In July 2016, the Department of
Labor proposed changes to Form 5500, the annual report of private-sector employee
benefits plans that is required of corporations and other plan sponsors
regulated under the Employee Retirement Income Security Act (ERISA).
The proposal seeks to modernize
reporting to enhance the usefulness of the form not only for users, but also
for DOL and other officials.
Form 5500 is now inaccessible to
many would-be information seekers, despite its availability on the DOL website,
which is a challenge to navigate. Some of it is incomprehensible to users
because of undefined wording. In general, the data it provides is of limited
use.
The overhaul proposal should
promote better transparency, compliance and accountability for plan
participants, investors and other users; it should also provide a principal
tool for enforcement efforts, as well as for policymakers to identify trends
for improving retirement-income security.
The proposal must bring the 5500
up to current interactive data standards, much as the Securities and Exchange
Commission began with its forms.
As a joint effort of the Labor
Department's Employee Benefits Security Administration, the Department of the
Treasury's Internal Revenue Service and the Pension Benefit Guaranty Corp.,
form 5500 is an important, critical source of financial and investment information
about 806,000 pension and welfare benefit plans, which have total assets of
$8.7 trillion and cover 143 million employees, retirees and beneficiaries,
according to numbers in the proposal. For defined benefit plans, the 5500 data
includes pension plan liabilities.
Besides overhauling the form, the
agencies must improve filing timeliness to make the form and its data more
relevant to users. Now, plan sponsors must file the report by the last day of
the seventh month after the end of the plan's fiscal year. That's an
unacceptable timeframe. Corporations must file their 10-K annual corporate
financial report within 60 days of the closing of the corporate fiscal year.
The new form should become more
useful for data mining and analytics, something the current form does not
embrace but the proposal undertakes to accomplish. The new form should provide
flexibility for updating data fields to keep up with dynamics in the
marketplace on investing and other content, rather than have to propose changes
through a formal process, which in the current procedure takes years to
complete.
In its current state, much of the
5500 form is useless. In aggregate, 44% of assets of large pension plans is
classed as pooled investments rather placed under specific asset classes, the
proposal notes, pointing out the new form will correct that shortcoming. To its
credit, new form will include “hard-to-value and other alternative investments,
such as derivatives, limited partnerships, hedge funds, private equity, and
real estate,” all heightened as oversight risks, the proposal states.
The new form must replace
incomprehensible sections to promote clarity in content. For instance, the
current form states, “If a person received only eligible indirect compensation
for which the plan received the required disclosures, you are required to
answer line 1 but are not required to include that person when completing the
remainder of this part.” Does any form user understand what that section means?
The DOL held out the proposal for
a 75-day public comment period that ran into early October. The DOL hopes to
have the form become effective for plan years beginning Jan. 1, 2019, and
posted online in 2020.
The 5500 is supposed to promote
compliance with ERISA but the current form has fallen short in achieving
confidence because of the inaccessibility and lack of user ease. That is a
primary hurdle the new form must overcome. Plan sponsors, institutional
investors, and others in the retirement community should step up to express
their recommendations for revising the proposal to make sure it accomplishes
the objectives of usefulness.
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