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CFR Citation: 29 CFR Part 2520

RIN ID: RIN 1210-AB06

NOTICE: Part II

DOCUMENT ACTION: Final rule.

SUBJECT CATEGORY: Annual Reporting and Disclosure

DATES: This rule is effective January 15, 2008.

DOCUMENT SUMMARY: This document contains amendments to Department of Labor regulations relating to annual reporting and disclosure requirements under Part 1 of Subtitle B of Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The amendments contained in this document are necessary to conform the annual reporting and disclosure regulations to revisions to the Form 5500Annual Return/ Report of Employee Benefit Plan, including a new Form 5500SF (Short Form or Short Form 5500), filed for employee pension and welfare benefit plans under ERISA and the Internal Revenue Code of 1986, as amended (Code). The changes to the Form 5500 forms and implementing regulatory amendments are intended to facilitate the transition to an electronic filing system, reduce and streamline annual reporting burdens, especially for small businesses, and update the annual reporting forms to reflect current issues, agency priorities and new requirements under the Pension Protection Act of 2006. Some of the forms revisions apply on a transitional basis for the 2008 reporting year before all of the form revisions are fully implemented as part of the switch under the ERISA Filing Acceptance System (EFAST) to a wholly electronic filing system for the 2009 reporting year. The current effective date of the electronic filing requirement under 29 CFR 2520.104a2 also is being postponed in this document to apply to plan years beginning on or after January 1, 2009. The regulatory amendments will affect the financial and other information required to be reported and disclosed by employee benefit plans filing the Form 5500 Annual Return/Report of Employee Benefit Plan, including the Form 5500SF, under Title I of ERISA.

SUMMARY: Labor Department, Employee Benefits Security Administration,

SUPPLEMENTAL INFORMATION

Under Titles I and IV of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Internal Revenue Code, as amended (Code), pension and other employee benefit plans generally are required to file annual returns/reports concerning, among other things, the financial condition and operations of the plan. Filing the Form 5500, ``Annual Return/Report of Employee Benefit Plan,'' together with any required attachments and schedules (Form 5500 Annual Return/Report) through the ERISA Filing Acceptance System (EFAST) generally satisfies these annual reporting requirements. The Form 5500 Annual Return/Report is the primary source of information concerning the operation, funding, assets, and investments of pension and other employee benefit plans. In addition to being an important disclosure document for plan participants and beneficiaries, the Form 5500 Annual Return/Report is a compliance and research tool for the Department of Labor (Department), Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) (collectively, the Agencies) and a source of information and data for use by other federal agencies, Congress, and the private sector in assessing employee benefit, tax, and economic trends and policies.

On July 21, 2006, the Agencies published a notice of proposed forms revisions (July 2006 Proposal) with changes to the Form 5500 Annual Return/Report for the 2008 reporting year. 71 FR 41615. The proposed form changes were intended to: facilitate the transition to a wholly electronic filing system for the 5500 Forms, including removal of IRS only schedules; reduce and streamline annual reporting burdens, especially for small businesses, with the establishment of a new Short Form 5500; and update the annual reporting forms to reflect current issues and agency priorities, including enhanced reporting of plan fees and expenses. The Department also published a final rule requiring electronic filing of the Form 5500 Annual Return/Report for plan years beginning January 1, 2008 (Electronic Filing Rule). 71 FR 41359 (July 21, 2006). On December 11, 2006, the Agencies published a Notice of Supplemental Proposed Forms Revisions (Supplemental Notice). The Supplemental Notice was necessary to make changes to the Form 5500 Annual Return/Report required by the Pension Protection Act of 2006, Pub. L. 109280, 120 Stat. 780 (2006), enacted on August 17, 2006 (PPA). 71 FR 71562.

The Department received 38 comment letters on the July 2006 Proposal from representatives of employers, plans, and plan service providers.\1\ It received seven comments on the Supplemental Notice. Copies of the comments are posted on the Department's Web site at http://www.dol.gov/ebsa/regs. \1\ The Department also received a comment letter from the United States Department of Commerce, Economic and Statistics Administration, Bureau of Economic Analysis (BEA), indicating that the BEA relies on the information collected in the Form 5500 to prepare certain statistics.

The preamble to this Notice outlines the final amendments being adopted to the Department's annual reporting regulations to reflect the changes being adopted to the Form 5500 Annual Return/Report, the Form 5500SF ``Short Form Annual Return/Report of Small Employee Benefits Plan'' (Form 5500SF or Short Form 5500), and the required attachments and schedules (collectively, the 5500 Forms) published simultaneously. A comprehensive discussion of the changes to the 5500 Forms and instructions is in a separate notice of adoption of final revisions to the annual report/return forms (Forms Revision Notice) that is being published in today's Federal Register. To avoid unnecessary duplication, that discussion is incorporated herein by reference and only a general summary of the form and instruction changes is included in this preamble as background for the required cost/benefit and regulatory impact analyses.

B. Discussion of the Revisions to 29 CFR Part 2520

The public comments generally did not directly address the proposed regulations themselves. Rather, the comments were addressed to the scope and specifics of the proposed forms and instruction changes. As described more fully in the Form Revision Notice, the public comments generally approved of the Agencies' streamlining of the annual reporting requirements through the adoption of the new Form 5500SF and eliminating the IRSonly schedules from the Form 5500 Annual Return/ Report. The comments also generally supported the objectives of updating the annual return/report filing requirements to reflect current issues and enhancing transparency and accountability, although some commenters expressed concerns about the benefits, feasibility, and cost of complying with some of the proposed changes, particularly the [[Page 64711]]
proposed changes to fee and expense reporting and the extension of the normal annual reporting requirements to Code section 403(b) plans. Some commenters also suggested postponing implementation of the proposed changes to allow filers and service providers more time to implement administrative procedures and alter information systems in order to comply with the new annual reporting requirements. The comments included suggestions for various technical adjustments of the forms and instructions to clarify and explain the new annual reporting requirements.

The following sections of this preamble describe the final regulations being adopted by the Department to implement the form and instruction changes, including a postponement of the current effective date of the Electronic Filing Rule to make it applicable one year laterfor plan and reporting years beginning on or after January 1, 2009.

1. Section 2520.1031

The Department's annual reporting regulations, including 29 CFR 2520.1031, generally are promulgated under the provisions of ERISA that authorize the creation of limited exemptions and simplified reporting and disclosure for welfare plans under ERISA section 104(a)(3), simplified annual reports under ERISA section 104(a)(2)(A) for pension plans that cover fewer than 100 participants, and alternative methods of compliance for all pension plans under ERISA section 110(a). See also ERISA section 505. To accommodate the form and instruction changes set forth in the Forms Revision Notice, regulatory amendments to 29 CFR 2520.1031 are being made to update the references in the regulation to the annual return/report as revised.

(a) Short Form 5500 (Eligible Small Plan Filers)

A new twopage Form 5500SF is being adopted to streamline the reporting requirements for certain small pension and welfare plans (generally, plans with fewer than 100 participants) that meet certain conditions regarding their investments being held or issued by regulated financial institutions and that have a readily determinable fair market value as described in the final regulation at section 2520.1031(c)(2)(ii)(C). The Form 5500SF is also being adopted to provide a simplified report for plans with fewer than 25 participants as required by section 1103(b) of the PPA.\2\ A detailed description of the Form 5500SF, and a facsimile of the form and instructions are in the Forms Revision Notice being published in today's Federal Register. Substantially all of the information required to be reported by employee benefit plans on the Short Form 5500 currently is included in the more comprehensive information required to be reported as part of the Form 5500 simplified report currently available to small plans. The addition of the Short Form 5500 does not eliminate the existing simplified report available for small plans but, rather, adds the Short Form 5500 as another simplified reporting option for eligible small plans.
\2\ The PPA's requirement to provide simplified reporting for plans with fewer than 25 participants is effective for plan years beginning after December 31, 2006. The Short Form 5500 will not be available for use, however, until the move to the fully electronic filing system for plan years beginning after December 31, 2008. For the interim two years, as discussed in more detail in the Forms Revision Notice, the Agencies are offering to plans with fewer than 25 participants that would meet the eligibility requirements for the Short Form 5500 a simplified reporting option within the context of the existing annual report forms.

As more fully described in the Forms Revision Notice, the IRS has advised the Department that, although there are no mandatory electronic filing requirements for the 5500 Forms under the Code or the regulations issued thereunder, the electronic filing of the 5500 Forms, in accordance with the instructions and such other guidance as the Secretary of the Treasury may provide, will be treated as satisfying the annual filing and reporting requirements under Code sections 6058(a) and 6059(a). In addition, to ease the burdens on plans that are not subject to Title I of ERISA that file the Form 5500EZ to satisfy the annual reporting and filing obligations imposed by the Code, the IRS has advised that it will permit certain Form 5500EZ filers to satisfy the requirement to file the Form 5500EZ with the IRS by filing the Short Form 5500 electronically through the EFAST processing system. Eligible Form 5500EZ filers thus will have electronic filing and paper filing options. The electronic filing option will allow eligible Form 5500EZ filers to complete and electronically file with EFAST selected information on the Short Form 5500. Those Form 5500EZ filers will also be able to choose instead to file a Form 5500EZ on paper with the IRS.\3\
\3\ Under the voluntary electronic filing option, Form 5500EZ filers filing an amended return for a plan year will have to file the amended return electronically using the Form 5500SF if they initially filed electronically for the plan year and will have to file with the IRS using the paper Form 5500EZ if they filed for the plan year with the IRS on a paper Form 5500EZ.
(b) Removal of IRSOnly Schedules from the 5500 Forms Annual Return/ Report

For plan years beginning after December 31, 2008, the 5500 Forms will no longer include any of the schedules that are required only for the IRS. This change was made to help effectuate the adoption of a wholly electronic filing requirement for the 5500 Forms. Accordingly, the Schedule E (ESOP Annual Information) and the Schedule SSA (Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits) will no longer be required to be filed as part of the 5500 Forms.\4\ Three questions on employee stock ownership plan (ESOP) information formerly reported on the Schedule E will now be on the Schedule R (Retirement Plan Information). The IRS also has advised the Department that it intends that plan administrators, employers, and certain other entities that are subject to additional filing and reporting requirements under the Code will have to continue to satisfy any applicable requirements in accordance with IRS revenue procedures, regulations, publications, forms, and instructions.
\4\ Schedule P (Annual Return of Fiduciary of Employee Benefit Trust) was removed from Form 5500 filings beginning with the 2006 plan year (2005 plan year for Form 5500EZ) in anticipation of the move to electronic filing. See, Announcement 200763, 200730 I.R.B 65. In addition, Schedule T (Qualified Pension Plan Coverage Information) was removed from Form 5500 filings beginning with the 2005 plan year. The IRS notes that this change was not intended to effect the applicable required or optional nondiscrimination testing (including the testing options described in Revenue Procedure 93 42), 19932 C.B. 540.

(c) Schedule A (Insurance Information)

Schedule A must be attached to the Form 5500 Annual Return/Report for an ERISAcovered plan if any pension or welfare benefits under the plan are provided by, or if the plan holds any investment contracts with, an insurance company, insurance service or other similar organization. As with the proposal, the Schedule A data elements are largely unchanged from the current form. The Department adopted in the final Schedule A the proposed line item to give administrators a specific space on the Schedule A to report a failure by an insurance carrier to provide necessary information. Certain other technical changes and clarifications were made to the Schedule A and its instructions to improve Schedule A as a vehicle for disclosure of insurance fees and commissions.
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(d) Schedule SB (SingleEmployer Defined Benefit Plan Actuarial Information) and Schedule MB (Multiemployer Defined Benefit Plan and Certain Money Purchase Plan Actuarial Information) (Formerly Schedule B)

Actuarial schedules are required for defined benefit pension plans subject to the minimum funding standards (see Code section 412 and Part 3 of Title I of ERISA). Schedules SB and MB will be required to be filed as a nonstandard attachment for the 2008 plan year to meet the requirements of the PPA and, for the 2009 plan year and later, will be filed in the same manner as the other schedules under the electronic filing system.

The Schedule SB must be filed for singleemployer defined benefit pension plans (including multipleemployer defined benefit pension plans).\5\ The Schedule SB and accompanying attachments will capture identifying information about the plan and plan sponsor, the type of plan, and prior year plan size. It includes basic information about plan assets, number of participants, funding target information, and a statement by an enrolled actuary. It consists of basic actuarial worksheets designed to allow the Agencies to evaluate the plan's compliance with the funding requirements as amended by sections 101, 102, 111, and 112 of the PPA, and to ensure that the reporting requirements under ERISA, as amended by section 503 of the PPA, are included on the schedule. The material is divided into sections consisting of ``Basic information,'' ``Beginning of year carryover and prefunding balances,'' ``Funding percentages,'' ``Contributions and liquidity shortfalls,'' ``Assumptions used to determine funding target and target normal cost,'' ``Miscellaneous items,'' ``Reconciliation of unpaid minimum required contributions for prior years,'' and ``Minimum required contribution for current year.'' Airlines that have frozen pension plans electing the alternate funding schedule and plans for which the effective date of the new PPA funding rules is delayed (PBGC settlement plans, certain defense contractors, certain rural electrical cooperatives, etc.) will not be required to fill out all of these sections. Instead, additional information related to the applicable funding rules for such plans will be provided as an attachment. \5\ Unlike multiemployer plans within the meaning of ERISA sections 3(37) and 4001(a)(3) to which more than one employer is required to contribute, which must be maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer, and which must satisfy other requirements prescribed in regulations issued by the Department at 29 CFR 2510.337, multipleemployer plans are plans that cover the employees of two or more employers but are treated as singleemployer plans for various purposes under ERISA.

Schedule MB must be filed for all multiemployer defined benefit plans and money purchase plans (including target benefit plans) that are currently amortizing waivers. Schedule MB is similar to the existing Schedule B. New items that have been added include: (1) Accrued liability determined using the unit credit cost method; (2) information about whether the plan is in endangered, seriously endangered, or critical status, and, if so, whether the plan is complying with the applicable requirements for its funding improvement or rehabilitation plan; and (3) information required by PPA section 503.

(e) Schedule C (Service Provider Information)

Schedule C generally must be attached to the Form 5500 Annual Return/Report filed by large plan filers to report persons who rendered services to the plan or in connection with transactions with the plan received, directly or indirectly, $5,000 or more in compensation during the plan year, and to report terminations of plan accountants or enrolled actuaries. Consistent with recommendations of the ERISA Advisory Council Working Groups and the Government Accountability Office (GAO), EBSA has concluded that more information should be disclosed on the Form 5500 Annual Return/Report regarding plan fees and expenses. See ERISA Advisory Council Report of the Working Group on Plan Fees and Reporting on Form 5500 (November 10, 2004) (available on the Internet at: http://www.dol.gov/ebsa/publications); Private Pensions: Government Actions Could Improve the Timeliness and Content of Form 5500 Pension Information, GAO05491 (available on the Internet at: http://www.gao.gov).

Schedule C reporting continues to be limited to large plan filers and the $5,000 reporting threshold has been retained. As in the proposal, the Schedule C consists of three parts. Part I of the Schedule C requires, subject to an alternative reporting option described below, the identification of each person who received, directly or indirectly, $5,000 or more in total compensation (i.e., money or anything else of value) in connection with services rendered to the plan or their position with the plan during the plan year. To provide more informative disclosures about the types of fees being paid to or received by plan service providers, the final Schedule C requires direct compensation paid by the plan to be reported on a separate line item from indirect compensation received from sources other than the plan or plan sponsor. In addition, in light of the fact that particular service providers may receive indirect compensation of various types from various sources, the final forms revisions expand the codes currently required on the Schedule C to better identify the types of services provided and to also require codes for types of fees received by the service provider.

As noted above, the final form revisions includes an alternative reporting option for service providers whose only compensation in relation to the plan is limited to ``eligible indirect compensation'' ( certain specified types of common investment related fees) provided that written disclosure(s) are furnished to the plan administrator, including in electronic form, that disclose the existence of the indirect compensation; the services provided for the indirect compensation or the purpose for payment of the indirect compensation; the amount (or estimate) of the compensation or a description of the formula used to calculate or determine the compensation; and the identity of the party or parties paying and receiving the compensation. Where a particular service provider received only ``eligible indirect compensation'' for which the required disclosures were provided, instead of providing information on the service provider, the Schedule C may report instead identifying information on the person or persons who provided the plan with the required written disclosures.

With respect to service providers required to be listed on the Schedule C who received such eligible types of indirect compensation for which the written disclosures were not provided or any other indirect compensation, the Schedule C requires more detailed information on the indirect compensation, including, in the case of certain key service providers, information regarding the payor if the service provider received during the plan year indirect compensation from a single source of $1,000 or more.

Although filers generally have the option of reporting a formula used to calculate indirect compensation received instead of an actual dollar amount or estimate, where a formula is used to describe indirect compensation received by one of the key service providers, the amount of indirect compensation is presumed to meet the reporting thresholds for purposes of the Schedule C reporting requirements.

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As noted above, the final Schedule C includes a new Part II for plan administrators to identify each service provider that failed or refused to provide the information necessary to complete Part I of the Schedule C.

The third part of the Schedule C (Part III) is the current Part II of the Schedule C used for reporting termination information on plan accountants and enrolled actuaries.

(f) Schedule R (Retirement Plan Information)

As noted above, in light of the removal of the Schedule E (ESOP Annual Information), selected questions from the Schedule E are being incorporated into the Schedule R in order to continue to collect certain information regarding ESOPs as part of the Form 5500 Annual Return/Report.

As in the proposal, Schedule R has been modified to include additional questions required by section 503 of PPA and to collect information the PBGC needs to enable it to properly monitor the plans it insures. The new Part V collects PPArequired information on multiemployer defined benefit plans and additional information related to major contributing employers. Asset allocation questions for large defined benefit plans (1,000 or more participants) are included in Part VI. Such plans must provide a breakdown of plan assets by type of investment (stock, investmentgrade debt, highyield debt, real estate, and other). Information on the average duration of combined investment grade and highyield debt is also required. For this purpose, duration may be determined using any generally accepted methodology. Although the ESOPrelated questions will not be on the Schedule R until the shift to the wholly electronic filing system effective for the 2009 plan year, the PPArelated questions and the asset allocation questions for the PBGC will be required as a nonstandard attachment to the Schedule R for the 2008 plan year.
(g) Technical and Conforming Changes for Forms and Instructions

Various other technical and conforming changes are being adopted as part of the final changes to the 5500 Forms. Several of the more significant changes include: (1) Revision of the instructions for the Form 5500 Annual Return/Report and development of instructions for the Short Form 5500 to reflect the new structure of the returns/reports and electronic filing requirements; (2) addition of questions regarding compliance with the Department's blackout notice regulation in 29 CFR 2510.1013; (3) addition of a compliance question on whether the plan failed to pay benefits when due under the plan; (4) expansion of the use of codes to report plan feature information on pension and welfare benefit plans; (5) elimination of the optional entry of the form preparer's name and employer identification number (EIN); (6) requiring small plans to report administrative expenses separately from other expenses on the Schedule I; (7) addition of a question on whether any minimum funding amount reported for a pension plan will be met by the funding deadline; and (8) adoption of a standard format for use in connection with an independent qualified public accountant (IQPA) rendering an opinion on the supplemental schedule information on Line 4a of Schedule H and I relating to delinquent participant
contributions.
(h) PPARequired Simplified Reporting for Plans With Fewer Than 25 Participants

As noted in the Forms Revision Notice, section 1103(b) of the PPA requires a simplified report for plans with fewer than 25 participants to be available for 2007 plan year filings, i.e., filings for plan years beginning after December 31, 2006. To satisfy this requirement, the Agencies proposed giving plans covering fewer than 25 participants that would meet the conditions for being eligible to file the Short Form 5500treating those conditions as if they applied for 2007 plan year filingsthe option of filing an abbreviated version of the current Form 5500 Annual Return/Report for ``small plan'' filers. The abbreviated version, to a large extent, is an attempt to replicate, within the context of the existing Form 5500 Annual Return/Report structure, the information that would be required to be reported on the Short Form 5500 by allowing certain schedules to be excluded from the filing and requiring only certain line items to be completed on any required schedules. Although the Department received a comment suggesting that the Agencies satisfy the PPA requirement by instituting the Form 5500SF for 2007 plan year filings, the Department concluded that approach would not be feasible or appropriate given the costs that would have been required to modify the current EFAST system so that it could process the Form 5500SF. Rather, with the additional deferral in the implementation of the electronic filing requirement, the proposed simplified reporting option using the existing 5500 Forms for eligible plans with fewer than 25 participants will be available for both the 2007 and 2008 plan year filings.

Thus, for the 2007 and 2008 plan years, plans with fewer than 25 participants that meet the eligibility requirements for the Short Form 5500, treating those conditions as if they applied for 2007 and 2008 plan year filings, will be permitted to satisfy the annual reporting requirement by filing on the appropriate year form and schedules: (1) The Form 5500; (2) a Schedule A for any insurance contracts for which a Schedule A is required under current rules, completing only lines A, B, C, D and the insurance fee and commission information in Part I; (3) Schedule B for the 2007 plan year, and, for the 2008 plan year, Schedule MB for multiemployer defined pension benefit plans and certain money purchase plans, and Schedule SB for single employer defined benefit pension plans; (4) Schedule I; (5) Schedule R, completing only lines A, B, C, D, and Part II; and (6) Schedule SSA. Additional detailed guidance regarding this simplified reporting option is included in the instructions to the 2007 Form 5500 and the instructions to the 2008 Form 5500.

The Department understands that some eligible small plan filers may want to wait until the implementation of the Short Form 5500 for the 2009 plan year in order to avoid having to make changes to their annual reporting systems and procedures for 2007 and 2008 plan year filings and then adjust them again to start filing the Short Form for the 2009 plan year. The above simplified reporting alternative, accordingly, is available for plans that voluntarily take advantage of its availability. Plans with fewer than 25 participants can instead continue to file in accordance with the normal small plan rules for the 2007 and 2008 plan year.
(i) PPARequired Actuarial Schedules and Multiemployer Plan Reporting

The remaining PPArequired changes in the 5500 Forms are the new actuarial information schedules (Schedules SB and MB), most of the questions on Part V of the Schedule RAdditional Information for Multiemployer Defined Benefit Pension Plans, line 18 of the Schedule R (certain liabilities to participants and beneficiaries under two or more pension plans), and line 7 of the Form 5500 (number of employers obligated to contribute to multiemployer defined benefit plans).\6\ To comply with
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the PPA, these reporting changes for defined benefit and multiemployer pension plans are being implemented on a transitional basis under the current EFAST system for 2008 plan year annual reports. Plans required to file an actuarial schedule will check the Schedule B box on the 5500 Forms to indicate that they are filing Schedule SB or MB (for plan years beginning with the 2008 plan year) as an attachment to their filing. Similarly, as to the new Part V and line 18 on the Schedule R, and the Form 5500 question for multiemployer plans on the total number of contributing employers, as well as the new financial questions needed by the PBGC, filers will be directed in the instructions to include answers to those questions as an attachment to the Schedule R.\7\
\6\ For 2008, only multiemployer defined benefit pension plans will be required to answer the new question 7 on the 2009 Form 5500 (as a nonstandard attachment), as mandated by the PPA, but in 2009 and following years, all multiemployer plans will be required to answer the question as part of the electronic filing of the Form 5500, as proposed in the July 2006 Proposal.
\7\ Because the 2007 forms will not include the new PPA required questions, a caution was added to the 2007 Form 5500 instructions to alert short plan year filers required to complete the Schedule SB, Schedule MB or the new Schedule R questions that they will have to wait until the 2008 Forms and instructions are publicly available for use for filing.

2. Section 2520.104a2 Electronic Filing of Annual Reports

The proposed revisions to the Form 5500 Annual Return/Report, which include both those set forth in the Agencies' July 2006 Proposal and those in the Supplemental Notice to address changes required by the PPA, were part of the Agencies' move to a fully electronic filing and processing system to replace the existing largely paperbased EFAST system. As part of that initiative, the Department published the Electronic Filing Rule, establishing an electronic filing requirement for the Form 5500 Annual Return/Report and the Form 5500SF for plan years beginning on or after January 1, 2008. 71 FR 41359. In adopting the final Electronic Filing Rule, the Department responded to public comments seeking a postponement in the move to a wholly electronic filing system by agreeing to a deferral of the electronic filing mandate for one year from the 2007 plan year to the 2008 plan year. The Department agreed to the deferral in order to ensure an orderly and costeffective migration to an electronic filing system by both the Department and annual report filers. Under that deferral, the vast majority of filers would have had until at least July 2009 to make any necessary adjustments to accommodate the electronic filing of their annual report because annual reports generally are not required to be filed until the end of the 7th month following the end of the plan year. Deferring the implementation date also provided service providers, software developers, and the Department additional time to work through electronic processing issues.

A significant percentage of the commenters on the form revision proposals, including several large industry groups representing plan sponsors and service providers, asked for a further postponement in the effective date of the forms changes, and as a consequence, the electronic filing requirement. The commenters emphasized that the PPA, including its new reporting and disclosure obligations, would require many plans and service providers to update existing information management and recordkeeping systems. They also pointed out the certain of the changes in the July 2006 proposal, especially the enhanced fee disclosure requirements in Schedule C and the increased reporting by Code section 403(b) plans (described below), would also require changes in the way plans collect and keep plan information. They argued that it would be particularly burdensome to require plans to transition to the new Form 5500 annual reporting obligations, including the move to the wholly electronic filing system, at the same time as they were working to comply with new PPA requirements. Also, complications with the procurement process and delays in completing the 2007 fiscal year appropriations impacted the timing of the EFAST2 contract award.

The Department continues to believe it is important for plans, service providers, and the Agencies to have an orderly and cost effective migration to the EFAST2 electronic filing system. The Department, in conjunction with the other Agencies, has decided to defer for an additional one year the implementation of annual reporting forms changes not mandated by the PPA. In determining to publish this deferral in final form, the Department considered section 553 of the Administrative Procedure Act (APA), which requires that an agency provide for notice and comments prior to promulgating substantive rules does not apply when an agency, for good cause, unless it determines that such procedures are impractical, unnecessary or contrary to the public interest. 5 U.S.C. 553(b)(A) and (B). The Department has determined that in order to effectuate an orderly migration to the EFAST2 system, a deferral of the final rule for one additional year is warranted without further notice and comment.

First, the deferral is necessitated by delays in the contracting process beyond the Department's control, including the timing of the fiscal year 2007 budget appropriations, which prevented a contract award in time to build the new system to process 2008 plan year filings as contemplated in the original rulemaking. The Agencies now have, however, received the budgetary authorization necessary to complete the procurement process, have received bids, and are actively pursuing the process. As noted in the Department's FY 2008 Detailed Budget Documentation, available on the Internet at http://www.dol.gov, the Department is on track for implementing EFAST2 system on January 1, 2010, to process filings for the 2009 plan year.

Second, when implemented, the elimination of paper filings in favor of electronic filing will result not only in significant improvements in the timeliness and accuracy of information available to workers, regulators and the public about employee benefit plans and result in operational improvements and cost savings, a direct goal of the President's Egovernment initiative, but it will also be used to fulfill information collection and disclosure requirements of the PPA, many of which apply for the 2008 plan year. Thus, additional delays would negatively impact orderly and costeffective integration of the new PPA requirements and the new EFAST2 system, in light of the PPA's deadlines.

Third, publishing the deferral of the effective date on an interim basis with an opportunity for comment not only could potentially interfere with the contracting and budget process, but also could also harm plans by leading them to delay preparing for the move to the new system, when it is not practical to implement the new system either earlier or later.

Accordingly, under the final regulation, the electronic filing requirement and all of the forms changes, except for those mandated by the PPA discussed in this Notice and the Forms Revision Notice, will become effective for all annual report filings made under Part 1 of Title I of ERISA for plan years (reporting years for nonplan filings) beginning on or after January 1, 2009. To effectuate the deferral of the electronic filing requirement, this final rule includes an amendment to the Electronic Filing Rule published in the Federal Register on July 21, 2006. Specifically, this final rule amends the Department's regulation at 29 CFR 2520.104a2 to
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provide that the electronic filing requirement is applicable for plan years beginning on or after January 1, 2009.

Under this final rule, the vast majority of filers will now have until at least July 2010 to complete any necessary adjustments to accommodate the nonPPA required changes to the form and those required for electronic filing of their annual report because annual reports generally are not required to be filed until the end of the 7th month following the end of the plan year.

3. Section 2520.10444

Section 2520.10444 and the current Form 5500 Annual Return/Report instructions provide for limited reporting for pension plans that exclusively use a tax deferred annuity arrangement under Code section 403(b)(1), custodial accounts for regulated investment company stock under Code section 403(b)(7), or a combination of both. The exemption in section 2520.1044(b)(3) is being eliminated, with the result that Code section 403(b) pension plans subject to Title I will now be treated the same under the regulations as any other Title I pension plan for purposes of the annual reporting requirements under Title I of ERISA.

4. Section 2520.10446

In accordance with the Department's authority under section 104(a)(2)(A) and 104(a)(3) of ERISA, the Department has adopted, at 29 CFR 2520.10441, simplified annual reporting requirements for pension and welfare benefit plans with fewer than 100 participants. In addition, the Department, at 29 CFR 2520.10446, has prescribed for such small plans a waiver from the requirements of ERISA section 103(a)(3)(A) to engage an IQPA and to include the opinion of the IQPA as part of the plan's annual report. The waiver of the IQPA requirements for pension plans was conditioned, among other requirements, on enhanced disclosure in the Summary Annual Report (SAR) provided to participants and beneficiaries. In that regard, the Department prepared a model notice that plans could use to satisfy the enhanced SAR disclosure conditions. That model notice has been available at the EBSA's Web site at http://www.dol.gov/ebsa. In order to provide plan administrators with additional access to the model notice and to facilitate compliance with the audit waiver eligibility conditions, the Department has added the model notice as an appendix to section 2520.10446.\8\
\8\ The PPA requires defined benefit plans to provide an Annual Funding Notice for plan years beginning after January 1, 2008. Under the PPA, plans that provide an Annual Funding Notice will no longer have to provide an SAR. The Department has a separate regulatory initiative regarding the PPArequired Annual Funding Notice. The Department anticipates that rulemaking will provide that the enhanced disclosure required to be eligible for the waiver of the requirement for an audit by an independent qualified public accountant be included in the Annual Funding Notice for small pension plans providing that notice instead of an SAR.

5. Section 2520.104b10

Section 104(b)(3) of ERISA provides in part that, each year, administrators must furnish to participants and beneficiaries receiving benefits under a plan SAR materials that fairly summarize the plan's annual report. Section 2520.104b10 sets forth the requirements for the SAR used to satisfy that requirement and prescribes formats for such reports. The regulatory amendments described in this Notice do not include any change to the SAR content requirements. In order to facilitate compliance with the SAR requirement for Short Form 5500 filers, however, the Department is updating its crossreference guide to correspond the line items of the SAR to the relevant line items on the Form 5500 and Short Form 5500. The crossreference guide, as before, would continue to be an appendix to section 2520.104b10. C. Findings on the Revised 5500 Forms as a Limited Exemption and Alternative Method of Compliance

Section 104(a)(2)(A) of the Act authorizes the Secretary of Labor (Secretary) to prescribe by regulation simplified reporting for pension plans that cover fewer than 100 participants. Section 104(a)(3) authorizes the Secretary to exempt any welfare plan from all or part of the reporting and disclosure requirements of Title I of ERISA or to provide simplified reporting and disclosure if the Secretary finds that such requirements are inappropriate as applied to such plans. Section 110 permits the Secretary to prescribe for pension plans alternative methods of complying with any of the reporting and disclosure requirements if the Secretary finds that: (1) The use of the alternative method is consistent with the purposes of Title I of ERISA, provides adequate disclosure to plan participants and beneficiaries, and provides adequate reporting to the Secretary; (2) application of the statutory reporting and disclosure requirements would increase costs to the plan or impose unreasonable administrative burdens with respect to the operation of the plan; and (3) the application of the statutory reporting and disclosure requirements would be adverse to the interests of plan participants in the aggregate. For purposes of Title I of ERISA, the filing of a completed Form 5500 Annual Return/Report, including the filing by eligible plans of the Short Form 5500, in accordance with the instructions and related regulations, generally would constitute compliance with the simplified report, limited exemption and/or alternative method of compliance in 29 CFR 2520.1031. The findings required under ERISA sections 104(a)(3) and 110 relating to the use of the revised 5500 Forms as alternative methods of compliance, simplified report, and/or limited exemption from the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA are set forth below. In revising the 5500 Forms and making the amendments in this rulemaking, the Department has attempted to balance the needs of participants and beneficiaries and the Department to obtain information necessary to protect ERISA rights and interests with the needs of administrators to minimize costs attendant with the reporting of information to the federal government. The Department makes the following findings under sections 104(a)(3) and 110 of the Act with regard to the use of the revised 5500 Forms as a simplified report, alternative method of compliance, and/or limited exemption pursuant to 29 CFR 2520.1031(b).

The use of the revised 5500 Forms is consistent with the purposes of Title I of ERISA and provides adequate disclosure to participants and beneficiaries and adequate reporting to the Secretary. While the information that would be required to be reported on or in connection with the revised 5500 Forms deviates, as before, in some respects, from that delineated in section 103 of the Act, the information needed for adequate disclosure and reporting under Title I is required to be included on or as part of the 5500 Forms.

The use of the 5500 Forms will relieve plans subject to the annual reporting requirements from increased costs and unreasonable administrative burdens by providing a standardized format that facilitates reporting, eliminates duplicative reporting requirements, and simplifies the content of the annual report in general. The 5500 Forms are intended to reduce further the administrative burdens and costs attributable to compliance with the annual reporting requirements.

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Taking into account the above, the Department has determined that application of the statutory annual reporting and disclosure requirements without the availability of the revised 5500 Forms and the new Schedules SB and MB, would be adverse to the interests of participants in the aggregate. The revised 5500 Forms provide for the reporting and disclosure of basic financial and other plan information described in section 103 of ERISA in a uniform, efficient, and understandable manner, thereby facilitating the disclosure of such information to plan participants and beneficiaries.

Finally, the Department has determined under section 104(a)(3) of ERISA that a strict application of the statutory reporting requirements, without taking into account the revisions to the 5500 Forms would be inappropriate in the context of welfare plans for the same reasons discussed above (i.e., the streamlined forms reduce filing burdens without impairing enforcement, research, and policy needs, while at the same time providing adequate disclosure to participants and beneficiaries).
D. Regulatory Impact Analysis

Executive Order 12866 Statement

Under Executive Order 12866, the Department must determine whether a regulatory action is ``significant'' and therefore subject to the requirements of the Executive Order and review by the Office of Management and Budget (OMB). Section 3(f) of Executive Order 12866 defines a ``significant regulatory action'' as an action that is likely to result in a rule's (1) having an annual effect on the economy of $100 million or more, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities (also referred to as ``economically significant''); (2) creating serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

Pursuant to the terms of the Executive Order, it has been determined that this regulatory action is likely to have an annual effect on the economy of approximately $100 million. Therefore, this action is being treated as ``economically significant'' and subject to OMB review under section 3(f)(1) of Executive Order 12866. The Department accordingly has undertaken to assess the costs and benefits of this regulatory action in satisfaction of the applicable requirements of the Executive Order and provides herein a summary discussion of its assessment.

The amendments contained in this final rule conform the annual reporting and disclosure regulations promulgated under Title I of ERISA to final revisions to the 5500 Forms and instructions being issued simultaneously with this final rule. Inasmuch as the amendments contained in this final rule implement the forms revisions contained in the Forms Revision Notice being published simultaneously with this final rule, the Department's assessment pursuant to the Executive Order combines the regulatory amendments and the form revisions, treating these changes as a coordinated regulatory action. The Department's assessment, described below, takes into account the public comments received in response to the July 2006 Proposal and the Supplemental Notice, which are discussed in detail in the preamble of the Forms Revision Notice. That discussion, to which reference is made throughout this assessment, is hereby incorporated into this assessment by reference.

In accordance with OMB Circular A4 (available at http://www.whitehouse.gov/omb/circulars/a004/a4.pdf ), Table 1 below depicts
an accounting statement showing the Department's assessment of the net annual cost reduction associated with the provisions of the final rule and forms revisions. Over the next ten years, the Department anticipates an average annual reduction in costs of $94 million when using a 3% discount rate as suggested by OMB Circular A4.\9\ As described more fully below, the Department believes that the impact of these changes will affect individual employee benefit plans disparately, depending on their individual circumstances. While most employee benefit plans are likely to experience a decrease in costs, some plans may see an increase in costs due to these rules. Further information about the relative increase or decrease in costs likely for particular plan types is described below.
\9\ A 7% units discount rate increases the estimate of the average annual reduction to $97 million. Both annualized estimates are based on aggregate cost savings of $25.6 million in 2007, $30.2 million in 2008, and $97.4 million, starting in 2009 (all in 2009 Dollars).
Table 1.Accounting Statement: Estimated Cost Reduction From the Current Reporting Requirements to the 2009 Reporting Requirements [In millions] Estimates Units
Category Discount Primary Low High Year rate Period covered estimate estimate estimate dollar (percent) Benefits:

Annualized Monetized...... 94.3 0.0 0.0 2009 7 2007 and later. ($millions/year).......... 97.1 0.0 0.0 2009 3 2007 and later.

Annualized Quantified..... 0.0 0.0 0.0 ......... 7

Qualitative............... 0.0 0.0 0.0 ......... 3 Costs:

Annualized Monetized...... 14.8 0.0 0.0 2009 7 2007 and later. ($millions/year).......... 15.4 0.0 0.0 2009 3 2007 and later.

Annualized Quantified..... 0.0 0.0 0.0 ......... 7

Qualitative............... 0.0 0.0 0.0 ......... 3 [[Page 64717]]

Need for Regulatory Action

As described in the preambles to the July 2006 Proposal and the Supplemental Notice, the Department is promulgating these amendments of the annual reporting regulations, the revision of the Form 5500 Annual Return/Report and its instructions, and the creation of the Short Form 5500 and its instructions, with the goal of reducing the overall burden of the statutory reporting requirements and the forms without sacrificing the quality of the information collected. This action also furthers three specific Departmental initiatives, described earlier in this preamble: (1) Creating a fully electronic filing system for processing the annual reports filed by employee benefit plans; (2) responding to reports from the GAO and the ERISA Advisory Council suggesting the need for substantive changes in the information gathered through the 5500 Forms, specifically with respect to fees and expenses of employee benefit plans; and (3) effectuating new reporting and disclosure requirements contained in the PPA.

The principal reforms contained in this final action include the adoption of the Short Form 5500, the revision of reporting requirements for Code section 403(b) plans, the creation of separate Schedules SB and MB to replace the Schedule B to report actuarial information, the elimination of IRSonly schedules, and the expansion of fee reporting in Schedule C. Because of the importance of these annual return/reports as a source of information for participants and beneficiaries, as an enforcement and research tool for the Department, and as a source of information and data for use by other federal agencies, Congress, and the private sector in assessing employee benefit, tax, and economic trends and policies, the final regulatory action increases the amount and improves the quality of information that plans must disclose. Because of the voluntary nature of the employee benefit system, however, the Department, in shaping this regulatory action, has carefully balanced the need for increased and improved disclosure and plan administrators' and sponsors' interest in minimizing reporting costs.

Specifically, the burden associated with completion of the Form 5500 Annual Return/Report can be divided into two steps: reading the instructions and completing the individual line items. The current structure of the Form 5500 Annual Return/Report, even without the introduction of the Short Form 5500, in contrast to what filers would need to do to comply with the statute in the absence of the Form 5500 Annual Return/Report, allows filers to answer only relevant line items and quickly find the instructions relevant to the line items that they are required to complete. In the absence of the Form 5500, filers would be required to read and evaluate the statutory requirements and make judgments, without carefully targeted instructions, as to how to comply with the statutory reporting requirements. The Short Form 5500 requires not only less line item information than the Form 5500 itself, but eliminates the need to read instructions that are not associated with small plan filers. In addition, the elimination of IRSonly schedules also streamlines reporting under the new system.

The filing burden under these regulations thus is not only less than under the existing Form 5500 Annual Return/Report without revisions, but is less than that under the statute. Moreover, while requiring less information than does the statute, the information required, especially the new enhanced fee disclosure information, is carefully targeted to provide the Agencies, participants and beneficiaries, and others using the Form 5500 Annual Return/Report for research purposes, more informative data.

Retaining the existing efficient format of the annual return/ report, with most of the information broken out into separate schedules, along with the introduction of the Short Form 5500 for small plans invested in assets with a readily determinable market value should reduce, relative to reporting in the absence of the Form 5500 Annual Return/Report, as revised, the time required to read the instructions because filers will now be more able to skip over the instructions for schedules that do not apply to them. It is, however, expected that filers for whom major changes apply (i.e. Short Form eligible filers, Schedule SB, MB, and C filers, and Code section 403(b) plan administrators) will require additional time in the initial year of filing to thoroughly read the instructions and to familiarize themselves with the revised Form 5500 Annual Return/Report. It is assumed, however, that most filers will not require this additional time in subsequent years. Entry of the information required by the Form 5500 Annual Return/Report, including the Short Form 5500, is made from financial and other records maintained by plans. Sound accounting and general business practices would generally dictate that all or most of these records be maintained even in the absence of a reporting requirement.

As a result, these final changes are anticipated to result in an aggregate reduction of reporting costs for filers as compared with the reporting costs before promulgation of these changes. As explained below, the Department's assessment results in a conclusion that the benefits to be derived from this regulatory action justify the costs that the action imposes on the public.

Regulatory Alternatives

Executive Order 12866 directs federal agencies promulgating regulations to evaluate regulatory alternatives. The Department and the other Agencies have done so in the process of developing this final action.\10\ The preambles to the July 2006 Proposal and the Supplemental Notice describe the regulatory alternatives that were considered in making those proposals, including the possibilities of different eligibility criteria for the Short Form 5500; different approaches for satisfying the PPA requirements for additional actuarial and asset information reporting; and different types of reporting requirements for Code section 403(b) plans. In moving from the proposals to final action, the Department also considered alternatives set forth in public comments, weighing their costs and benefits against the initial proposed actions. The final decisions regarding the regulatory amendments and forms revisions are set forth and explained elsewhere in this document and in the Forms Revision Notice issued simultaneously with this document and are assessed further below. The following summarizes major alternatives considered but not adopted in finalizing these proposals.
\10\ As explained elsewhere in this preamble and in the preamble to the Forms Revision Notice, the IRS and the PBGC act jointly with the Department in promulgating the 5500 Forms. The assessment under E.O. 12866 described in this preamble, therefore, makes reference to the three Agencies' decisions in finalizing the forms changes, as well as the Department's decisions in finalizing the amendments to the reporting regulations under Title I of ERISA.

Eligibility for Short Form 5500 for certain plans with fewer than 25 participants. In considering public comments in response to both the July 2006 Proposal and the Supplemental Notice, several alternatives to the proposal regarding eligibility to file the Short Form 5500 were considered but not adopted. Specifically, alternatives considered included: (1) relaxing the proposed eligibility requirement, applicable to all small plans (with fewer than 100 participants), that 100 percent of the plan's assets be invested in
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secured, easy to value assets and (2) permitting all plans with fewer than 25 participants to file the Short Form 5500, regardless of whether the plan's investments were so invested.

As described more fully in the preamble to the Forms Revision Notice, the benefits to be gained through the ability to exercise oversight of small plans that invest in other types of assets justifies not diminishing the current burden for plans with fewer than 25 participants by having them continue to file the same information currently required on those assets. Permitting plans with employer securities or other assets that are difficult to value to file the limited information in the Short Form 5500 would be inconsistent with important policy objectives, which are underscored by the PPA's emphasis on increasing plan transparency, more accurately measuring plan assets, increasing participant control over the disposition of employer securities in defined contribution plans, and expanding the annual reporting requirements for multiemployer plans. Valuation of difficulttovalue assets, such as employer securities, may provide an opportunity for abuse or mismanagement that is not lessened by a plan's smaller size. The additional oversight possible through increased reporting responsibilities justifies the additional burden on such plans.

In any event, as described in the Forms Revision Notice, the Department estimates that 95 percent of singleemployer non403(b) plans will qualify to file the Short Form 5500, about 75 percent of which will be plans with fewer than 25 participants. Expanding Short Form filing eligibility to the remaining plans with fewer than 25 participants would only affect about 25,000 additional plans. Further, restricting Short Form 5500 eligibility based on the nature of a plan's asset investments will not deprive those noneligible small plans of simplified annual filing methods. Those small plans will still be entitled to use the other simplified reporting available to them under the Form 5500 Annual Return/Report. Taking these other simplified options into account, we estimate that this option would only have saved filing plans approximately $4.8 million per year, starting in 2009.\11\ We have concluded that this is a reasonable cost to meet the important policy goal of ensuring proper disclosure for small multiemployer plans and for plans with difficulttovalue assets. \11\ Due to the staggered implementation of the form changes, the savings in 2007 and 2008 are estimated to be about $250,000 annually.

Scope of Code section 403(b) plan reporting. The Department considered, but rejects, alternatives, suggested by commenters, to its proposal regarding expanded reporting requirements for Code section 403(b) plans that would have retained the current limited reporting requirements for such plans or modified the proposal to permit such plans their current exemption from annual audit and accountant's opinion requirements. The Department rejects these alternatives because they would significantly reduce or eliminate the benefit that will flow from expanded reporting by Code section 403(b) plans, which the Department believes will result in significant improvements in the administration of Code section 403(b) plans covered by Title I of ERISA, reducing the rate of violations currently being found in investigations of Code section 403(b) plans and increasing benefit security for such plans' participants and beneficiaries.

Scope of Schedule C reporting obligations. The Department considered and rejects several alternative approaches to the reporting of direct and indirect compensation on the Schedule C prior to developing the final decisions embodied in this action. Specifically, the Department considered and rejects alternatives that would have limited reporting of indirect compensation, including requiring reporting of only indirect compensation received by providers with direct service relationships with the plan; adding a ``de minimis'' exception for reporting cash compensation under a certain dollar amount; and reinstating the ``top 40'' provider limitation. The Department assessed the potential cost savings of these and other alternatives that would have reduced the amount and detail of information on indirect compensation required to be reported against the benefits to be gained through increased transparency regarding compensation paid to plan service providers by third parties. The Department believes that the increased transparency that will flow from the indirect compensation reporting required by this final rule will assist plan fiduciaries in assessing the value and appropriateness of their service provider relationships, making more efficient transactions possible and preventing abuses that might arise through receipt of indirect compensation. The Department's modification of its proposals on Schedule C disclosures, described in detail in the Forms Revision Notice, represents a compromise that balances the need for additional disclosure in this area against the cost to the regulated entities that additional disclosure would likely impose.

Benefits and Costs

The Department believes that the benefits to be derived from this final regulatory action, including the final amendments to the reporting regulations and the final adoption of forms revisions, justify their costs. The Department further believes that these revisions to the existing reporting requirements will both reduce aggregate reporting costs and enhance protection of ERISA rights. The Department conducted a thorough assessment of the costs and benefits of these changes as originally proposed. The major proposed changes from the July 2006 Proposal that are promulgated in this final rule essentially as proposed include: (1) Adoption of the Short Form 5500; (2) removal of the IRSonly schedules; and (3) adoption of fuller reporting requirements for Code section 403(b) plans.

Changes proposed in the Supplemental Notice that are being finalized herein without substantial change include: (1) adoption of separate Schedules MB and SB to replace Schedule B; and (2) adoption of the Short Form 5500 as one method of compliance to effectuate the PPA's directive to establish simplified reporting for plans with fewer than 25 participants.

The discussion below under Benefits and Costs presents the Department's assessment of this final action as a whole and provides discussion of the major aspects of the final action that contributed to the assessment. The discussion also makes note of some of the modifications to the proposed changes that are incorporated into the final action and describes the extent to which those modifications have affected the Department's assessment of this action's costs and benefits.

Benefits. As previously described in the July 2006 Proposal and in the Supplemental Notice, the regulatory amendments and revised versions of the 5500 Forms announced today will provide a standardized, streamlined alternative means of compliance with applicable statutory reporting requirements and will also provide appropriate simplifi

FOR FURTHER INFORMATION CONTACT Elizabeth A. Goodman or Michael I. Baird, Office of Regulations and Interpretations, Employee Benefits Security Administration, U.S. Department of Labor, (202) 6938523 (not a tollfree number).