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Proposed Changes to Form 5500 Announced by the DOL, IRS, and PBGC

On September 14, 2021, the Department of Labor’s Employee Benefits Security Administration (EBSA), the Internal Revenue Service, and the Pension Benefit Guaranty Corporation (PBGC) published two proposed rules in the Federal Register, Proposed Revision of Annual Information Return/Reports, and Annual Reporting and Disclosure.

The proposed changes and proposed regulatory amendments primarily implement statutory changes enacted as part of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), which was signed into law in December 2019. The SECURE Act affected the most popular retirement plans used in the U.S and was the first major retirement-related legislation enacted since the 2006 Pension Protection Act. There are three main proposed changes that will affect the more than 800,000 large, small and direct filing entities (DFE) that file Form 5500.

1. Financial Transparency and Accountability for Investment Assets.

  • The Schedule H, Schedule of Assets Held for Investment is one of the only schedules of the Form 5500 Annual Return/Report where plans are required to list individual plan investments identified by major characteristics. As such, they are the only part of the Form 5500 Annual Return/Report useful to evaluate the year-to-year performance, liquidity, and risk characteristics of a plan’s individual investments. The proposed change would update the Schedule H and instructions to standardize the electronic filing format for the schedules of assets required to be included in the annual return/report.

2. Change in Participant-Count Methodology to Allow More Plans to Use Simplified Reporting Options.

  • The proposal would change the methodology for determining when defined contribution retirement plans can file as “small plans” or “large plans”. The proposed rule would consider the number of participants with account balances instead of the current rule based on those eligible to participate, even if they have not elected to participate.  As such, the proposed change would enable more plans to file as “small plans” using Form 5500-SF which does not require an examination and report of an independent qualified public accountant.

3. Selected Tax Qualification Compliance Questions.

  • The proposal would add three Code compliance questions to Form 5500 for tax-qualified retirement plans to improve tax oversight and compliance. The first proposed question to be added would be a nondiscrimination and coverage test question that asks if the plan satisfied certain nondiscrimination and coverage tests. The second would ask whether (if applicable) the plan sponsor used the design-based safe harbor rules or the “prior year” or “current year” ADP test. The third proposed question would ask whether the employer is an adopter of a pre-approved plan that received a favorable IRS Opinion Letter, the date of the favorable Opinion Letter, and the Opinion Letter serial number.

If adopted, the proposed changes generally would be effective for plan years beginning on or after January 1, 2022.

There is a 45-day comment period that ends on October 30, 2021. Public comments can be filed electronically to the Federal eRulemaking portal. All submissions must include the agency name and Regulatory Identifier Number for this rulemaking, which is RIN 1210–AB97.

Although these changes to the Form 5500 are currently in the proposal stage of the process, it is important for plan sponsors and administrators to stay informed by reviewing the proposed revisions and public comments. Stay tuned for further updates and developments once the comments are submitted.

Author: John Fitzpatrick, CPA, Supervisor | jfitzpatrick@withum.com

For any questions relating to the Form 5500 and proposed changes, please contact a member of Withum’s Employee Benefit Plan team.

Employee Benefit Plans Services

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