Significant Proposed Form 5500 Changes
Contributed by Kimberly Flett
In July 2016, the government agencies that administer the Form 5500 Annual Return/Report of Employee Benefit Plan (Form 5500) announced proposed changes to the Form 5500 which are expected to significantly impact the degree of plan details reported as well as the amount of time and effort to properly complete the form. Revisions are effective for the 2020 Form 5500 for plan years beginning on or after January 1, 2019, with certain changes potentially required sooner, including new compliance questions. The Department of Labor (DOL) has indicated that the purpose of the changes is to modernize the financial statement and investment information filed about employee benefit plans, update service provider and fee information, require Form 5500 reporting by all group health plans, and provide greater DOL and IRS agency collaboration through new compliance questions. The proposed revisions were open for comment, with an extended deadline of December 5, 2016.
Some of the notable proposed modifications include:
- Individual changes to schedules that include the addition of a new Schedule J for group health plans with questions specific to the Public Health Service Act. Small group health plans that have been previously exempt from filing will now need to report coverage on Form 5500. This will increase the number of plan sponsors filing Form 5500 for health plan coverage. Schedule E for ESOP plans will be reinstated (this schedule was previously removed) and Schedule I for small plans will be eliminated and replaced by Schedule H with an audit report exemption.
- Schedule H will be expanded to incorporate information on alternative investments, hard-to-value assets and investments through collective investment vehicles through the inclusion of new categories, such as derivatives, foreign investments, limited partnerships, venture capital, private equity, hedge funds, self-directed brokerage accounts and tangible personal property. Plan sponsors will need to report the number and type of investment funds offered, including the default investment for the plan. Plan fees will be classified in greater detail including salaries, audit and recordkeeping fees. Additional changes will include reporting information currently on the Schedule H, Line 4i – Schedule of Assets (Held at End of Year) and Schedule H, Line 4j – Schedule of Reportable Transactions attachments directly onto the body of the Schedule H in order to present this information within the filing in a data compliance format necessary for the electronic filing requirements.
- Schedule C will include more information regarding fee disclosure requirements for small plan filers and a separate Schedule C for each service provider.
- New questions throughout that focus on plan participation and compliance, including reporting of any enhanced contribution details, monitoring uncashed checks for plan distributions, confirming whether 401(k) plan participants were provided required fee disclosures, whether required minimum distributions were made to 5 percent owners and if any hardship distributions were made during the year. Additionally, plan coding descriptions will be replaced with “yes” and “no” responses.
- Audit requirements may be affected due to changing the audit count threshold on participants with actual account balances (rather than including in the count employees who are eligible to participate, but do not have an account balance).
- There are new required disclosures related to the plan auditor:
- Disclosure of the audit engagement partner and audit matters
- The auditor’s communications with those charged with plan governance
- The audit firm’s peer review information
- Inclusion of the plan’s limited audit scope certification (for plans for which a limited scope audit was performed)
Although the revisions are not effective immediately, plan sponsors, service providers and practitioners should begin to consider how to address the impact of changes once the Form 5500 is finalized, including:
- Service provider/recordkeeping systems will need to be upgraded to provide more detailed information (such as for investments held) for plan sponsors to meet the new requirements.
- Form 5500 preparers will need to gather more information in regards to completing the detailed compliance questions.
- Small business sponsors of health plans that did not previously need to report may be subject to the new filing requirements.
This article originally appeared in BDO USA, LLP’s “EBP Commentator” blog (Fall 2016). Copyright © 2016 BDO USA, LLP. All rights reserved. www.bdo.com