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:

1. 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.
2. The plan does not hold any employer securities at any time during the plan year.
3. The plan is not a multiemployer plan.
4. 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:

1. 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.
2. 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!