsors that they do not need to attach the acknowledgement letter to their Form 5500 filings. The language instructing filers to do so is an error and will be removed soon. As it has been in the past, a copy of the Form 5558 must be attached to the Form 5500 filing.

It will take some time for this programming to be accomplished, but rest assured that both the IRS and the DOL are on it!

Form 5558 Procedures Change
In January 2008 the IRS issued a revised Form 5558 that incorporated the automatic approval rules for extending the deadline to file Form 5500. Under that document, filers of Form 5558 would receive acknowledgement and approval of the request only to the extent that the Form 5558 was filed to extend the due date for filing Form 5330.

Without much fanfare, the rules changed again in January 2009. When Form 5558 is filed, the plan sponsor is receiving IRS correspondence which states the following:

We have received your Form 5558, Application for Extension of Time to File an Employee Plan Return, for the return (form), plan number, and tax period identified above, and have approved your request. We have extended the due date to file your return to (IRS inserts mo/day/year).
It is important to attach a copy of this letter and a copy of your Form 5558, Application for Extension of Time to File an Employee Plan Return to your return when you file it. It will show the Department of Labor (DOL) that we granted you an extension of time to file your return. If a copy of the extension and notice is not attached to the return, it could be processed as a late filed return.
If you have any questions, please call us at the number shown above, or you may write us at the address shown at the top left of this letter.

IRS advises that this procedure was implemented in January 2009. When EFAST2 (the fully electronic filing system) starts up in January 2010, filers will not be required (or allowed) to attach copies of Form 5558 to their electronic filings, so IRS is improving how it tracks Form 5558 filings. This new procedure includes sending acknowledgement letters to filers.

This will undoubtedly cause some re-thinking of procedures currently followed by service providers with regard to delivery of signature-ready Form 5500 reports. We urge practitioners to follow the instructions in the IRS correspondence to alleviate future correspondence from DOL.

Annual Funding Notice Replaces SAR for PBGC-Covered Plans
When the Pension Protection Act (PPA) was signed into law in August 2006, it contained many provisions which required the DOL to issue guidance within one year. While a nice goal, it was hardly achievable given the scope and breadth of PPA; both IRS and DOL were left to prioritize the issues for which guidance was needed and to tackle them to the best of their ability.

Section 501(a) of the PPA amended ERISA §101(f) for plan years beginning after December 31, 2007, replacing the SAR with an Annual Funding Notice for PBGC-covered pension plans. Fortunately, the DOL heard concerns of the actuarial and benefits community and so issued Field Assistance Bulletin (FAB) No. 2009-01 on February 10, 2009. The FAB included Frequently Asked Questions (FAQs) along with model notices for both single-employer and multiemployer plans and stated that, pending further guidance, use of an appropriately completed model notice will satisfy the new content requirements.

The FAB may be found at http://www.dol.gov/ebsa/regs/fab2009-1.html.

Which Plans Have PBGC Coverage?
Under Title IV of ERISA, the PBGC insures workers in most private-sector defined benefit plans in the event that their plans do not have sufficient assets to pay benefits when the plan is terminated because of the bankruptcy or other financial distress of the sponsoring employer(s). PBGC insures both single-employer and multiemployer defined benefit plans.

There are some exceptions to PBGC coverage, including:

Plans established and maintained exclusively for substantial owners -- Form 5500-EZ filers among them -- are not covered by PBGC. Generally, a substantial owner is anyone who owns the entire interest in an unincorporated business, or a partner or shareholder who owns (directly or indirectly) more than 10 percent of a partnership or corporation.
Plans of professional services employers that have always had 25 or fewer active participants are not insured. This includes physicians, dentists, chiropractors, osteopaths, optometrists, other licensed practitioners of the healing arts, lawyers, public accountants, public engineers, architects, draftspersons, actuaries, psychologists, social or physical scientists, and performing artists.
Unfunded plans are not insured.

Earlier Delivery Date than SAR
As noted, the new annual funding notice requirements apply to plan years beginning after 2007. The time by which participants and beneficiaries must receive the notice, however, is driven by the participant count on each day during the plan year preceding the year to which the notice relates. [See ERISA §303(g)(2)(B).] So, for 2008 plan year notices, look to the participant count on each day of the 2007 plan year.

More than 100 Participants. Plans that cover more than 100 participants must distribute the notice no later than 120 days after the close of the plan year. For calendar year plans, the deadline is Thursday, April 30, 2009, which is 120 days after the close of the 2008 plan year.

100 or Fewer Participants. Plans that covered 100 or fewer participants on each day during the plan year preceding the reporting year are subject to a timing rule that is somewhat -- but not entirely -- similar to the SAR rule. For these plans, the annual funding notice must be provided no later than the earlier of:

the date on which the Form 5500 report is filed, or
the latest date the annual report could be filed, including extensions.

Model Notices
Model notices have been included for single-employer plans (Appendix A) and multiemployer plans (Appendix B). The models anticipate display of information for the current and two preceding plan years. Since PPA funding rules first became effective for 2008 plan years, the relevant information is not available for 2006 and 2007 plan years; therefore, the FAB includes Appendix C with an explanation of the transition period. Actuaries may find that they will be required to generate calculations for the notice that traditionally have not been part of the annual valuation work.

In FAQ #2, the FAB advises that use of an appropriately completed model notice will satisfy the content requirements of ERISA §101(f). In addition, the FAB notes that use of the model notice is not mandatory; however, it is expected that most plans will take advantage of the model to show they have acted in good faith and with a reasonable interpretation of the guidelines.

It should be noted that the model Annual Funding Notice for multiemployer plans that has been used prior to 2008 plan years does not contain sufficient information under the new rules and should no longer be used. [FAQ #4].

The EBSA has helpfully provided the model notices in Word format.

In Word format -
[click here] for the single-employer model notice. [Appendix A]
[click here] for the multiemployer notice. [Appendix B]

Notice Content
Participants and beneficiaries are accustomed to the content of the SAR. The new Annual Funding Notice goes far beyond the information provided in the SAR by including data about the plan’s investment policy and the funding target attainment percentage. [See FAQs #6-13.] In addition, sections entitled Summary of Rules Governing Termination of Single-Employer Plans and Benefit Payments Guaranteed by the PBGC appear in the single-employer notice. Financially troubled multiemployer plans must include a section entitled Summary of Rules Governing Plans in Reorganization and Insolvent Plans.

The length of the model notice is troublesome -- but necessary -- to incorporate all of the required data. Large plan filers may find drafting of the notice complicated by the fact that the audit of the plan and the related Form 5500 are incomplete. It’s not clear from the FAB that the figures reported on the notice must tie precisely to that reported on Form 5500, but every effort should be made to use the best data available at the time the notice is due.

Distribution of the Notice
The law requires the Notice be distributed to “...the Pension Benefit Guaranty Corporation, to each plan participant and beneficiary, to each labor organization representing such participants or beneficiaries, and in the case of a multiemployer plan, to each employer that has an obligation to contribute to the plan.” [ERISA §101(f)(1).]

However, in FAQ #4, the DOL indicates that a single-employer plan with liabilities that do not exceed plan assets by more than $50 Million is not required to provide the notice to PBGC, unless the PBGC sends a written request to the plan administrator. Multiemployer plans must continue to provide a copy of the Notice to PBGC, as they have for each plan year beginning after 2004.

In FAQ #5, the DOL notes that it will not take any enforcement action against any insolvent multiemployer plan that is in compliance with the insolvency notice requirements under Title IV of ERISA. However, a plan that emerges from insolvency or that ceases to comply with the insolvency notice requirements is subject to the annual funding notice rules.

The notice may be furnished to recipients electronically, as discussed in FAQ #14. In most cases, however, a variety of delivery methods will be utilized to ensure compliance with ERISA and the E-SIGN Act. Generally, ERISA Reg. §2520.104b-1(c) allows for electronic delivery of documents to a participant who has the ability to effectively access documents furnished in an electronic form at any location where the participant is reasonably expected to perform his or her duties as an employee and to whom the access is an integral part of their duties. In addition, other recipients may affirmatively consent to electronic receipt of such documents. A paper copy must be made available to any [electronic] recipient who requests it.

SAR Still Applies
A defined benefit plan that must provide the Annual Funding Notice no longer provides an SAR to plan participants and beneficiaries. Other defined benefit plans as well as defined contribution plans and certain welfare benefit plans must continue to provide the SAR to participants and beneficiaries on an annual basis.

Clarification – SARs for Defined Benefit Plans
For the past year or so I have been writing articles -- and making comments - that, beginning with 2008 plan years, defined benefit plans no longer distribute Summary Annual Reports (SARs) but rather an Annual Funding Notice. That’s not quite correct.

Under the Pension Protection Act of 2006, a new rule requires PBGC-covered defined benefit plans to provide an Annual Funding Notice rather than a Summary Annual Report for plan years beginning in 2008 and later. [See PPA Section 503(c) and ERISA Section 104(b)(3).] This Notice is due 120 days after the plan year end for large plan filers (e.g. April 30, 2009); small plan filers have until the due date of the related Form 5500 filing. It should be noted that DOL has not issued regulations (or format/content) relating to this Annual Funding Notice so additional rules may apply.

Regulations for SAR content may be found at ERISA Reg. Section 2520.104b-10(d)(3).

Unveiling the 2008 Form 5500
On November 25, 2008, the IRS and DOL posted the 2008 Form 5500 series reports and official instructions at http://www.dol.gov/ebsa/pdf/2008-5500inst.pdf. As of this writing, the instructions to 2008 Form 5500-EZ have not been released, but no substantive changes are expected. The majority of the changes to the 2008 forms package focus on reporting changes required on account of new PPA funding rules, and so primarily affects defined benefit plans. However, certain guidance affects all plans.

Short Plan Year Filings -- 2008 and 2009
It has been common practice to use prior year forms to satisfy filing obligations for short plan years when the due date for the short plan year's filing was before the current year's form was available. This is not the case for short 2008 plan years for any defined benefit plan required to include actuarial information or for certain money purchase (or target benefit) plans with funding waivers.

In response to PPA, separate actuarial schedules have been developed for 2008 plan year filings -- Schedule SB for single-employer defined benefit plans and Schedule MB for multiemployer defined benefit plans and certain money purchase plans. These schedules are the only valid means of satisfying the actuarial information filing requirements for 2008; the 2007 Schedule B may not be used.

In addition, multiemployer plans must file as many as four attachments to the Schedule R to report certain PPA-related information about contributing employers and liabilities for two or more plans. Similarly, all defined benefit pension plans covering 1,000 or more participants must include financial asset breakout information as an attachment to Schedule R.

Automatic Extension for Short 2008 Plan Years. Because of these changes, filers that are subject to the abovementioned rules have been granted an automatic extension of time to file their complete 2008 Form 5500 until 90 days after the 2008 forms become available to use for filing. According to IRS sources, the paper forms will be available beginning December 10, 2008; it is likely that software vendors also will deliver their packages in December 2008. This translates into an extended due date of approximately March 10, 2009. Plans not subject to minimum filing rules that experience a short plan year during 2008 must file their 2008 Form 5500 report by the last day of the seventh month following the end of the plan year, or as extended by filing Form 5558.

Caution! It should be noted that DOL is not rejecting filings that include the 2007 Schedule B with a short 2008 plan year Form 5500 report; however, that does not mean that the plan has satisfied its obligation to provide certain actuarial information to the agencies. It is recommended that any actuary who signed a 2007 Schedule B that reflected information for a short 2008 plan year work with the plan sponsor to file an amended report using the proper 2008 forms.

Options for 2009 Short Plan Year Filings. It's common knowledge that mandatory electronic filing rules apply to plan years beginning in 2009. The agencies, however, have anticipated that filers with due dates before January 1, 2010 -- the date the EFAST2 filing system is expected to go Alive@ -- will not want to delay filing for short 2009 plan years. This is particularly true where the short plan year arises on account of a plan termination which may be coincident with cessation of business operations by the plan sponsor.

Option #1. Short 2009 plan year filers with due dates to submit their 2009 filing before January 1, 2010 may use plan year 2008 forms and submit their 2009 filing to EFAST on or before the due date for their short plan year filing. Filings received after June 30, 2009 will be manually entered into the governmental system.

Option #2. Alternatively, short 2009 plan year filers with due dates before January 1, 2010 are given an automatic extension of time to electronically file their complete 2009 Form 5500 until 90 days after the 2009 filing system is available on the DOL website. The DOL notes that this special extension is being granted to encourage short plan year filers to file electronically under the EFAST2 system thereby eliminating the need for manual data entry on their end.

Schedule R Changes for Money Purchase and Target Benefit Plans
Lines 6a, 6b, and 6c of Schedule R report whether a money purchase or target benefit plan has met the minimum funding requirement for the plan year. The instructions specifically direct the filer to report only those contributions paid to the defined contribution plan by the date the return is filed. If the resulting value on line 6c is greater than zero, then an attachment must be created.

Label the attachment Schedule R, line 6c information and explain whether the sponsor will contribute an amount to meet the minimum funding requirement shown on line 6a by the funding deadline, which is generally no later than 82 months after the end of the plan year.

Internet and Intranet Posting Required
PPA '504(a) added new ERISA '104(b)(5) and requires internet and intranet posting of a defined benefit plan's 2008 Form 5500 actuarial information. All Schedules SB, MB or other actuarial information schedules filed for 2008 plan years received by the Department of Labor's EFAST center will be posted on a public disclosure website at http://askebsa.dol.gov/ppa/ within 90 days of EFAST's receipt of the filing.

The law requires similar intranet posting by the plan sponsor (or the plan administrator on behalf of the plan sponsor); however, such intranet posting is only intended to be for communication with plan participants and not the public. If a plan sponsor does not maintain an intranet, then no posting is required. The statute does not clearly specify a 90-day window for intranet posting and the DOL has not issued any guidance in this regard. To be on the safe side, the intranet posting should be made within 90 days of the date the 2008 Form 5500 is submitted to EFAST for processing. Note that only the actuarial schedule (Schedule SB or MB) need be posted; attachments do not need to be uploaded to the intranet.

Caution! Actuaries should consider whether Schedule SB should be filed by one-participant plans filing Form 5500-EZ. While the actuarial certification must be maintained with the sponsor's records, filing a one-participant Schedule SB for 2008 will subject that information to posting on the public disclosure website. The requirement to include Schedule B with Form 5500-EZ was eliminated beginning with 2005 plan year filings.

Annual Funding Notice Replaces Summary Annual Report for Defined Benefit Plans
For plan years beginning after December 31, 2007, the Pension Protection Act (PPA) '501 requires defined benefit plan administrators B for both single employer and multiemployer defined benefit plans -- to provide an annual funding notice for each plan year. Previously, the annual funding notice rules only applied to multiemployer plans. The PPA expands the information and accelerates the time by which the notice must be distributed.

More importantly, this annual funding notice replaces the Summary Annual Report for defined benefit plans beginning for 2008 plan years. The notice must be provided to (a) the PBGC; (b) each plan participant and beneficiary; (3) each labor organization representing plan participants and beneficiaries and (d) for multiemployer plans, each contributing employer.

The annual funding notice must be provided no later than 120 days after the end of the plan year relating to the notice. For calendar year plans, the first notice is due to be distributed by April 30, 2009; however, small plan filers have some relief in that the distribution must occur by the due date for filing the plan's Form 5500 report.

To date, the Department of Labor (DOL) has not provided any guidance with regard to the content of the revised notice although PPA required a sample notice to be issued by August 17, 2007. The existing regulations for annual funding notices of multiemployer plans were issued in January 2006 and may be found at http://www.dol.gov/federalregister/HtmlDisplay.aspx?DocId=11408&AgencyId=8&DocumentType=2.

Note! The waiver of the requirement to have an audit of a small pension plan generally requires certain disclosures in the SAR. This requirement is satisfied if the information is provided in the Annual Funding Notice for small defined benefit plans beginning with 2008 plan years.

Actuarial Schedules SB and MB
Schedule SB, Single-Employer Defined Benefit Plan Actuarial Information, is new for 2008 plan years and replaces the Schedule B previously used to report actuarial information for single employer defined benefit plans. Schedule MB, Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information, is new for 2008 plan years and replaces the Schedule B previously used to report actuarial information for multiemployer defined benefit plans

Schedule MB also is filed for any money purchase or target benefit plan that has received a waiver of the minimum funding standard and the waiver is currently being amortized. Lines 3, 9, and 10 of Schedule MB must be completed and the schedule attached to the Form 5500 filing; however, it need not be signed by an enrolled actuary.

These schedules substantially mirror the drafts released to the public in December 2006. The IRS provided a cross reference table to acquaint preparers with the new format as it relates to the previously used Schedule B. [click here] for those cross reference tables.

Note! Check the Schedule B box on Form 5500, Part II, line 10a(2) to indicate that either a Schedule SB or Schedule MB is attached.

Special Rules for Defined Benefit Pension Plans -- 2008 Schedule R
The 2008 Schedule R calls for up to four new attachments for certain defined benefit pension plans. Two schedules apply only to multiemployer plans, a third applies to both multiemployer and single-employer plans that were involved in a merger, spin-off, or transfer in the prior plan year, while the remaining attachment is required only for plans that cover 1,000 or more participants as of the first day of the plan year.

Attachments for Multiemployer Plans with a Funding Improvement or Rehabilitation Plan. The funding rules for multiemployer plans have been different from the single-employer plan funding rules. For plan years beginning after 2007, however, changes have been made through a new Code Section 431 that will (a) reduce the amortization periods for certain supplemental costs to 15 years, (b) change the amortization extension and funding waiver interest rate to the plan rate, (c) tighten the reasonableness requirement for actuarial assumptions, (d) eliminate the alternative minimum funding standard, (e) allow an automatic five-year amortization extension with an additional five-year extension, and (f) provide circumstances under which there is deemed approval of changes in the use of the shortfall funding method.

Multiemployer plans that are so underfunded as to be in "endangered" or "critical" status are required to adopt funding improvement and rehabilitation plans. These actions are intended to improve their funding status over a period of years. A plan is generally in endangered status (Plan Status Code "E") if its funded percentage as of the first day of the plan year is less than 80% or if it is has an accumulated funding deficiency for the current plan year or is projected to have an accumulated funding deficiency for any of the next six plan years. A seriously endangered plan (Plan Status Code "S") generally has a funded percentage of 70% or less at the beginning of the plan year. A plan is in critical status (Plan Status Code "C") if its funded percentage is less than 65% and not projected to improve its funded percentage over the next seven years. Code Section 432, added by PPA 2006, provides additional funding rules for multiemployer plans in endangered or critical status. If the Plan Status Code on line 4a of Schedule MB is an E, S, or C, a summary of either the Funding Improvement Plan (for plans with E or S codes) or the Rehabilitation Plan (for a plan with a C code) must be attached to Schedule R. The attachment must be labeled "Schedule R, Summary of Funding Improvement Plan" or "Schedule R, Summary of Rehabilitation Plan."

The attachment should include the following details as in effect at the end of the plan year:

Name of plan sponsor, its EIN, and the plan number shown at line 1b of Form 5500 along with the plan name;
Description of the various contribution and benefit schedules that are being provided to the bargaining parties and any other actions taken in connection with the rehabilitation plan or the funding improvement plan, such as the use of the shortfall funding method or extensions of the amortization period.
A schedule of the expected progress for the funded percentage or other relevant factors under the rehabilitation plan or the funding improvement plan.
The annual update of the rehabilitation or funding improvement plan, as required under Code Section 432(c)(6) and Code Section 432(e)(3)(B).

Attachments for ALL Multiemployer Defined Benefit Pension Plans. All multiemployer defined benefit pension plans that are subject to minimum funding standards must provide additional information as an attachment labeled "Schedule R, Certain Information for Multiemployer Plan."

Note! Perhaps the best way to become familiar with the information to be provided on this attachment is to look at Part V of the 2009 Schedule R and the related instructions. [click here] for those pages. With one exception, the information that is required as an attachment to the 2008 Schedule R is physically incorporated into the 2009 Schedule R, at lines 13-17. In total, six separate issues must be disclosed.

Item 1. The first item to be displayed on the attachment is not found on the 2009 Schedule R. Begin the labeled "Schedule R, Certain Information for Multiemployer Plan" by reporting the total number of employers obligated to contribute to the plan in 2008.

It is worth noting that the number of employers should be viewed through the lens of executed collective bargaining agreements, rather than the paymaster to the employees. For example, in the motion picture industry it is common to have separate collective bargaining agreements for each movie. However, workers on the film who are covered by the agreement may be paid by Entertainment Partners regardless of the production. In other words, the studios contract with Entertainment Partners to manage the payroll but it is the signatory on the collective bargaining agreement that is counted as an "employer" for purposes of this item. From a worker's perspective, they may work on three different movie projects in a given year but all of their paychecks come from Entertainment Partners. Generally, there would be three different collective bargaining agreements and three different employers involved -- each making separately negotiated contributions to the plan.

Another reference point is the EIN of the employer signing the collective bargaining agreement. Any two or more contributing employers that have the same EIN should be aggregated and counted as a single employer for this purpose.

Note! The information described above will be reported at line 7 of the 2009 Form 5500 for any type of multiemployer plan, not just defined benefit pension plans.

Item 2. Next, the attachment must identify contributing employers that individually contributed more than 5% of the plan's total contributions for the 2008 plan year. The attachment should sort the employers in descending order according to the dollar amount of their contributions to the plan and disclose the following for each 5% employer:

Name and EIN of the contributing employer
Dollar amount contributed
The date the collective bargaining agreement expires. If the employer has multiple collective bargaining agreements requiring contributions to the plan, all expiration dates must be disclosed even if the separate agreement does not meet the 5% threshold.
The contribution rate in dollars and cents per contribution base unit and indicate whether the base unit is hourly, weekly, or some other basis. If the contribution rate changed during the year, show the terms in effect at the end of the plan year. Again, if the employer has multiple collective bargaining agreements requiring contributions to the plan, all contributions terms must be disclosed even if the separate agreement does not meet the 5% threshold.

Item 3. The third disclosure looks at the number of participants covered by various agreements, but in a manner that is exclusive to this disclosure. In fact, report only those participants for whom no contributions were made. Count only those participants whose employers or former employers had withdrawn from the plan by the beginning of the relevant plan year. Do not count deferred vested and retired participants of employers who have not withdrawn from the plan.

Report such participants counts separately for the 2008 plan year, the 2007 plan year, and the 2006 plan year (the current and two immediately preceding plan years).

Note! Withdrawal liability payments made by employers that have withdrawn from the plan are not treated as contributions for purposes of this disclosure.

Item 4. Before calculating the percentages to disclose here, it should be noted that the values in item 3 (above) are adjusted to include all deferred vested and retired participants of employers still active in the plan but for whom no contributions are being made. Again, withdrawal liability payments are not treated as contributions for this purpose.

Enter the ratio of the number of participants on whose behalf no employer had an obligation to make a contribution for:

the current (2008) plan year to the corresponding number for the preceding (2007) plan year; and
the current (2008) plan year to the corresponding number for the second preceding (2006) plan year.

Item 5. If any employers withdrew from the plan during the preceding (2007) plan year, disclose two values:

The number of employers that withdrew from the plan; and
The aggregate amount of withdrawal liability assessed against these employers. If the withdrawal liability is not determined as of the filing date, an estimate is sufficient.

Item 6. Finally, if assets and liabilities from another plan were transferred to or merged with this plan during the 2008 plan year, the following information must be disclosed:

The names and EINs of all plans that transferred or merged assets and liabilities; and
For each plan, including this plan, report the actuarial valuation of the total assets and liabilities for the 2007 plan year, based on the most recent data available as of the last day of the 2007 plan year.

Attachments for ALL Defined Benefit Pension Plans. Both single-employer and multiemployer must provide an attachment labeled "Schedule R, Funded Percentages of Plans Contributing to the Liabilities of Plan Participants" if any liabilities to participants or their beneficiaries at the end of the plan year consist of liabilities under two or more plans as of the immediately preceding year.

Provide the following information as a separate attachment:

Names, EINs, and plan numbers of all plans that provided a portion of liabilities of the participants and beneficiaries in question. The current (2008) plan information should be listed first.
The funded percentage of each plan as of the last day of the prior (2007) plan year. The funded percentages are ratios calculated where the numerators are the actuarial values of the plans' assets at the end of the 2007 plan year and the denominators are the accrued liabilities of the plans at the end of the 2007 plan year.

Attachments for ALL Defined Benefit Pension Plans Covering 1,000 or More Participants. This attachment requires any defined benefit plan covering 1,000 or more participants to provide an analysis of the fair market value of plan assets, by investment type, as of the beginning of the plan year. The attachments should be labeled "Schedule R, Distribution of Assets Information."

Note! See Part VI of the 2009 Schedule R.

For purposes of this attachment, the participant count is based on the figure reported on line 3d, column (1), of Schedule SB for single-employer plans or on line 2b(4), column (1), of the Schedule MB for multiemployer plans.

The asset categories are as follows: (a) stocks, (b) investment-grade debt instruments, (c) high-yield debt instruments, (d) real estate, and (e) other asset classes. Percentages should be expressed to the nearest whole percent and should reflect the total assets held in each category, without regard to how they are listed on Part I of Schedule H. Also, assets held in master trusts must be disaggregated into the five asset classes and not simply listed as "other asset classes" unless the trust contains no stocks, bonds, or real estate holdings.

To distinguish asset classes, follow the same methodology that is used when disclosing the allocation of plan assets on the sponsor's 10K filings to the Securities and Exchange Commission, if any. Real estate investment trusts (REITs) should be counted as stocks, while real estate limited partnerships should be included in the real estate classification.

If the plan's assets include a debt portfolio, a separate line on the attachment should disclose the average duration of the holdings: (a) 0-3 years; (b) 3-6 years; (c) 6-9 years; (d) 9-12 years; (e) 12-15 years; (f) 15-18 years; (g) 18-21 years; (h) 21 years or more. If the average falls on the boundary, choose the lower duration.

The average duration is determined by looking at the "effective duration" or any other generally accepted measure of duration, such as the Macaulay duration, Modified duration, or other measure as explained in the attachment. For multiple bond portfolios, a weighted average of the average durations may be reported.

It is unclear who will take the lead in determining the asset categories and average durations to report on this attachment. The expertise of the trustee or custodian, the investment advisor(s), the plan sponsor, and the actuary may be utilized for this exercise.

Conclusion
As can be seen, the majority of changes affect only filers for defined benefit plans. Actuaries are taking the brunt of this year's changes!

Although some commentary suggests that as many as 600,000 filers may use the short form (SF), not every small plan filer qualifies for the SF. A plan may file Form 5500-SF instead of the Form 5500 (and its schedules) only if it meets all of the conditions listed below:

The plan is eligible to file as a small plan either because it covered fewer than 100 participants as of the first day of the plan year or it elects to file as a small plan under the 80/120 rule. Code Section 403(b) plans that would have been eligible to file as a small plan under the 80/120 rule in 2008 may rely on the exception to file as a small plan in 2009 so long as the participant count on the first day of the 2009 plan year is less than 121.
The plan does not hold any employer securities at any time during the plan year.
The plan is not a multiemployer plan.
The plan is eligible for the waiver of an audit by a qualified independent accountant, but not by reason of enhanced bonding. Welfare plans that cover fewer than 100 participants are exempt from the annual audit requirement. [29 CFR 2520.103-1(d)] A pension plan is exempt if it covers fewer than 100 participants as of the first day of the plan year or is eligible to file as a small plan under the 80/120 rule and meets the following requirements:
1. As of the end of the preceding plan year, at least 95% of the plan’s assets were “qualifying plan assets.” “Qualifying plan assets” include: shares issued by an investment company registered under the Investment Company Act of 1940 (e.g., mutual fund shares); investment and annuity contracts issued by any insurance company qualified to do business under state law; participant loans, and any other eligible assets. (See http://www.dol.gov/ebsa/faqs/faq_auditwaiver.html#section3.)
2. The plan includes the required audit waiver disclosure in its Summary Annual Report or, if a defined benefit plan, the Annual Funding Notice; and
3. The plan administrator must furnish, without charge, copies of statements from the regulated financial institutions that hold or issued the plan’s “qualifying plan assets.”
4. At all times during the plan year, the plan is fully invested in assets that are considered easy to value, such as mutual fund shares, investment contracts with insurance companies and banks valued at least annually, publicly traded securities held by a registered broker dealer, cash and cash equivalents, and participant loans.

The new SF simplifies reporting of the participant count (line 5) and mirrors the Schedule I financial information section to report investment activity at lines 7 and 8.

Plan characteristic codes (line 9) are expanded to include two new defined contribution feature codes to identify plans with automatic enrollment for purposes of employee deferrals (code 2S) as well as those participant-directed plans that provide a default investment for participants who fail to direct assets in their account (code 2T). These new codes apply to all Form 5500 filers, not just the short form filers.

Part V of the SF includes some of the compliance-oriented questions that have appeared at line 4 of Schedules H and I in prior years, but also introduces some new ones. Questions about the timeliness of deposits of participant contributions, prohibited transactions, and fidelity bond continue to appear on the form. Five new questions include:

At line 10e, a small plan which uses insurance to fund or provide benefits must indicate the amount of any fees or commissions paid to brokers, agents, or other persons. Filers of the SF do not file Schedule A.
Line 10f is a back-to-the-future type question inasmuch as it pulls a line from the pre-1999 Form 5500-R inquiring whether the plan failed to provide any benefits when due. Most practitioners may consider this a question more likely to apply to a defined benefit plan than a defined contribution plan; however, no distinction is made in the instructions.
Line 10g captures the amount of participant loans.
Lines 10h and 10i introduce a completely new compliance aspect and these also appear on the 2009 Schedules H and I (at lines 4m and 4n). The issue (at line 10h) is whether or not an individual account plan experienced a blackout period. [See 29 CFR 2520.101-3.] If so, line 10i must be completed to indicate whether the required notice was distributed in a timely fashion. While some blackout events are easily identified -- for instance, when a plan moves from one investment platform to another -- other less obvious events may trigger a blackout. As with determining whether participant contributions were remitted in a timely fashion, a well informed decision must be made about the answers to these blackout questions. The DOL has uncovered many violations in this area and the penalty can be substantial: $100 per day per participant per event. It may be advisable to seek the advice of ERISA counsel if clarity is needed in specific circumstances.

The remainder of the SF pulls questions from Schedule R regarding minimum funding, and from Schedules H and I regarding plan termination and transfers of assets. There is no need to file Schedules A, D or R with the SF; however, Schedule SB (the new schedule for single employer defined benefit plans) must be attached to certain small defined benefit plan filings.

One-Participant Plans
This leads us to one-participant plans. Beginning in 2009, EFAST2 will process only those filings using the SF or full Form 5500 package. Form 5500-EZ will be processed by IRS and may be submitted only in paper format. However, one-participant filers that wish to file electronically and otherwise qualify to do so can file Schedule SF. Such plans will complete only Part I items A, B, and C; Part II lines 1a-5a; Part III lines 7a-c, 8a; Part IV line 9a; Part V line 10g; and Part VI lines 11-12e. [This content will precisely mirror the paper form of the 2009 Form 5500-EZ when it is made available.]

Not surprisingly, there are other restrictions as to which one-participant plans may satisfy their filing obligation with the SF. One-participant plan filers that meet the following conditions are allowed to electronically file the SF instead of filing a paper EZ:

The plan is a one-participant plan and meets IRC §410(b) coverage requirement without being combined with any other plan;
The plan covers only the owner, or the owner and his or her spouse, or one or more partners and their spouses; and
The plan does not hold any employer securities.

It should be noted that actuaries of one-participant defined benefit plans subject to the minimum funding standards for the year must complete Schedule SB and provide it to the person responsible for filing the SF (or Form 5500-EZ). However, as with current filings for one-participant defined benefit plans, the Schedule SB is not part of the filing submitted to either IRS or DOL.

The IRS has not released the 2009 Form 5500-EZ or its instructions. Whether the filer chooses to file the SF or the EZ, software packages will offer both options to facilitate preparation of the report.

The 2009 Form 5500 and its Schedules
Any plan that is not a one-participant plan or that does not qualify to file the SF must file the Form 5500 along with the appropriate schedules to meet their reporting obligation. Small plan filers may need to file Schedules A, D, I, and R, while large plan filers will consider Schedules A, C, D, G, H, and R. All filers must determine whether or not an actuarial schedule - Schedule SB (for single employer plans) or Schedule MB (for multiemployer plans and certain defined contribution plans) - must be attached.

The Form 5500 itself has a number of changes, including the elimination of space to insert the contact information for the paid preparer. One notable change is at line 7, which requires a multiemployer plan filer to insert the total number of employers obligated to contribute to the plan. As previously discussed, the feature codes at line 8 have been expanded to include code 2S (automatic enrollment) and 2T (default investment) for defined contribution plans.

Schedule A (Insurance Information) has a new Part IV that allows the filer to state whether or not the insurance company provided information necessary to complete Schedule A. If the insurer was not forthcoming with the data, space is provided to indicate which data was not made available. Preparers of Form 5500 have consistently complained about the failure of insurance companies to provide data; however, it remains to be seen whether the inclusion of this new section on the form results in any new behavior in this regard.

Schedule SB and Schedule MB have been provided in draft form, but no official instructions have been released. The 2008 forms package will include the Schedules SB and MB and these will be transitional forms that are intended to be the basis for the 2009 forms.

Schedule C (Service Provider Information) experienced a major overhaul and is causing quite a stir in the investment and service-provider community. EBSA has already issued a series of 40 FAQs in response to questions raised by the benefits community and is working on additional guidance to aid in understanding the information to be reported. It will take some time, perhaps years, for plan administrators and practitioners to become comfortable with the data collection and actual data entry on this new approach to disclosing information about service providers.

To put it simply, the new format was designed to expand reporting of indirect compensation. Persons or entities that provide investment management, recordkeeping, participant communication, and other services to the plan as part of a transaction with the plan are treated as providing services to the plan or its participants for purposes of Schedule C reporting. In other words, it will no longer appear that services are being provided to the plan at no cost. It also means the entries on Schedule C will, in most instances, not directly tie to the amounts shown on line 2i of Schedule H.

Examples of reportable indirect compensation include any fees and expense reimbursements received by a person (or entity) from mutual funds, bank commingled trusts, insurance company pooled separate accounts, and other separately managed accounts and pooled investment funds in which the plan invests that are charged against the fund or account and reflected in the value of the plan’s investment. For example, the “expense ratio” associated with a mutual fund includes management fees paid to its investment adviser, sub-transfer agency fees, shareholder servicing fees, account maintenance fees, and 12b-1 distribution fees, all of which are reportable indirect compensation.

One attempt to narrow the amount of detailed information that must be shown on Schedule C is the introduction of the concept of “eligible indirect compensation” in the instructions. Eligible indirect compensation is indirect compensation that meets the following two conditions:

Indirect compensation that is (a) fees or expense reimbursement payments charged to investment funds and reflected in the investment return of the participating plan or its participants; (b) finders’ fees soft dollar revenue; (c) float revenue; and/or (d) brokerage commissions or other transaction based fees for transactions or services involving the plan that were not paid directly by the plan or plan sponsor.
For the indirect compensation to be eligible indirect compensation, the plan administrator must receive written materials that disclosed and described (a) the existence of the indirect compensation; (b) the services provided or the purpose of the payment of the indirect compensation; (c) the amount (or an estimate) of the compensation, or a description of the formula used to calculate or determine the compensation; and (d) the identity of the party or parties paying and receiving the compensation.

The goal for many investment institutions and service providers will be to provide the necessary written materials to ensure that the eligible indirect compensation classification is achieved whenever possible. Don’t be surprised if you begin seeing substitute Schedule C information routinely provided in the same way that insurance companies provide Schedule A data - the only difference, though, is that there is no requirement that Schedule C data be provided.

Most of the 40 FAQs posted on the EBSA website on July 14, 2008 aid in understanding the types of investment-related fees and expenses that must be disclosed. FAQ40 provides some “good faith” relief, but continues to put the burden on the plan administrator -- and not the person (or entity) receiving the compensation -- to determine whether all appropriate disclosures have been made.

Stay tuned. The new Schedule C will continue to be dissected by both service providers and the EBSA. Regulations proposed under ERISA Section 408(b)(2), when finalized, may add some clarity to this area.

Schedule D (DFE/Participating Plan Information) and Schedule G (Financial Transaction Schedules) have some formatting modifications but the content of the disclosures remains unchanged.

Schedule H (Financial Information) has one substantial change beyond the blackout questions at lines 4m and 4n already described above. At line 2b(C), dividends attributable to registered investment company shares (e.g. mutual funds) must be carved out and separately reported. Until now, those dividends have been rolled up in the net investment gain (loss) reported at line 2b(10). This change is a nuisance and may require some systems adjustments in order to capture this detail. Also, it is unclear whether capital gains distributions are included on line 2b(C) or continue to be reported as part of the net investment gain (loss) shown on line 2b(10).

Schedule I (Financial Information -- Small Plan) now includes the blackout questions at lines 4m and 4n. In addition, the income and expense detail at line 2 has been refined by requiring reporting of administrative service provider salaries, fees, and commissions separately from other expenses. It is a minor change, but reflects concerns about adequate fee disclosures.

Lines 1 through 6 of the 2009 Schedule R (Retirement Plan Information) are identical to the current form, and the existing lines 7 and 8 are now lines 8 and 9. A new line 7 has been inserted to confirm that the minimum funding amount reported on line 6c for a defined contribution plan will be deposited by the funding deadline. The existing line 9, which reports compliance with coverage rules under IRC §410(b) is eliminated.

There are three new sections added to the Schedule R. Part IV is applicable only to ESOPs and replaces the current Schedule E with only 3 questions taken from that schedule and moved to the R. This reduced reporting for ESOPs provides information that is available for public disclosure in contrast to the current Schedule E, which is not open to public inspection. Part V asks for additional information about multiemployer defined benefit plans, so only a few plans will need to complete this section. The data entry includes names, EINs, and amount of contributions made by each contributing employer that represents more than 5% of total contributions to the plan. Information about the date the employer’s collective bargaining agreement expires and the contribution rate also must be inserted.

Finally, Part VI of the Schedule R requires information about the duration of investments held by defined benefit plans covering 1,000 or more participants. No specific instructions have been issued to date; however, this information must be presented for 2008 plan years and, therefore, instructions for this section should be part of the 2008 forms package.

What Happened to Schedule SSA?
The mandatory electronic filing scheme is predicated on removal of IRS-only schedules so that all data compiled under EFAST2 is open to public inspection. Therefore, Form 5500-EZ, Schedule E, and Schedule SSA will no longer be part of the Form 5500 package. As previously noted, one-participant plan filers will have both a paper and electronic option for meeting their filing obligation, and Schedule E has been eliminated in favor of three questions on the 2009 Schedule R (Part IV).

Schedule SSA is another matter. IRS is charged with collecting this data for the Social Security Administration and, so, is developing a process for accepting the SSA data both on paper and electronically, but not through EFAST2. Schedule SSA will become Form SSA and be filed directly with IRS. While few details are available today, it is anticipated that the due date for filing Form SSA will be the same as the due date, with extensions, for filing the Form 5500 for the related plan. Practitioners should expect little change in the format, at least in the short term, as IRS is focusing its energy on managing this new process before attention is given to the structure of the data collection effort.

In Closing
With all of these new changes to absorb, we can only plead with DOL to make the electronic filing process itself as simple and easy as possible. Rest assured that the Form 5500 software developers are gearing up to meet the demands of the new reporting maze, and will help you efficiently manage filings with both IRS and EFAST2.

It has been nearly a decade since the introduction of the current EFAST system and we just now fully understand most of its nuances. So, check back with me around 2020 to ask how things are going with EFAST2!