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!