Electronic Filing of Annual Reports, 51542-51553 [05-17185]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 70, Number 167 (Tuesday, August 30, 2005)]
[Proposed Rules]
[Pages 51542-51553]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-17185]



[[Page 51541]]

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Part VI





Department of Labor





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Employee Benefits Security Administration



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29 CFR Part 2520



Electronic Filing of Annual Reports; Proposed Rule

Federal Register / Vol. 70, No. 167 / Tuesday, August 30, 2005 / 
Proposed Rules

[[Page 51542]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2520

RIN 1210-AB04


Electronic Filing of Annual Reports

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Proposed regulation.

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SUMMARY: This document contains a proposed regulation that, upon 
adoption, would establish an electronic filing requirement for certain 
annual reports required to be filed with the Department of Labor by 
plan administrators and other entities. The Employee Retirement Income 
Security Act of 1974 (ERISA) and the Internal Revenue Code (the Code), 
and the regulations issued thereunder, impose certain annual reporting 
obligations on pension and welfare benefit plans, as well as on certain 
other entities. These annual reporting obligations generally are 
satisfied by filing the Form 5500 Series. Currently, the Department of 
Labor, the Pension Benefit Guaranty Corporation, and the Internal 
Revenue Service (the Agencies) use an automated document processing 
system--the ERISA Filing Acceptance System--to process the Form 5500 
Series filings. As part of the Department's efforts to update and 
streamline the current processing system, the Department has determined 
that improvements and cost savings in the filing processes can best be 
achieved by adopting a wholly electronic filing processing system and 
eliminating the currently accepted paper filings. The Department 
believes that a wholly electronic system will result in, among other 
things, reduced filer errors and, therefore, reduced correspondence and 
potential for filer penalties; more timely data for public disclosure 
and enforcement, thereby enhancing the protections for participants and 
beneficiaries; and lower annual report processing costs, benefiting 
taxpayers generally. As part of the move to a wholly electronic filing 
system, the regulation contained in this document would, upon adoption, 
require Form 5500 filings made to satisfy the annual reporting 
obligations under Title I of ERISA to be made electronically. In order 
to ensure an orderly and cost-effective migration to an electronic 
filing system by both the Department and Form 5500 filers, under the 
proposal the requirement to file electronically would not apply until 
plan years beginning on or after January 1, 2007, with the first 
electronically filed forms due in 2008. Upon adoption, this regulation 
would affect employee pension and welfare benefit plans, plan sponsors, 
administrators, and service providers to plans subject to Title I of 
ERISA.

DATES: Written comments must be received by the Department of Labor on 
or before October 31, 2005.

ADDRESSES: Comments should be addressed to the Office of Regulations 
and Interpretations, Employee Benefits Security Administration (EBSA), 
Room N-5669, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210. Attn: Form 5500 E-filing regulation (RIN 1210-
AB04). Comments also may be submitted electronically to e-ori@dol.gov 
or by using the Federal eRulingmaking Portal: https://
www.regulations.gov (follow instructions provided for submission of 
comments). EBSA will make all comments available to the public on its 
Web site at https://www.dol.gov/ebsa. The comments also will be 
available for public inspection at the Public Disclosure Room, N-1513, 
EBSA, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Yolanda R. Wartenberg, Office of 
Regulations and Interpretations, Employee Benefits Security 
Administration, (202) 693-8510. This is not a toll-free number.

SUPPLEMENTARY INFORMATION: 

A. Background

    Sections 104(a) and 4065 of the Employee Retirement Income Security 
Act of 1974, as amended (ERISA), and sections 6057(b) and 6058(a) of 
the Internal Revenue Code of 1986, as amended (the Code), and the 
regulations issued under those sections, impose certain annual 
reporting and filing obligations on pension and welfare benefit plans, 
as well as on certain other entities.\1\ Plan administrators, 
employers, and others generally satisfy these annual reporting 
obligations by filing the Form 5500 Annual Return/Report of Employee 
Benefit Plan, together with any required attachments and schedules for 
the particular plan (Form 5500).\2\
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    \1\ Other filing requirements may apply to employee benefit 
plans under ERISA or to other benefit arrangements under the Code, 
and such other filing requirements are not within the scope of this 
proposal. For example, Code sec. 6033(a) imposes an additional 
reporting and filing obligation on organizations exempt from tax 
under Code sec. 501(a), which may be related to retirement trusts 
that are qualified under sec. 401(a) of the Code. Code sec. 6047(e) 
also imposes an additional reporting and filing obligation on 
pension benefit plans that are employee stock ownership plans 
(ESOPs).
    \2\ For purposes of the annual reporting requirements under the 
Code, certain pension benefit arrangements that cover only business 
owners or partners (and their spouses), which are not employee 
benefit plans under Title I of ERISA, are permitted to file the Form 
5500-EZ to satisfy filing requirements under the Code. See 
instructions to the Form 5500-EZ to determine who may currently file 
the Form 5500-EZ.
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    Currently, the Department of Labor, the Pension Benefit Guaranty 
Corporation, and the Internal Revenue Service (the Agencies) use an 
automated document processing system--the ERISA Filing Acceptance 
System (EFAST)--maintained by the Department of Labor (the Department) 
to process annual reports. Using the EFAST system, the Department 
annually receives and processes approximately 1.4 million filings. For 
the 2002 plan year, these filings translated into approximately 25 
million paper pages.
    Developed in 1998 and 1999, the EFAST system relies on a mixture of 
filing and processing methods to accept, compile, and monitor the Form 
5500 filings. The EFAST system currently accepts filings generated 
using any of three different formats: (1) Government printed ``hand-
print'' forms, which must be filed on paper; (2) computer-generated 
paper forms identical in format to government-printed hand-print forms, 
which also must be filed on paper and are treated in processing the 
same as hand-print forms; and (3) computer-generated forms in which 2D 
bar code technology is used to encode filer data (known as the 
``machine-print'' version of the forms), which may be filed either on 
paper or electronically. As indicated, only the computer-generated 
machine-print forms may be filed electronically, and the Agencies 
currently accept machine-print filings through any of the following 
electronic methods of transmission: (1) Via modem using file transfer 
protocol (FTP), or (2) on magnetic or optical media, such as CD-ROM, 
computer diskette, or magnetic tape. To process the different filing 
formats, the system uses a variety of computer technologies, such as 
optical character recognition technology to read data from the hand-
print forms; 2D bar-coding technology to read coded filer information 
printed on the ``machine-print'' forms submitted on paper; scanning 
technology to retain images of paper filings; etc.
    A private contractor performs the EFAST processing under a time-
limited contract with EBSA. The end of the time-limited contracting 
cycle and the

[[Page 51543]]

beginning of another contracting cycle present a significant 
opportunity for EBSA to evaluate the system and to make changes to take 
advantage of technological advances. In connection with that process, 
in March, 2004, the Department posted a request for public comments 
(Request for Comment) on its website relating to updating the current 
EFAST processing system.\3\
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    \3\ The Request for Comment may be reviewed at: https://
www.efast.dol.gov/efastrfc.html.
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    The Request for Comment set out the Department's preference for 
enhanced electronic filing and described in detail its understanding of 
the deficiencies in the EFAST design that impede use of the current 
electronic filing option. The Request for Comment stated that the 
Department's goal in developing a new processing system is to make it 
``more accessible to its user base through Internet and Web-based 
technology, devoid of paper to the greatest extent possible, faster, 
less expensive, and more accurate'' and to ensure that ``electronic 
filing becomes more convenient and beneficial for all users and 
stakeholders.'' The Department noted that ``[t]he full benefits of 
electronic processing have not * * * been realized * * * because 
[EFAST's] electronic filing option has been underutilized.'' \4\ The 
Request for Comment noted the benefits to be gained from electronic 
filing, explaining that, compared with electronic filings, using paper-
based forms is less accurate in terms of data capture and less 
efficient in terms of processing--paper filings take three times as 
long as electronic filings to process and have nearly twice as many 
errors, which often trigger follow-up letters from the Agencies seeking 
corrections or clarifications concerning the filed information. Such 
filings may also result in the imposition of penalties under ERISA and 
the Code.
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    \4\ The Department specifically identified technical 
deficiencies involving the process for obtaining and using 
electronic signatures, the use of outdated transmission methods, and 
the continued use of paper for post-filing communications. The 
Request for Comment suggested various technical design changes to 
address these and other deficiencies, including creating an 
Internet-based method of filing; requiring that approved software be 
designed only for Internet transmission of computer-generated 
filings; adopting improved data exchange technology based on widely-
accepted standards, such XML; improving the technical handling of 
third-party attachments and attestations; and eliminating 
differences in treatment between paper and electronic filings with 
respect to acceptance and rejection.
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    Signaling the Department's interest in moving to an electronic 
filing system for the Form 5500 Series, the Request for Comment 
specifically requested comment on whether a reduction in the available 
filing methods, up to and including adoption of an electronic filing 
mandate, would be an appropriate solution to the problems caused by 
underutilization of electronic filing.
    In response to the Request for Comment, the Department received 
many constructive and useful comments from a diverse group of 
interested parties, including small business owners, sponsors and 
administrators of small and large plans, actuaries, accountants, 
entrepreneurs involved in the development and sale of EFAST-approved 
software, and firms that prepare Form 5500 filings for a wide variety 
of employee benefit plans.\5\ Public comment was largely in accord with 
the Department's analysis of EFAST's technical deficiencies as laid out 
in the Request for Comment.
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    \5\ Comments received in response to the Request for Comment may 
be reviewed at: https://www.dol.gov/ebsa/regs/cmt_efastrfc.html.
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    Based on what appears to be a consensus as to the current technical 
deficiencies of EFAST, the Department has begun the technical process 
necessary for the development of a new processing system. At the same 
time, the Agencies separately are undertaking a comprehensive review of 
the Form 5500 Series in an effort to determine what, if any, design or 
data changes should be made, in anticipation of the new processing 
system. Neither the technical project for development of a new 
processing system, nor the Form 5500 Series project, however, is the 
subject of this proposal.\6\ Any Form or related regulation changes 
will be proposed for public comment as part of a separate rulemaking.
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    \6\ In connection with this proposal, the Department is 
providing in this document further information respecting the 
technical design and Form 5500 content projects underway within the 
Department concerning the Form 5500 Series. The Department believes 
the information about those two other projects will assist the 
public in evaluating this proposal; however, the Department notes 
that it is not asking for public comment at this time on those two 
separate projects. The proposal contained in this notice concerns 
only the mandate of electronic filing. The public will have adequate 
separate opportunity for public comment on the Form 5500 regulatory 
initiative prior to its finalization and ample time to make 
necessary practical changes prior to implementation of the new 
processing system.
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    The subject of this proposal is the Department's determination that 
any new processing system designed to replace EFAST must have as its 
core component a requirement that all Form 5500s be submitted through 
electronic means. The Department's determination that electronic filing 
must be the sole method available under the new processing system is 
not dependent on the extent or type of data that will be required of 
filers or the form or forms in which it must be provided; nor is it 
dependent on the exact software or hardware that will ultimately be 
devised to accommodate electronic filing, either by the Federal 
government or by the private sector. Rather, this determination arises 
from the Department's conclusion that electronic filing will benefit 
plan sponsors, participants and beneficiaries, and the taxpayer, based 
on the Department's investigation and analysis, described more fully 
below, of the practical alternatives. The proposal for an electronic 
filing requirement contained in this notice is therefore being 
published in advance of the other projects related to the Form 5500 
Series and processing because the Department has concluded, based on 
considerations explained more fully below, that it is essential to the 
success of any redesign of EFAST that it provide filers and other 
affected parties adequate time to make the transition to a fully 
electronic method of filing the Form 5500 Series. Given the importance 
of the contemplated transition, the Department is publishing this 
proposal separately to describe the reasoning behind its conclusion and 
to solicit public comment on how best to proceed with the transition to 
electronic filing.

B. Public Comment and Alternatives

    Virtually all of the public comments submitted in response to the 
Request for Comment recognized the value of electronic filing over 
paper filing and expressed support for increasing the use of electronic 
filing. The majority of comments also endorsed the concept of a gradual 
transition to 100 percent electronic filing. A clear consensus among 
commenters further favored the development of a secure Internet website 
on which a filer could file the Form 5500 through direct input of data, 
provided it was cost-free to the filer. Nonetheless, the commenters 
opposed an immediate mandate of electronic filing as the next step in 
EFAST development. The commenters argued that an immediate mandate 
would impose economic burdens on small businesses and small plans, 
which may not have easy access to the Internet. The commenters urged 
the Department to make only incremental changes, building on the 
current system and taking into account the substantial investments that 
the filing public has already made to accommodate EFAST. One 
representative commenter, speaking on behalf of a large number of large 
employers and service providers to employers of all sizes, suggested 
that, although electronic filing provides

[[Page 51544]]

many advantages to both the public and the government, the Department 
should phase in any mandate over time by market segment, starting first 
with the largest employers who are already familiar with electronic 
filing, such as is required by the Securities and Exchange Commission. 
Other commenters asked the Department to allow sufficient time for 
experimentation and testing before inaugurating a mandate.
    In developing this proposed regulation, the Department sought to 
advance two main goals. One was to maximize the speed, efficiency, and 
accuracy with which annual reports are transmitted, accepted, and 
processed, thereby enhancing the protection of participants' rights. 
The other was to minimize the burden placed on filers. In pursuit of 
these goals, the Department considered and analyzed several 
alternatives, taking into account the costs and benefits attendant to 
each. These included the following: (1) Creating a new processing 
system that could continue to process both electronic and paper 
submissions without limitation; (2) continuing the present, primarily 
paper-based processing system on an interim basis alongside a new, 
solely electronic processing system; (3) developing a new, primarily 
electronic processing system with a temporary capacity to process a 
limited number of paper filings, which would be made available under 
criteria targeting those filers most likely to desire a longer 
transition period; and (4) transitioning to a new, solely electronic 
processing system under a uniformly applicable requirement to file 
electronically.
    The Department considered the costs and benefits of each of these 
alternatives, and its economic analysis is described below under the 
heading ``Regulatory Impact Analysis.'' Based on its analysis of the 
alternatives, the Department has concluded that the maintenance of any 
paper filing system, even on a reduced scale and/or for limited periods 
of time, which would be required under any of the first three 
alternatives, would be inherently inefficient and unnecessarily costly. 
It is also the Department's view that any economic benefit that might 
accrue to some class of filers under those alternatives would be 
outweighed by the benefits to participants and beneficiaries at large, 
and to the Department and taxpayers generally, of implementing a 
single, wholly electronic system. Accordingly, the Department has 
decided to propose adoption of a uniform requirement to file 
electronically, as detailed further below.\7\
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    \7\ This approach is congruent with recommendations of the 
Government Accountability Office, which, in a June, 2005, Report to 
Congressional Committees, stated that ``[g]iven the improved 
timeliness and reduced errors associated with electronic filing, 
Labor, IRS and PBGC should require the electronic filing of the Form 
5500.'' See Private Pension--Government Actions Could Improve the 
Timeliness and Content of Form 5500 Pension Information (GAO-05-491) 
at 44. The Report went on to state ``[i]n doing so, Labor should 
also make improvements to the current electronic filing process to 
make it less burdensome, such as revising the procedure for signing 
and authenticating an electronic filing.''
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    In so doing, the Department believes that transitioning to a new 
wholly electronic processing system will not present the problems 
suggested by the public responses to the Request for Comment. First, as 
explained more fully below, the Department intends to ensure that the 
new processing system will remedy the existing technical difficulties 
that underlie the perceived limitations of EFAST's current electronic 
filing design and will provide an electronic filing process that will 
be simpler, easier, and more attractive to filers.
    Second, the Department does not believe that transitioning to the 
new processing system will impose undue burdens on small plans or small 
employers. Rather, the Department's analysis indicates that filers' 
costs of transitioning from paper filing to electronic transmission 
will be relatively modest and surpassed by benefits that will accrue in 
subsequent years.
    Finally, the Department intends to delay implementation of any 
electronic mandate until the due date for the filing of Form 5500 
Series for the plan year beginning in 2007, generally July 2008 or 
later. The Department believes that this substantial time delay of the 
proposed full electronic mandate will provide the public with adequate 
time to make adjustments in advance of the implementation of the new 
filing system.
    The Department's conclusions concerning the public comments and 
alternatives are grounded in the Regulatory Impact Analysis presented 
below.
    The Department invites comment on the need for an exception to 
accommodate any potentially significant impediments to some filers' 
transition to electronic filing. Commenters are encouraged to provide 
specific examples of such impediments, as well as to address the 
specific conditions for, and necessary scope of, relief under a 
hardship exception.

C. Electronic Filing

    After careful consideration of the comments on the Request for 
Comment, as well as the need to develop a more efficient, cost-
effective processing system for annual return/reports, the Department 
has determined, consistent with the goals of E-government, as 
recognized by the Government Paperwork Elimination Act \8\ and the E-
Government Act of 2002,\9\ to require electronic filing of the Form 
5500 to satisfy the reporting requirements of section 104(a) of Title I 
of ERISA. A mandate of electronic filing of benefit plan information, 
among other program strategies, will facilitate EBSA's achievement of 
its Strategic Goal of ``enhancing pension and health benefits of 
American workers.'' EBSA's strategic goal directly supports the 
Secretary of Labor's Strategic Goals of ``protecting workers benefits'' 
and of ``a competitive workforce,'' as well as promoting job 
flexibility and minimizing regulatory burden.\10\ A cornerstone of our 
enforcement program is the collection, analysis, and disclosure of 
benefit plan information. Requiring electronic filing of benefit plan 
information, with the resulting improvement in the timeliness and 
accuracy of the information, would, in part, assist EBSA in its 
enforcement, oversight, and disclosure roles, which ultimately enhance 
the security of plan benefits. As the Government Accountability Office 
noted in its June, 2005, report on the Form 5500 Series,\11\ the 
current necessity for handling paper filings under EFAST creates a 
substantial delay between receipt of a filing and the availability of 
its information for any enforcement and oversight purposes. Stating 
that ``the abundance of paper filings results in long processing 
times,'' the GAO estimated, for purposes of illustration, that the 
processing time for a paper filing under EFAST averages 90 days from 
date of receipt where no filing errors are detected.\12\ Electronic 
filing would eliminate virtually all of this processing time, improving 
outcomes for all of the users of the Form 5500 information. In this 
regard, the PBGC has advised the Department that

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electronic filing will enable PBGC to receive important information 
about defined benefit plans more quickly and efficiently, improving the 
PBGC's ability to monitor plan funding; calculate bankruptcy claims; 
estimate the impact of non-bankruptcy reportable events; evaluate 
exposure and expected claims; study plan formation and termination 
trends; and assess compliance with PBGC premium requirements.
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    \8\ Title XVII, Pub. L. 105-277, 112 Stat. 2681 (Oct. 21, 1998).
    \9\ Pub. L. 107-347, 116 Stat. 2899 (Dec. 17, 2002).
    \10\ For further information on the Department of Labor's 
Strategic Plan and EBSA's relationship to it, see https://
www.dol.gov/_sec/stratplan/main.htm.
    \11\ See fn. 7, above.
    \12\ See Private Pensions--Government Actions Could Improve the 
Timeliness and Content of Form 5500 Pension Information (GAO-05-491) 
at 28, fig. 9 at 32. GAO also noted that, where errors in a filing 
are detected, additional processing delays of up to 120 more days 
occur.
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    In order to ensure an orderly and cost-effective migration to an 
electronic filing requirement and a new processing system, the 
requirement to file the Form 5500 electronically would apply only to 
annual return/reports required to be filed under ERISA section 104(a) 
for plan years beginning on or after January 1, 2007.
    For purposes of the annual reporting requirements under section 
4065 of Title IV of ERISA, the Pension Benefit Guaranty Corporation 
(PBGC) has advised the Department that a plan administrator's 
electronic filing of a Form 5500 for purposes of ERISA section 104(a), 
together with the required attachments and schedules and otherwise in 
accordance with the instructions to the Form, will be treated as 
satisfying the administrator's annual reporting obligation under 
section 4065 of Title IV of ERISA.\13\ Similarly, for purposes of the 
annual filing and reporting requirements of the Code, the Internal 
Revenue Service (IRS) has advised the Department that, although there 
are no mandatory electronic filing requirements for a Form 5500 under 
the Code or the regulations issued thereunder, the electronic filing of 
a Form 5500 by plan administrators, employers, and certain other 
entities for purposes of ERISA section 104(a), together with the 
required attachments and schedules and otherwise in accordance with the 
instructions to the Form, will be treated as satisfying the annual 
filing and reporting requirements under Code sections 6058(a) and 
6059(a). The IRS intends that plan administrators, employers, and 
certain other entities that are subject to various other filing and 
reporting requirements under Code sections 6033(a), 6047(e), and 
6057(b) must continue to satisfy these requirements in accordance with 
IRS revenue procedures, publications, forms, and instructions.
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    \13\ It should be noted that all administrators of plans 
required to file reports under ERISA sec. 4065 also are required to 
file reports for purposes of sec. 104(a) of ERISA.
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    With respect to annual reporting and filing obligations imposed by 
the Code but not required under section 104(a) of ERISA, such as are 
currently satisfied by the filing of the Form 5500-EZ, the IRS has 
advised the Department that it is currently working with taxpayers to 
explore how best to make a transition from paper filing to electronic 
filing in a manner that minimizes the burdens on taxpayers and 
practitioners. In this regard, the IRS has promulgated regulations 
mandating or permitting electronic filing of certain returns filed by 
pension and welfare benefit plans.\14\
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    \14\ See, e.g., 26 CFR 301.6033-4T (mandating electronic filing 
of certain corporate income tax returns and returns of organizations 
required to be filed under Code sec. 6033); 26 CFR 1.6033-4T 
(returns required to be filed on magnetic media under 26 CFR 
301.6033-4T must be filed in accordance with IRS revenue procedures, 
publications, forms, or instructions).
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    With regard to the development of a new annual return/report 
electronic processing system, the Department is committed to resolving 
the electronic filing impediments identified by commenters on the 
Request for Comment, in particular those impediments relating to 
electronic signatures, attachments, and attestations furnished by third 
parties (e.g., accountants, actuaries, etc.).
    It is anticipated that the new electronic filing system will 
incorporate the Internet as the sole medium for transmission of all 
filings and that the system will incorporate immediate validity and 
accuracy checks that will reduce both the error and rejection rate of 
filings and eliminate much of the costly post-filing paper 
correspondence and related potential penalties. The Department does not 
anticipate charging any filing fees in connection with the new system.
    It is intended that the new electronic filing system will provide 
more than one vehicle for the electronic submission of annual return/
reports. First, it is intended that the new filing system will offer 
users of approved, privately developed Form 5500 computer software 
(service providers to plans as well as plan administrators) a secure 
Internet-based method for transmission of Form 5500s created through 
the use of the software. This Internet-based transmission process will 
supercede all of the other currently available methods of transmitting 
machine-print versions of the Form 5500, including use of computer 
diskette, CD-ROM, magnetic tape, and modem. As the Department made 
clear in the Request for Comment, in making a transition to 100 percent 
electronic filing, the Department does not intend to supplant private 
software developers, vendors, or service providers to plans. Rather, it 
is contemplated that the new system will continue to provide support to 
these private industries, and the Department believes that filers will 
continue to rely on a variety of privately developed software products 
and services to facilitate plan administration, including the 
preparation and filing of the annual return/report. Indeed, it is 
expected that third-party software will remain the primary means of 
producing Form 5500s, with the simple difference that the reports will 
be filed electronically rather than through the use of paper. It is 
intended that service providers and software developers that provide 
value-added services for plan sponsors will be able to incorporate the 
new system's method of transmission into their services effectively and 
efficiently. Software file specifications will be non-proprietary so 
that users of different software may freely share information across 
different platforms. In this regard, the Department specifically 
invites public comment on how best to configure the new electronic 
filing architecture to provide the necessary flexibility to accommodate 
the needs of the diverse community of employee benefit plans.
    Second, the Department also intends to include in the new system, 
as a separate filing method, a dedicated, secure Internet website 
through which plan administrators (or other return/report preparers) 
will be able to input data and to complete and submit Form 5500 filings 
on an individual plan-by-plan basis. It is anticipated that the 
Internet website will provide the filer with the capability of entering 
and saving data for an individual filing through multiple sessions, 
authorizing input for that filing from multiple parties (service 
providers, accountants, actuaries, etc.), uploading attachments, saving 
return/reports to a repository, and retrieving, updating, and editing 
stored filings, as well as creating and submitting amended filing data 
to EBSA.
    As mentioned above, in connection with implementation of the 
redesign of EFAST, the Department, in coordination with the IRS and the 
PBGC, is conducting a thorough content review of the Form 5500. This 
review will be conducted as a three-agency regulatory initiative and 
will provide notice and comment opportunities for the public. The 
Department intends to consider, in conducting the content review of the 
Form 5500, changes that would facilitate electronic filing, as well as 
recommendations made by the ERISA Advisory Council on electronic 
reporting and on reporting by health

[[Page 51546]]

and welfare plans.\15\ That regulatory project will undertake to 
produce revised forms to be used for annual return/reports for the 2007 
plan year, which will be due to be filed in 2008, when the new 
processing system will be implemented and the electronic filing 
requirement will begin to apply. Within the next few months, the 
Department intends to publish a separate notice inviting public comment 
on proposed changes to the Form 5500 and related rules.
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    \15\ See, e.g., Report of the ERISA Advisory Council Working 
Group on Electronic Reporting (Nov. 8, 2002), at https://www.dol.gov/
ebsa/publications/AC_1108a02_report.html.
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D. Proposed Rule

    The proposed rule contained in this notice is necessary to 
establish a requirement for the electronic filing of the Form 5500 for 
purposes of the annual reporting provisions of Title I of ERISA. 
Although at this time it is not possible to provide full technical 
details regarding the new electronic filing system, as many of the 
technological aspects of the redesign are still in development, filing 
requirements and compliance instructions will be provided to filers in 
advance of any due date for filing the Form 5500 under a final 
regulation requiring electronic submissions.
    The proposal, upon adoption, would add a new section 2520.104a-2, 
Electronic Filing of Annual Reports, to Subpart E of Part 2520 of Title 
29 of the Code of Federal Regulations. The proposal provides that any 
Form 5500 Annual Return/Report to be filed with the Secretary of Labor 
(Secretary) for any plan year beginning on or after January 1, 2007, 
shall be filed electronically in accordance with instructions and such 
other guidance as the Secretary may provide, applicable to such annual 
report. Because the Form 5500 is also filed by certain non-plan 
entities, such as common or collective trusts, pooled separate 
accounts, and entities described in 29 CFR 2520.103-12, which file for 
the fiscal year ending with or within the plan year for which a plan's 
annual report is filed, the proposal makes further reference to the 
first ``reporting year'' beginning on or after January 1, 2007, for 
such entities.
    The proposal is intended to ensure that all Form 5500s filed with 
the Department, as well as any statements or schedules required to be 
attached to the report, including those filed by administrators (29 CFR 
2520.103-1(a)(2) and (e)), group insurance arrangements (29 CFR 
2520.103-2), common or collective trusts and pooled separate accounts 
(29 CFR 2520.103-3, 2520.103-4, and 2520.103-9), and entities described 
in 29 CFR 2520.103-12, are required (to the extent of the Department's 
authority) to be filed electronically. Following the development of a 
new electronic filing system, the Department intends to provide 
specific instructions and guidance concerning methods of filing in the 
instructions for the annual report form(s) and via its website.
    As indicated above in the discussion under ``Electronic Filing,'' 
the proposal would not apply to any reporting requirements imposed 
solely under the Code (i.e., not required under section 104(a) of 
ERISA). As discussed above, issues relating to transition from paper 
filing to electronic filing for such reporting requirements are under 
consideration at the IRS. Accordingly, the regulation would not apply 
to any attachment, schedule, or report required to be completed by a 
tax-qualified pension benefit plan solely in order to provide the IRS 
with information concerning compliance with Code section 410(b) for a 
plan year, even if such attachment, schedule, or report is required to 
accompany the Form 5500 Annual Report/Return for that year. The 
proposal also would not apply to attachments, schedules, or reports 
that the IRS requires (1) under Code section 6033(a) to be filed by a 
trustee of a trust created as part of an employee benefit plan 
described in Code section 401(a) or by a custodian of a custodial 
account described in Code section 401(f), or (2) under Code section 
6047(e) to be filed with respect to an employee stock ownership plan 
(ESOP).
    The proposal, at 29 CFR 2520.104a-2(b), makes clear that the 
requirement to file annual reports electronically does not affect a 
person's record retention or disclosure obligations. In other words, 
the obligations of persons to retain records for purposes of sections 
107 and 209 of ERISA would not be altered by the fact that the annual 
report would be required to be filed in electronic form. Similarly, a 
plan administrator's obligation to make the latest annual report 
available for examination and to furnish copies upon request, in 
accordance with sections 104(b)(2) and 104(b)(4) of ERISA, will not be 
affected by an electronic filing requirement.
    Conforming changes are being proposed to 29 CFR 2520.103-1(f) 
[contents of the annual report], 2520.103-2(c) [contents of the annual 
report for a group insurance arrangement], 2520.103-9(d) [direct filing 
for bank or insurance carrier trusts and accounts], and 2520.103-12(f) 
[limited exception and alternative method of compliance for annual 
reporting of investments in certain entities].

E. Regulatory Impact Analysis

Summary

    The Department has considered the potential costs and benefits of 
this proposed regulation. Costs to plans would consist mainly of a one-
time, transition or start-up cost to make the change to electronic 
filing, generally to be incurred in 2008, which is estimated to be $23 
million. Benefits to plans would include ongoing savings on material 
and postage and efficiency gains from the early detection and 
correction of more potential filing errors in the course of electronic 
filing, estimated to total $10 million annually, and realized each 
succeeding year beginning in 2008. Over time the ongoing savings 
attributable to this proposed regulation are expected to outweigh its 
one-time transition costs. Aggregate savings are estimated to exceed 
aggregate costs by $23 million over the first five years (discounting 
future savings at a rate of 7 percent).
    Additional benefits are expected to accrue to the government and 
the public in the forms of substantially reduced processing costs and 
more timely availability of accurate filing data for use in enforcement 
and for other purposes of benefit to plans and participants.

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 subject to review by the Office 
of Management and Budget (OMB). Under section 3(f) of the Executive 
Order, a ``significant regulatory action'' is an action that is likely 
to result in a rule (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

[[Page 51547]]

Order. OMB has determined that this action is significant under section 
3(f)(4) because it raises novel legal or policy issues arising from the 
President's priorities. Accordingly, the Department has undertaken 
below an analysis of the costs and benefits of the proposed regulation.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are 
likely to have a significant economic impact on a substantial number of 
small entities. Unless an agency determines that a proposed rule is not 
likely to have a significant economic impact on a substantial number of 
small entities, section 603 of the RFA requires that the agency present 
an initial regulatory flexibility analysis at the time of the 
publication of the notice of proposed rulemaking describing the impact 
of the rule on small entities and seeking public comment on such 
impact. Small entities include small businesses, organizations, and 
governmental jurisdictions.
    For purposes of analysis under the RFA, EBSA proposes to continue 
to consider a small entity to be an employee benefit plan with fewer 
than 100 participants. The basis of this definition is found in section 
104(a)(2) of ERISA, which permits the Secretary to prescribe simplified 
annual reports for pension plans that cover fewer than 100 
participants. Under section 104(a)(3) of ERISA, the Secretary may also 
provide for exemptions or simplified annual reporting and disclosure 
for welfare benefit plans. Pursuant to the authority of section 
104(a)(3), the Department has previously issued at 29 CFR 2520.104-20, 
2520.104-21, 2520.104-41, 2520.104-46, and 2520.104b-10 certain 
simplified reporting provisions and limited exemptions from reporting 
and disclosure requirements for small plans, including unfunded or 
insured welfare plans that cover fewer than 100 participants and 
satisfy certain other requirements.
    Further, while some large employers may have small plans, in 
general small employers maintain most small plans. Thus, EBSA believes 
that assessing the impact of these proposed rules on small plans is an 
appropriate substitute for evaluating the effect on small entities. The 
definition of small entity considered appropriate for this purpose 
differs, however, from a definition of small business that is based on 
size standards promulgated by the Small Business Administration (SBA) 
(13 CFR 121.201) pursuant to the Small Business Act (15 U.S.C. 631 et 
seq.). EBSA therefore requests comments on the appropriateness of the 
size standard used in evaluating the impact of these proposed rules on 
small entities.
    These proposed rules may have a significant impact on a substantial 
number of small entities. The Department has therefore prepared an 
initial regulatory flexibility analysis, presented below under the 
heading ``Small Plans.'' Additional relevant material also appears 
below under the heading ``Alternatives Considered.''

Costs and Benefits

    The Department has considered the potential costs and benefits of 
this proposed regulation. Costs to plans would include a one-time 
transition or start-up cost to make the change to electronic filing, 
estimated to be $23 million. Benefits would include ongoing savings on 
material and postage and efficiency gains from the early detection and 
correction of more potential filing errors in the course of electronic 
filing, estimated to total $10 million annually. Over time the ongoing 
savings attributable to this proposed regulation are expected to 
outweigh its one-time transition costs. Aggregate savings are estimated 
to exceed aggregate costs by $23 million over the first five year 
(discounting future savings at a rate of 7 percent). Additional 
benefits are expected to accrue to the government and the public in the 
forms of reduced processing costs and more timely availability of 
accurate filing data. Beyond that, it is not immediately clear how the 
costs and benefits of mandatory electronic filing will compare with 
that of current filing modes, and the Department invites comments on 
this point.
    The costs and benefits of this proposed regulation would accrue 
primarily to 832,000 plans that file Form 5500.\16\ Non-plan entities 
that file Form 5500 generally do so in their capacity as service 
providers to plans and therefore are expected to pass their own costs 
and benefits from the regulation on to the plans they serve.\17\
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    \16\ The economic analysis of the proposed regulation pertains 
only to those plans that file a Form 5500 to satisfy filing 
requirements under Title I of ERISA. Because the Form 5500-EZ is 
filed to satisfy filing requirements under the Code, data related to 
Form 5500-EZ filers is not included in this analysis.
    \17\ Economy theory predicts that producers in competitive 
markets pass costs and savings on to buyers.
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Transition Costs

    The proposed regulation would entail some one-time transition 
costs, incurred in making the transition to electronic filing. The 
magnitude of the transition costs is likely to vary with filers' 
previous filing methods, reflecting the extent to which their existing 
filing infrastructure supports electronic filing. It is also expected 
that different filers will make the transition to electronic filing in 
different ways, depending on their circumstances and preferences. It is 
intended that all filers will have a number of methods of electronic 
filing from which to choose. For example, filers may enter information 
directly into a government-provided web site (using their own Internet 
service or one available for a fee at a local business center or free 
of charge at a public library or other facility). They may use 
commercial software equipped for electronic filing. They may hire a 
service provider (or rely on an existing relationship with a service 
provider) to provide electronic filing services.
    In 2002, the bulk of all filings, 87 percent, were submitted on 
machine-print forms; 12 percent were submitted on hand-print forms; and 
1 percent were submitted electronically.
    Hand-print Filers--Hand-print filers as a group are likely to face 
larger transition costs than others. These filers by and large 
currently file government printed forms, filled out by hand or by using 
a typewriter.\18\ Like all other filers, they will have the option of 
preparing and submitting their filings via a government provided web 
site. It is likely that many (but not all) already have the electronic 
infrastructure (mainly a personal computer and Internet service) to 
support electronic filing. It is also likely that others will have 
access to the Internet at no charge at a local library or other 
location.\19\ Nonetheless, hand-print filers are likely to incur some 
expense to learn about the new requirement, and some will incur 
additional costs, such as in locating and becoming familiar with 
Internet access,

[[Page 51548]]

as well as in establishing a secured filing account.
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    \18\ A very small fraction of all hand-print filers, typically a 
few percent, files computer-generated forms that are similar to and 
processed in the same way as government printed forms. These filers 
might tend to incur smaller transition costs than other hand-print 
filers. Because of their small numbers and the difficulties in 
separately identifying them in the data used for this analysis, the 
Department did not attempt to adjust its estimates to reflect this 
possible difference. This omission may slightly bias upwards the 
estimated aggregate transition cost for hand-print filers.
    \19\ This assumption is consistent with observations made by the 
ERISA Advisory Council Working Group on Electronic Reporting in its 
Nov. 8 Report. See fn. 15, above.
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    For the 104,000 current hand-print filers, the Department estimates 
a one-time, aggregate transition cost to electronic filing of $12 
million. This assumes that a professional-level employee, who costs the 
plans on average $58.80 per hour in wages, benefits, and overhead,\20\ 
would require on average two hours to make the transition to electronic 
filing. The cost might be devoted to one or more one-time, transition 
activities such as learning about the electronic filing system, 
registering for a secure filing account, selecting and acquiring 
software, selecting and hiring a service provider, or locating an 
Internet access site and becoming familiar with a web-based interface. 
Different types of transition activities will have different costs. 
Selecting and hiring a service provider might be an example of a 
potential activity that would cost more than average, while registering 
for a secure account might be an example of one that would cost less. 
The activities and the cost will vary from filer to filer. For example, 
transition activities might be limited and costs low for a filer that 
is a highly experienced Internet user already carrying out other 
aspects of business management (such as buying supplies and selling 
products, reporting wages to SSA, etc.) on line. Activities might be 
more extensive and costs higher for a filer lacking Internet and 
computing expertise who needs to acquire a computer and Internet 
connection or select and hire a service provider. The Department 
invites comments on transitional activities and costs.
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    \20\ The total labor cost is derived from wage and compensation 
data from the Bureau of Labor Statistics' (BLS) 2004 National 
Occupational Employment and Wage Estimates from the Occupational 
Employment Survey and BLS 2004 Employment Cost for Compensation. 
This data can be found at: https://www.bls.gov/news.release/
ocwage.t01.htm and https://www.bls.gov/news.release/archives/ecec_
09152004.pdf. The estimate assumes a 3 percent annual rate of 
compensation growth and includes an overhead component which is a 
multiple of compensation based on the Government Cost Estimate.
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    Machine-print Filers--Machine-print filers as a group are likely to 
incur smaller transition costs than hand-print filers. It is likely 
that a large proportion of machine-print filings are prepared by 
service providers, while the remainder are prepared by filers using 
commercial software. Filers that currently rely on service providers to 
prepare and submit their filings may opt to continue in this manner, 
relying on the service provider to file electronically. Service 
providers' transition costs will be passed back to and spread across 
the filers they serve. Other machine-print filers may rely on the 
vendors of their software to incorporate electronic filing features 
into the 2007 plan-year software (probably as part of an otherwise 
normal annual software update typically carried out to incorporate any 
form and instruction changes). It is likely that a majority already 
have the Internet service required for such software features to 
function, and some that currently do not have such service would have 
acquired it by the time the plan-year 2007 filings are due (for reasons 
unrelated to this regulation). For many machine-print filers the 
transition to electronic filing will be largely transparent, but will 
nonetheless entail at least some activities, such as registration for a 
secure filing account.
    For the 726,000 current machine-print filers, the Department 
estimates a one-time, aggregate transition cost to electronic filing of 
$11 million. This assumes that one-half of machine-print filers will 
rely entirely on their existing service providers to make the 
transition and that the service providers will spread their own 
transition costs across the filers they serve. The Department, lacking 
data on the number of affected service providers, did not attempt to 
estimate their transition cost, and such costs are not included here. 
Because these costs would be spread across filers, the amount passed on 
to any single filer is expected to be minimal. The remaining one-half 
of machine-print filers are assumed to shoulder the transition costs 
themselves. The Department's estimate assumes that these filers will 
require on average thirty minutes of a professional-level employee's 
time to make the transition to electronic filing. The Department 
invites comments on these transition costs.

Ongoing Costs and Benefits

    Preparation Costs--This proposed regulation pertains to the filing, 
and not to the preparation, of the Form 5500. However, it is possible 
that, for some filers, mandatory electronic filing would prompt changes 
in preparation methods. For example, hand-print filers may currently 
prepare their filings using a government printed form and a typewriter. 
Such filers might prepare future filings by entering information into a 
government website. The Department considered the cost of making such 
transitions in preparation methods to be part of the overall transition 
cost of the proposed regulation, included in the estimates presented 
above.
    With respect to ongoing preparation costs, it is likely that some 
filers will incur higher costs in connection with new preparation 
methods prompted by this regulation and enabled by the new electronic 
filing system than with their current methods, but that others will 
incur lower costs. For example, it is not immediately determinable 
whether entering information into a website will take more or less time 
than typing it onto a paper form. The Department expects that 
commercial preparation software will incorporate features that ease 
preparation, such as integrated access to form instructions and 
automatic filling of data fields based on entries in other fields or in 
prior filings. The Department also intends that the new government 
filing website interface will be designed with attention to ease of 
preparation. Lacking an immediate basis to quantify the magnitude or 
costs and savings from possible changes in preparation methods, the 
Department did not attribute any such costs or savings to this proposed 
regulation, but invites comments on the potential magnitude of any such 
costs and benefits.
    Filing Cost Savings--Filing costs generally are expected to be 
reduced by the implementation of this proposed regulation. Savings are 
foreseen from the elimination of materials and mailing costs and from a 
reduction in filing errors and subsequent corrections.
    Electronic transmission will eliminate certain costs otherwise 
attendant to paper filing, including materials and postage. The 
Department estimates that, by changing to electronic filing, 829,000 
plans will benefit from approximately $900,000 in cost-savings 
annually, assuming savings of $0.0167 per sheet of paper and $0.57 for 
postage per filing.
    In addition, automated checks for errors and omissions upon 
electronic transmission, together with automated error checks and 
integrated instructions common to filing preparation software, will 
ease compliance with reporting requirements. Importantly, these 
features will reduce the need for subsequent amendments to submitted 
filings, as well as helping to avoid reporting penalties that might 
otherwise be assessed for deficient filings.
    Historically, filers that use a software-based system generally 
have fewer filing errors. In 2002, 7 percent and 16 percent of 
electronic and machine-print filings, respectively, had filing errors 
compared to 40 percent of hand-print filings. The filing errors include 
items such as missing signatures, attestations, schedules, or back-up 
documents that resulted in an incomplete filing. As a result of filer 
errors and the need for

[[Page 51549]]

additional information or clarifications about Form 5500 filings for 
the 2002 plan year, the Department mailed 160,000 letters to filers 
requesting corrections or additions. This process ultimately delays the 
final submission and requires plans to incur additional costs to 
address deficiencies. The electronic filing system's intended error 
detection capability may largely eliminate the Department's need to 
forward correspondence to plans with deficient filings. This 
enhancement is likely to save time for filers. If the need for 
correspondence can be eliminated, the aggregate annual cost savings to 
affected filers could be as high as $10 million, assuming elimination 
of correspondence with the Department saves an average of one hour of a 
professional's time, at an average of $58.80 per hour, plus the value 
of associated postage and materials. A disproportionate share of this 
savings, estimated at $2.4 million, would accrue to current hand-print 
filers (reflecting their historically higher filing error rates), while 
$7.1 million would accrue to machine-print filers. The Department (and 
by extension taxpayers) would realize additional savings from this 
reduced need to correct filing errors.

Societal Benefits

    Additional benefits are expected to accrue to the government and 
the public in the forms of reduced processing costs and more timely 
availability of accurate filing data.
    Participants will benefit from the transition to a fully electronic 
method of filing. The new filing procedures will provide participants 
and beneficiaries with access to more accurate plan information since 
software-based forms are generally less prone to error, the new system 
will process filings more quickly, and reports disclosing information 
about plans' administrative and financial status will be available to 
the public sooner than would otherwise be possible. This improved 
access can enhance the quality of interaction between plans, 
participants, and beneficiaries.
    The Federal government and the public at large will also benefit 
from the change to electronic filing. The decrease in correspondence 
will constitute immediate savings to the Federal government that will, 
in turn, yield savings to the taxpayers. Finally, improvements in the 
accuracy of the data contained in submitted filings and the expected 
acceleration in processing may make possible more timely production of 
reliable national statistics on private employee benefit plans. Such 
statistics historically have been produced at a substantial lag of up 
to four years after the end of the filing year.

Additional Considerations

    Proliferation of Technology--In proposing this regulation, and in 
assessing its economic impacts, the Department took into consideration 
the high and increasing rates of use of electronic information 
technologies by businesses, including by small businesses in 
particular. Such technologies include office computing hardware and 
software that process, organize, store, and transmit information 
electronically. The proliferation of such technologies, and of 
expertise and familiarity with using them, is expected to moderate the 
cost of compliance with this proposed regulation.
    The Department believes that most filers already have access to a 
computer and the Internet. The use of computers and the Internet has 
become the norm among U.S. businesses. Most or all industries in the 
economy are beginning to use the Internet as a means of conducting at 
least some of their daily operations and to remain competitive. 
Moreover, it is possible that plan sponsors as a group are more likely 
than other companies to be using information technologies. The 
Department believes that few, if any, plan sponsors will purchase a 
computer or subscribe to Internet service for the sole purpose of 
electronically filing their Form 5500. (If some do, they may realize 
collateral benefits as they put their newly acquired technologies to 
additional uses.) Furthermore, the Department believes that the number 
of firms offering pension and welfare plans that do not have a computer 
and/or Internet access is a relatively small number, especially given 
the substantial growth of computer and Internet usage over the past 
decade. The Department also believes that the number of plans that will 
not have a computer or Internet access by the year 2008 will be small.
    The Department's views on the proliferation of technologies are 
grounded in its review of various studies of the topic.
    According to a 2002 study for the SBA,\21\ the Internet offers 
unparalleled new opportunities for small businesses. Fifty-seven 
percent of small businesses already used the Internet; of those most 
had their own websites; and more than one-third were selling their 
products on line.\22\ Of those not using the Internet, two-thirds did 
use computers.\23\
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    \21\ Joanne H. Pratt, ``E-Biz: Strategies for Small Business 
Success'' 32 (2002) (prepared for the SBA Office of Advocacy), 
available at https://www.sba.gov/advo/research/rs220tot.pdf.
    \22\ Id. at 6.
    \23\ Id.
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    The most popular uses of the Internet among small firm users were 
communicating with customers and suppliers (83 percent), gathering 
business information (80 percent), and purchasing goods and services 
(61 percent).\24\ Some also used the Internet to conduct banking or 
other financial transactions (27 percent) or bid on contracts (21 
percent). Most firms with websites either broke even financially or 
made money through use of the sites.
---------------------------------------------------------------------------

    \24\ Id. at 6-8.
---------------------------------------------------------------------------

    Also according to this study, use of Internet technology is 
growing. Among small firms with websites, two-thirds had been operating 
the site for less than one year.\25\ Business use of on-line 
technologies is being driven up by increasing use of such technologies 
by consumers. Increasing availability and use of affordable, fast 
broad-band Internet services is helping to drive both trends. Market 
forecasters predicted rapid growth in world e-commerce, reaching as 
much as several trillion dollars by 2004.\26\
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    \25\ Id. at 11.
    \26\ Id. at 23-24.
---------------------------------------------------------------------------

    A 2003 report by SBA \27\ found that self-employed computer users 
numbered 10.5 million in 2000, up from 9.2 million two years earlier. 
Over the same two years, self-employed individuals' access to the 
Internet increased by 50 percent, reaching 83 percent of all such 
individuals.
---------------------------------------------------------------------------

    \27\ SBA Office of Advocacy, ``Self Employment and Computer 
Usage,'' 3 (2003), available at https://www.sba.gov/ADVO/stats/
sepc.pdf.
------------------------------------