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The Trustee’s Guide to the Form 5500

Form 5500

Select which area you may have questions for additional information.

Trustees of large, multiemployer benefit plans bear a great responsibility in their role as fiduciary. While seemingly only names in unfamiliar notices to participants, trustee decisions impact lives both now and in years and decades in the future. Trustees rely on other advisors, board members and management of the plan to help fulfill their responsibility with utmost care, including but not limited to preparing financial statements and informational returns that become public record.

One of these informational returns is the Form 5500 which is an annual report filed by employee benefit plans to satisfy annual reporting requirements under Title I and Title IV of the Employee Retirement and Security Act of 1974 (ERISA) and under the Internal Revenue Code. It reports a wide array of qualitative and quantitative information about the plan for a given plan year.

This series of articles is written for trustees of multiemployer benefit plans (pension, health and welfare, defined contribution, training, etc.). For each of the main schedules, trustees will learn the following:

  • A high-level description of the form and what it discloses.
  • What the information contained within the schedules can tell you
  • How the information may impact your approach to decision-making for your plan

Author: Ashleigh Hall, CPA

For more information on Form 5500, contact our Employee Benefits Services Team member.

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Form 5500

The first 3 pages of the Form 5500 disclose basic information such as the plan name, the plan sponsor’s name, participant counts, benefit types, funding and benefit arrangements, and more.

What can you take away from reading these opening pages of your plan’s Form 5500?

  • A sense for what direction the plan is heading by comparing the participant counts on line 6 to last year’s figures.
    • If participant counts increased, it may indicate plan stability and industry growth. In this case, what kind of opportunities could be considered for continuing this growth? Is your plan in the best position to maximize the growth? Could it allow you to improve benefits available to your participants?
    • If participant counts are low and/or declining, it may warn of declining or unfavorable economic and/or industry conditions. In this case, are there any actions that the trustees should take to protect participants benefits and the plan’s overall health?
  • The number of inactive participants (unemployed or not working in covered employment) with a vested pension benefit or receiving benefits through COBRA. Look at line 6c, “Other retired or separated participants entitled to future benefits.”
    • A portion of this number represents “missing participants” – those with whom the plan  is not able to make contact. The DOL has specific guidance for locating missing participants. Take a moment to check in on the plan’s procedures for pursuing them and compliance with the latest DOL guidance. More information can be found here.
    • Also, remember that these are participants for whom no contributions are coming into the plan, but an obligation to pay benefits exists. This is a major factor in the health of a defined benefit pension plan.

Authors: Carley Appleby | caapleby@withum.com, Mark Buckberg and Ashleigh Hall

For more information on how to assess your plan’s health and think strategically about the future, reach out to a member of Withum’s Employee Benefits Services team today.

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Schedule MB

The Schedule MB reports information calculated and prepared by an enrolled actuary. It is required for multiemployer defined benefit pension plans and for defined contribution money purchase plans with funding waivers that are currently being amortized. Information reported includes the following, as determined according to actuarial methods: plan liabilities in aggregate and disaggregated by method and participant type, contributions received, plan status, assumptions used in calculating estimates, and more.

What can you take away from reading your plan’s Schedule MB?

  • The most critical information is the difference between the plan’s assets (what is owns such as cash and investments) and its liabilities (the total amount owed to participants if the plan were to end as of the valuation date). These amounts are shown on lines 1a-1d, and the difference is calculated and reported on lines 2a-2c. Be aware of the plan’s funded status. This provides valuable context when making decisions affecting the future of the plan such as changes to plan funding and/or benefits. It will also provide information about the plan’s ability to meet obligations in the near and long-term.
  • Look at the assumptions disclosed starting on line 6. Did you know that you are responsible for the reasonableness of these assumptions as a plan fiduciary? Do you understand them? Do they make sense? Discuss any questions or comments with the plan’s actuary.

Authors: Anthony Calamoneri | acalamoneri@withum.com, Mark Buckberg and Ashleigh Hall

For more information on how to assess your plan’s health and think strategically about the future, reach out to a member of Withum’s Employee Benefits Services team today.

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Schedule A

Schedule A reports benefits provided to participants through an insured product. This includes life insurance, dental, vision or other benefits of a health and welfare plan. While a schedule is required for each contract individually, it is not required for contracts that are administrative services only or policies that do not provide benefits to participants such as fiduciary liability or fidelity bond policies. The information for the Schedule A comes from the insurance company, which is required to provide this information to the Plan within 120 days after the end of the plan year.

What can you take away from reading your plan’s Schedule A?

  • Take note of the insurance carriers and entities receiving commissions. Are all contracts reflected according to your knowledge?
  • Look at the number of persons covered under the investment contracts. Is the participation in these products by the plan’s participants what you would expect? If not, should the plan take steps to make participants more aware of these benefits and so increase participation?

Authors: Monica Baker | mbaker@withum.com, Mark Buckberg and Ashleigh Hall

For more information on how to assess your plan’s health and think strategically about the future, reach out to a member of Withum’s Employee Benefits Services team today.

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Schedule C

Schedule C reports certain information about specific service providers and employees of a plan, whether they are paid directly (“direct compensation”) or indirectly (“indirect compensation”). Direct compensation reflects payments made directly by the plan for plan services rendered to the plan (e.g., legal fee retainer paid to a law firm by the plan.) Indirect compensation refers to compensation received by a service provider from sources other than directly from the plan or plan sponsor (e.g., fees paid to an investment custodian through investment holdings). Payments to vendors are disclosed if they received $5,000 or more directly or indirectly from the plan; employees are disclosed if they received $25,000 or more. There are some exceptions to vendors included for example, payments made to vendors related to benefit payments are excluded (e.g., claims paid to a third-party administrator).

What can you take away from reading your plan’s Schedule C?

  • The DOL requires that all your plan’s vendors provide information to the plan for preparing this form. While some vendors are accustomed to this, many are not. Did you know that vendors who do not provide this information should be disclosed on Page 5? What is management of your plan doing to request this information from the vendors? Is the process sufficient to meet your fiduciary responsibilities?
  • Read through the names and amounts of vendors listed. Are you familiar with them? Are there any that appear unusual? Take a moment to inquire.
  • On page 6, any terminations of accountants and enrolled actuaries during the year must be reported.  For each terminated accounting firm or enrolled actuary termination reported, you are required to disclose an explanation for the reason of termination and a description of any material disputes, matters or disagreements regarding the termination, even if it has been previously resolved. Note that while your plan may engage the same actuarial firm, if the enrolled actuary certifying information for the plan changes, it must be disclosed. Were there any changes to accounting firms or enrolled actuaries during the year? Are they properly disclosed? Are you comfortable with the explanation for termination reported?

What we have described above are some key facts of the schedule, however, there are extensive nuances for preparing this schedule.

Authors: Matt Danis, Mark Buckberg, and Ashleigh Hall

For more information on these nuances, or how to use it to assess your plan’s health and think strategically about its future, reach out to a member of Withum’s Employee Benefits Services team today.

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Schedule H

Schedule H reports financial information of the plan such as assets and liabilities (Part I) and income and expenses (Part II). Next is some information about the audited financial statements and the firm engaged to prepare them (Part III) and finally a series of compliance-related questions (Part IV). Note that contrary to Schedule MB, these numbers are calculated in accordance with generally accepted accounting principles and not actuarial accounting methods.

What can you take away from reading your plan’s Schedule H?

  • Did your plan receive an audit opinion that was anything other than Unqualified (see line 3a)? If so, do you know why? And should there be any changes made going forward?
  • Is line 4a marked Yes? (Note that this is applicable only to defined contribution plans.) Untimely or delinquent transmission of participant contributions is a very sensitive topic to the DOL. If marked yes, gain an understanding of why it was the case and whether any procedural changes should be made.
  • Is Part IV, line 4d marked Yes? Non-exempt transactions with parties-in-interest are another sensitive topic for the DOL. If marked yes, gain an understanding of why it was the case and whether any procedural changes should be made to avoid this from occurring in the future. Or, if it is a recurring transaction, consult with legal counsel: it may be appropriate to pursue a specific exemption from the IRS and DOL.

While we highlighted only two of the compliance questions above, it is worth your time and effort to review each one: that the answer is accurate and that you are familiar with those questions marked, “Yes.”

Authors: Kyle Wyant, Mark Buckberg, and Ashleigh Hall

If you have questions on any of them and how to use other information disclosed on this schedule to assess your plan’s health and think strategically about the future, reach out to a member of Withum’s Employee Benefits Services team today.

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Schedule R

Schedule R provides information on defined benefit (e.g., pension) plan distributions, funding, major contributing employers, withdrawn employers in the current and past years, and high-level investment information. It is required only for defined benefit plans.

What can you take away from reading your plan’s Schedule R?

  • Did your plan adopt any amendments during the year that increased or decreased the value of benefits? Ensure that line 9 is properly completed.
  • Line 14 reports the number of inactive participants on whose behalf no contributions were made by an employer during the year, generally as a result of withdrawn employers. Do the numbers reported appear consistent with withdrawn employer activity during the year? Also note that if this number is rising rapidly, it could affect the plan’s long-term health and ability to fund benefits. How might this change your approach to decisions about the plan now and going forward?

Authors: Madison Fishwick, Mark Buckberg, and Ashleigh Hall

For more information on how to assess your plan’s health and think strategically about the future, reach out to a member of Withum’s Employee Benefits Services team today.

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Multiemployer Benefit Plans

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