Bureau Of National Affairs
LABOR DEPARTMENT HOLDS HEARING ON PROPOSED FORM 5500 REVISIONS
WASHINGTON (BNA) -- While the proposed revision of the Form 5500 package is "a positive first step," certain issues should be addressed prior to implementation of changes in the annual reporting form used by pension, welfare, and fringe benefit plans, employee benefits professionals generally agreed Nov. 17.
Eight witnesses testified at a public hearing where representatives from the Labor Department, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation listened to their comments and recommendations concerning the revised package which the three agencies jointly published Sept. 3 (24 BPR 2015, Sept. 7, 1997 Special Supplement). The revised Form 5500 series aims to simplify and streamline the annual reporting requirement and reduce the filing burden for plan sponsors.
Many of the comments and suggestions for changes in the Form 5500 revisions centered around Schedule A, Insurance Information. Although most of the data collection requirements were not changed, the schedule was revised to conform to recent accounting industry changes and would now require data on a plan year basis as opposed to an insurance contract year basis.
"Schedule A has been the bane of plan sponsors' existence since it was first devised," said Joan Gucciardi who spoke for the Arlington, Va.-based American Society of Pension Actuaries.
One major problem is that 95 percent of the time insurance carriers fail to provide the necessary information to plan sponsors in a timely manner, Gucciardi said, asking that an enforcement provision be added to ensure a change in practice on the part of carriers. When questioned by a Labor Department official on specifically what such an enforcement mechanism would entail, Gucciardi said, "I hate to ask for additional administrative complexity," adding that she is not certain as to whether Schedule A should be used at all.
Gucciardi also said the form should be issued earlier in the year so that software vendors have ample time to reproduce the form and its schedules in their software systems. Earlier issuance will aid everyone in their efforts to comply with filing requirements in a timely manner, she said,
Asked about the utility of reporting commissions paid by plans in light of the Labor Department's recent attention to tax code Section 401(k) fees, several witnesses called for consistency, saying that it is unfair to single out insurance companies while not applying the disclosure requirement to other financial institutions.
"We generally want to disclose expense information, but want to be on a level playing field," said Patricia Inhoff of Principal Financial Group, a service provider based in Des Moines, Iowa. Inhoff cited brokerage fees paid on mutual funds as an example of another commission that should be disclosed.
Linda K. Shore of the Washington, D.C. law firm Groom and Nordberg echoed Inhoff's call for a consistency in regard to fee and commission disclosure requirements, saying that insurance companies already are providing significantly more information and if the requirement is changed the result will be an increased gap between insurance companies and other financial institutions.
Shore also voiced concern about the change in Schedule A requiring insurance companies to provide information to plan contract holders on a plan year basis, rather than a policy or contract year. Groom and Nordberg is representing seven major insurance companies and Shore testified on their behalf. Since most insurance companies retain information on a contract year basis, requiring them to provide information on a plan year basis would require insurance companies to devise and maintain a new system for maintaining records, she said.
A preparer line that the agencies added to Form 5500 should be moved to a more appropriate place, according to Rebecca Miller of the American Institute of Certified Public Accountants' tax and employee benefit plans committees. At the bottom of the one-page main form which plans must file, this line asks for the name of the form preparer and that individuals employee identification number. Miller questioned the positioning of the line, saying that since it is below the signature line it likely will not be completed in many cases. In addition, Miller said many different sources help in the completion of the form and with so much input it would be difficult to identify a single entity responsible for the form's preparation.
Abba Z. Krebs of the New York, NY-based Benefit Compensation Consultants agreed that the preparer line should be moved to a different position on the form, but said that if the line's inclusion is an attempt on the agencies part to aid their communication with the preparer, it is "a good start."
While most witnesses were generally pleased with the agencies' overall effort to streamline and simplify the Form 5500 package, Karen Ferguson, director of the Washington, D.C.-based Pension Rights Center offered a different viewpoint.
"We're deeply troubled by what we see as the elimination of key information," she said, voicing her view that while the proposed changes would simplify requirements for plans, plan participants would stand to lose greatly. Specifically, Ferguson said PRC opposes the elimination of the schedule of assets held for investment and the schedule of reportable events.
Ferguson urged the three agencies to "take a step back" and consider establishing an interagency task force with a private sector component to further review the issue. "You are under pressure to reduce paperwork--to reduce burdens," she said, later adding, "I understand the pressures you're under, but that should not be at the expense of participants."
The record of the hearing on Form 5500 revisions will remain open through Dec. 3 for those who wish to file additional comments with the Labor Department.
A copy of the proposed Form 5500 package is accessible on the Internet at http://www.dol.gov/dol/pwba.
Copyright © 1997 by The Bureau of National Affairs, Inc., Washington D.C.