1. What’s new for 2001?

Schedule H, Financial Information, has no content or format changes for 2001 reporting years; however, the instructions to Schedule H contain some important modifications. In an unexpected departure from previous guidance, the DOL issued a letter in December, 2001, advising that, for 2001 plan year reporting, large pension plans that provide participant-directed brokerage accounts as an investment alternative may report the investments in assets made through such accounts either:

1. As individual investments on the appropriate asset and liability categories in Part I and the income and expense categories in Part II; or

2. By including on line 1c(15) the total aggregate value of the assets and on line 2c the total aggregate investment income (loss) before expenses. Expenses charged to the accounts must be reported on the appropriate expense categories in line 2e through 2j.

The reporting relief in 2. above relates only to those brokerage account assets that are not loans, partnership or joint-venture interests, real property, employer securities, or investments that could result in a loss in excess of the account balance of the participant or beneficiary who directed the transaction. Plans intending to use the simplified reporting must enter code “2R” on line 8a of the Form 5500.

Accountants performing audits of plans with self-directed brokerage accounts will continue to apply normal audit procedures to these accounts; however, a single line entry may be used for purposes of the Schedule Of Assets Held for Investment required for line 4i.

In its letter to the representative of the Charles Schwab & Co., Inc., the agency cautioned that it would be evaluating whether, and to what extent, the aggregate method of reporting is appropriate for future plan years. As a practical matter, it may be difficult for the agency to reverse this decision.

2. How are holdings in Common/Collective Trusts or Pooled Separate Accounts reported if there was no DFE filing by the entity?

If the plan invests in common/collective trusts (CCTs) or pooled separate accounts (PSAs), you can report those values on line 1c(9) or 1c(10), respectively, only if the CCT or PSA filed its own Form 5500 as a direct filing entity (DFE).

How do you know? If the plan number shown on Schedule D in Part I at line (c) is "000," then the plan sponsor must report its share of the underlying investments in the CCT or PSA on Schedule H. For example, if a PSA is fully invested in a mutual fund, the plan sponsor will report its value in line 1c(13) rather than in line 1c(10).

3. Tip: Generally, Schedule R must be completed if the value reported on line 2e(4) is greater than $0.

4. Are corrective distributions reported at line 2f to be calculated on a cash basis or an accrual basis?

Either method is probably acceptable, although most preparers report this item on a cash basis. That way, the Form 1099R reporting matches the timing of reporting on the Form 5500.

5. Schedule H permits modified disclosure for "participant-directed" investments at lines 4i and 4j -- does this apply to all participant-directed accounts or just to self-directed brokerage options?

It does not appear that the type of participant direction permitted matters, or whether or not compliance with ERISA §404(c) is intended (i.e., codes 2F, 2G, or 2H appear at line 8a of Form 5500). If the investment is held by the plan because a participant had the right to choose that particular vehicle, it meets the definition of participant-directed for purposes of these specific disclosures.