Proposed Revision of Annual Information Return/Reports, 41616-41651 [06-6329]

Agencies

• Employee Benefits Security Administration
• Internal Revenue Service
• DEPARTMENT OF LABOR
• Pension Benefit Guaranty Corporation
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 71, Number 140 (Friday, July 21, 2006)]
[Notices]
[Pages 41616-41651]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-6329]



[[Page 41615]]

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Part III





Department of Labor





Employee Benefits Security Administration





Department of the Treasury





Internal Revenue Service





Pension Benefit Guaranty Corporation





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Proposed Revision of Annual Information Return/Reports; Notice

Federal Register / Vol. 71, No. 140 / Friday, July 21, 2006 / 
Notices

[[Page 41616]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

DEPARTMENT OF THE TREASURY

Internal Revenue Service

PENSION BENEFIT GUARANTY CORPORATION

RIN 1210-AB06


Proposed Revision of Annual Information Return/Reports

AGENCIES: Employee Benefits Security Administration, Labor, Internal 
Revenue Service, Treasury, Pension Benefit Guaranty Corporation.

ACTION: Notice of proposed forms revisions.

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SUMMARY: This document contains proposed revisions to the Form 5500 
Annual Return/Report forms, including a proposed new Short Form 5500, 
filed for employee pension and welfare benefit plans under the Employee 
Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue 
Code (Code). The Form 5500 Annual Return/Report, including its 
schedules and attachments (Form 5500 Annual Return/Report), is an 
important source of financial, funding, and other information about 
employee benefit plans for the Department of Labor, the Pension Benefit 
Guaranty Corporation, and the Internal Revenue Service (the Agencies), 
as well as for plan sponsors, participants and beneficiaries, and the 
general public. The proposed revisions to the Form 5500 Annual Return/
Report, contained in this document, including a new Form 5500-SF short 
form annual return/report for certain types of small pension plans, are 
intended to reduce and streamline annual reporting burdens, especially 
for small businesses, update the annual reporting forms to reflect 
current issues and agency priorities, and facilitate the establishment 
of a wholly electronic filing system for receipt of the Form 5500 
Annual Returns/Reports. The form revisions thus would, upon adoption, 
apply for the reporting year for which the electronic filing 
requirement is implemented. The proposed revisions would affect 
employee pension and welfare benefit plans, plan sponsors, 
administrators, and service providers to plans subject to annual 
reporting requirements under ERISA and the Code.

DATES: Written comments must be received by the Department of Labor on 
or before September 19, 2006.

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: Revision of Form 5500 (RIN 1210-AB06). 
Comments also may be submitted electronically to e-ori@dol.gov or by 
using the Federal eRulingmaking Portal: 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: Elizabeth A. Goodman or Michael Baird, 
Employee Benefits Security Administration (EBSA), U.S. Department of 
Labor, (202) 693-8523, for questions relating to the Form 5500, and its 
Schedules A, C, D, G, H, and I, and lines 1 through 11 of the proposed 
Form 5500-SF (Short Form 5500), as well as the general reporting 
requirements under Title I of ERISA; Ann Junkins, Internal Revenue 
Service (IRS), (202) 283-0722, for questions relating to Schedules B 
and R of the Form 5500, lines 12 and 13 of the proposed Short Form 
5500, and the filing of Short Form 5500 instead of the Form 5500-EZ for 
plans that are not subject to Title I of ERISA, as well as questions 
relating to the general reporting requirements under the Internal 
Revenue Code; and Michael Packard, Pension Benefit Guaranty Corporation 
(PBGC), (202) 326-4080 for questions relating to Schedule B of the Form 
5500, and line 13 of Schedule R, as well as questions relating to the 
general reporting requirements under Title IV of ERISA. For further 
information on an item not mentioned above, contact Mr. Baird. The 
telephone numbers referenced above are not toll-free numbers.

SUPPLEMENTARY INFORMATION: Sections 101 and 104 of Title I and section 
4065 of Title IV of the Employee Retirement Income Security Act of 1974 
(ERISA), as amended, sections 6058(a) and 6059(a) of the Internal 
Revenue Code of 1986 (Code), as amended, 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 the filing of the Form 
5500 Annual Return/Report, in accordance with the instructions and 
related regulations.
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    \1\ Other filing requirements may apply to certain employee 
benefit plans and to multiple employer welfare arrangements 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.
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    The Form 5500 Annual Return/Report is the principal source of 
information and data available to the Department of Labor (Department), 
the IRS, and the PBGC concerning the operations, funding, and 
investments of more than 800,000 pension and welfare benefit plans. 
These plans cover an estimated 150 million participants and hold an 
estimated $4.3 trillion in assets. Accordingly, the Form 5500 Annual 
Return/Report necessarily constitutes an integral part of each Agency's 
enforcement, research, and policy formulation programs, and is 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 Form 5500 Annual Return/Report also serves as 
the primary means by which plan operations can be monitored by 
participants and beneficiaries and by the general public.

I. EFAST and Electronic Filing

    The Agencies currently use an automated processing system, the 
ERISA Filing Acceptance System (EFAST) to process the Form 5500 Annual 
Return/Report. As part of the Department's efforts to update and 
streamline EFAST's current paper-based processing system, the 
Department published in the Federal Register today, a notice of final 
rulemaking establishing an electronic filing requirement for the Form 
5500 Annual Return/Report for plan years or, for direct filing 
entities' reporting years, beginning on or after January 1, 2008 
(Electronic Filing Rule).\2\ The rule establishes an electronic filing 
requirement for the Form 5500 Annual Return/Report and the proposed 
Form 5500-SF (Short Form 5500) under Title I of ERISA. The Electronic 
Filing Rule provides that any Form 5500 Annual Return/Report (including 
any Short Form 5500) to be filed with the Secretary of Labor

[[Page 41617]]

(Secretary) for any plan year or reporting year beginning on or after 
January 1, 2008, must be filed electronically in accordance with 
instructions and such other guidance as the Secretary may provide, 
applicable to such annual report. The Electronic Filing Rule explains 
that such electronic filing by the administrator of a pension or 
welfare benefit plan would constitute compliance with the applicable 
limited exemption, alternative method of compliance, and/or simplified 
reporting requirements, as applicable, prescribed in 29 CFR 2520.103-1 
et seq. and promulgated in accordance with the authority granted by the 
Secretary under sections 104(a) and 110 of Title I of ERISA. For 
purposes of the PBGC's annual filing and reporting requirements under 
section 4065 of Title IV of ERISA, a plan administrator's electronic 
filing of a Form 5500 Annual Return/Report or the proposed Short Form 
5500, in accordance with the instructions, will be treated as 
satisfying the administrator's annual reporting obligation under 
section 4065 of Title IV of ERISA.\3\ Similarly, for purposes of the 
annual filing and reporting requirements of the Code, the IRS has 
advised the Department that, although there are no mandatory electronic 
filing requirements for a Form 5500 Annual Return/Report or the 
proposed Short Form 5500 under the Code or the regulations issued 
thereunder, the electronic filing of a Form 5500 Annual Return/Report 
or the proposed Short Form 5500 (described below), in accordance with 
the instructions and such other guidance as the Secretary of Treasury 
may provide, will be treated as satisfying the annual filing and 
reporting requirements under Code sections 6058(a) and 6059(a).\4\
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    \2\ The notice of proposed rulemaking to mandate electronic 
filing was published in the Federal Register on August 30, 2005 (70 
FR 51542).
    \3\ Administrators of plans required to file reports under ERISA 
section 4065 also are required to file annual reports for purposes 
of section 104(a) of ERISA.
    \4\ 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), 6057 
and 6058(a) must continue to satisfy these requirements in 
accordance with IRS revenue procedures, regulations, publications, 
forms, and instructions.
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    The Form 5500-EZ is used by certain plans that are not subject to 
the requirements of section 104(a) of ERISA to satisfy the annual 
reporting and filing obligations imposed by the Code. To ease the 
burdens on these filers, the IRS has also advised the Department that 
certain Form 5500-EZ filers will be permitted to satisfy the 
requirement to file the Form 5500-EZ with the IRS by filing the 
proposed Short Form 5500 electronically through the EFAST processing 
system. Information regarding the Form 5500-EZ filers who would be 
eligible for this proposed electronic filing option is included in the 
proposed instruction for the Short Form 5500 attached as Appendix B. 
Therefore, under the IRS' proposal, certain Form 5500-EZ filers will be 
provided both electronic and paper filing options. The electronic 
option will allow Form 5500-EZ filers to complete and electronically 
file selected information on the Short Form 5500. Form 5500-EZ filers 
will also have the option to file a paper Form 5500-EZ.\5\
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    \5\ Under the voluntary electronic filing option, 5500-EZ filers 
filing an amended return for a plan year must file the amended 
return electronically using the Form 5500-SF if they initially filed 
electronically for the plan year and must file with the IRS using 
the paper Form 5500-EZ if they filed for plan year with the IRS on a 
paper Form 5500-EZ.
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    At the same time as the Electronic Filing Rule was being developed, 
the Agencies undertook a comprehensive review of the current forms and 
instructions in an effort to improve the data collected and to 
determine what, if any, design or data changes should be made in 
anticipation of the new processing system. This proposed revision of 
the forms and instructions, in conjunction with the Electronic Filing 
Rule, is intended to streamline the return/report, facilitate the 
electronic filing requirement, and reduce the burden on plans that file 
the Form 5500 Annual Return/Report.
    Public comments submitted in response to the notice of proposed 
rulemaking on the electronic filing requirement (Electronic Filing 
Proposal) generally recognized the value of electronic filing over 
paper filing and expressed support for increasing the use of electronic 
filing. In response to the concerns of some commenters about whether 
the proposed 2007 reporting year implementation date would give plans, 
plan administrators, plan sponsors, and service providers enough time 
to make adjustments necessary to migrate to an e-filing environment, 
especially in the absence of specific information on the 
characteristics and technical specifications of the new e-filing 
system, the Electronic Filing Rule is now effective for plan years, or 
for direct filing entities reporting years, beginning on or after 
January 1, 2008. Further, in response to commenters' concerns, the 
preamble to the final rule states the Department, in deciding whether 
to assess annual reporting civil penalties, will take into account 
technical and logistical obstacles experienced by plan administrators 
who acted prudently and in good faith in attempting to timely file a 
complete annual report in the first year of the wholly electronic 
filing system. The revised and streamlined data requirements for the 
Form 5500 Annual Return/Report being proposed in this document are 
intended to be applicable for the reporting year for which the new e-
filing system is implemented.

II. Overview of Form Revisions

    The proposed revisions to the annual return/report forms involve 
the following major categories of changes, along with other technical 
revisions and updates, to the current structure and content of the Form 
5500 Annual Return/Report:
     Establishment of the Form 5500-SF Annual Return/Report 
(Short Form or Short Form 5500) as a new simplified report for certain 
small plans;
     Removal of the IRS-only schedules from the Form 5500 
Annual Return/Report as part of the move to a wholly electronic filing 
system;
     Elimination of the special limited financial reporting 
rules for Code section 403(b) plans;
     Revision of the Schedule C (Service Provider Information) 
to clarify the reporting requirements and improve the information plan 
officials receive regarding amounts being received by plan service 
providers; and
     Addition of new questions to improve information on 
pension plan funding and compliance with minimum funding requirements.
    In addition to the description of the proposed form changes 
contained in this Notice, the Agencies have included the following 
appendices: (1) Appendix A--a facsimile of the proposed Form 5500-SF; 
(2) Appendix B--a facsimile of the proposed Instructions to the Form 
5500-SF; (3) Appendix C--detailed description of the proposed changes 
to the Form 5500 and Schedules; and (4) Appendix D--detailed 
description of the proposed changes to the instructions for the Form 
5500 and Schedules. The Agencies are also making available on the 
Department's Web site mark-ups of the Form 5500, Schedules, and related 
instructions showing the proposed form and instruction changes. The 
facsimiles and mark-ups are provided to show the data proposed to be 
collected electronically beginning with the first reporting year for 
which the new e-filing system is implemented. Because of the electronic 
filing requirement for the revised Form 5500 Annual Return/Report, 
including the proposed Short Form 5500, copies of facsimile forms and 
schedules, will not be acceptable for filing under ERISA. Rather, the 
facsimile forms and schedules the

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Agencies anticipate publishing in conjunction with the final regulation 
will show the required format for satisfying disclosure obligations 
under ERISA, including the plan administrator's obligation to furnish 
copies of the annual report to participants and beneficiaries on 
request pursuant to section 104(b) of ERISA, but paper versions will 
not be able to be used for filing.

A. Short Form 5500 as New Simplified Report for Certain Small Plans

    As part of continuing efforts to streamline and simplify the annual 
reporting process, the Agencies are proposing a new two page form--the 
Short Form 5500--to be filed by certain small plans (generally, plans 
with fewer than 100 participants) with secure and easy to value 
investment portfolios. The Agencies have previously issued simplified 
reporting provisions and limited exemptions for small plans to ease the 
burdens and costs attributable to annual reporting. After careful 
review, the Agencies determined that certain small plans, by virtue of 
their assets being held by regulated financial institutions and having 
a readily determinable fair market value, present reduced risks for 
their participants and beneficiaries. In such cases, therefore, an 
abbreviated annual report filing (i.e., the Short Form 5500) could be 
established without compromising the enforcement and research needs of 
the Agencies or the disclosure needs of participants and beneficiaries 
in such plans. In establishing the criteria for such Short Form filers, 
the Agencies relied in part on the conditions for a waiver of the audit 
requirements for small plans under 29 CFR 2520.104-46.\6\
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    \6\ In additional to meeting the small plan size requirement 
applicable to both pension and welfare plans, for pension plans the 
eligibility requirements for the audit waiver under 29 CFR 2520.104-
46 are: (1) as of the last day of the preceding plan year at least 
95% of a small pension plan's assets were ``qualifying plan 
assets;'' (2) the plan must include certain information in the 
Summary Annual Report (SAR) furnished to participants and 
beneficiaries regarding its compliance with the audit waiver 
conditions in addition to the information ordinarily required (see 
29 CFR 2520.104b-10(d)(3) for a model SAR and the Notice of Proposed 
Rulemaking published today for model language for the enhanced 
notice requirement); and (3) in response to a request from any 
participant or beneficiary, the plan administrator must furnish 
without change copies of statements from the regulated financial 
institutions holding or issuing the plan's ``qualifying plan 
assets'' describing the assets and the amount of the assets as of 
the end of the plan year. ``Qualifying plan assets, '' for this 
purpose include: shares issued by an investment company registered 
under the Investment Company Act of 1940 (e.g., mutual fund shares); 
investment and annuity contracts issued by any insurance company 
qualified to do business under the laws of a state; participant 
loans meeting the requirements of ERISA section 408(b)(1), whether 
or not they have been deemed distributed; and any asset held by 
banks or similar financial institutions, including trust companies, 
savings and loan associations, domestic building and loan 
associations, and credit unions, insurance companies qualified to do 
business under the laws of a state, organizations registered as 
broker-dealers under the Securities Exchange Act of 1934, investment 
companies registered under the Investment Company Act of 1940, or 
any other organization authorized to act as a trustee for individual 
retirement accounts under Code section 408. In the case of an 
individual account plan, qualifying plan assets also include any 
assets in the individual account of a participant or beneficiary 
over which the participant or beneficiary had the opportunity to 
exercise control and with respect to which the participant or 
beneficiary has been furnished, at least annually, a statement from 
one of the above regulated financial institutions describing the 
plan assets held or issued by the institution and the amount of such 
assets.
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    As proposed, a pension or welfare plan would be eligible to file 
the Short Form if the plan: (1) Covers fewer than 100 participants or 
would be eligible to file as a small plan under the 80 to 120 rule in 
29 CFR 2520.103-1(d); (2) is eligible for the small plan audit waiver 
under 29 CFR 2520.104-46 (but not by virtue of enhanced bonding); (3) 
holds no employer securities; and (4) has 100% of its assets in 
investments that have a readily ascertainable fair market value. For 
this purpose, participant loans meeting the requirements of ERISA 
section 408(b)(1), whether or not they have been deemed distributed, 
and investment products issued by banks and licensed insurance 
companies that provide valuation information at least annually to the 
plan administrator, will be treated as having a readily ascertainable 
fair market value. Plans with assets that are employer securities will 
not be eligible to file the Short Form. The Agencies believe that the 
separate financial information about employer securities on the 
Schedule I is important for regulatory, enforcement, and disclosure 
purposes. The Agencies also believe that due to the importance of 
obtaining financial information concerning employer securities, 
allowing plans that hold employer securities to file the Short Form 
would conflict with the need to obtain such information. Similarly, 
because the Agencies believe that all multiemployer plans should be 
required to answer newly proposed questions on the Form 5500 Annual 
Return/Report and the Schedule R regarding contributing employers, 
multiemployer plans would not be eligible to file the Short Form.
    In brief, Short Form filers would be required to provide: (1) Basic 
plan and plan sponsor identifying information; (2) abbreviated 
participant count data, with defined contribution plan filers providing 
the number of participants with account balances at the end of the plan 
year; (3) information on features of the plan (e.g., plan type, manner 
of providing benefits) using delineated codes; (4) an abbreviated 
statement of assets and liabilities and income and expenses; and (5) 
responses to a series of ``yes/no/amount'' compliance questions, such 
as identification of any delinquent participant contributions, non-
exempt party-in-interest transactions, fidelity bonding coverage, 
losses caused by fraud or dishonesty, and total participant loan 
balances at the end of the plan year. Like other filers, Short Form 
filers would be required to answer new questions on whether during the 
plan year the plan reduced or failed to provide any benefit under the 
plan, whether there was a blackout period during the plan year, and 
whether the blackout notice requirements were met. Short Form pension 
plan filers also would be required to provide certain basic pension 
coverage and pension funding compliance information. Short Form defined 
benefit pension plan filers still would have to file a Schedule B and 
its attachments. Plans filing the Short Form on an extension of time or 
in connection with the Department's Delinquent Filer Voluntary 
Compliance Program would have to include attachments relevant to the 
extension or participation in the program.
    Because eligible plans can only hold certain types of investments, 
several compliance questions have been eliminated for Short Form filers 
(e.g., Schedule I questions relating to leases in default or 
uncollectible, non-cash contributions, and assets whose current value 
was not readily determinable).
    Instead of filing Schedule A, Short Form 5500 filers would be 
required to provide a total of all fees or commissions paid to any 
brokers, agents, or other persons by an insurance carrier, insurance 
service, or other organization that provides some or all of the 
benefits under the plan. Short Form filers will still need to receive, 
and insurers will still be required to provide, Schedule A fee and 
commission information with respect to each contract necessary to 
complete the Short Form 5500. Plan administrators will be required to 
retain this information to meet the recordkeeping requirements of 
section 107 of ERISA.
    Under this proposal, most Short Form filers would not be required 
to file any schedules, although defined benefit pension plans would 
continue to be

[[Page 41619]]

required to file Schedule B, where applicable.\7\
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    \7\ Short Form 5500 filers would not be required to file 
Schedule D, but Direct Filing Entities (DFEs) in which such plans 
invest would still be required to list the plan name and Employer 
Identification Number (EIN) on Part II of the DFE's Schedule D.
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    The Agencies believe that the eligibility conditions for Short Form 
filers, especially the requirements relating to security and valuation 
of the plan's investments, ensure that the Short Form 5500 will provide 
adequate disclosure to the participants and beneficiaries in the plan 
and adequate annual reporting to the Agencies.
    Small plans that are not eligible to file the Short Form would 
continue to be able to file simplified reports as under the current 
system. Specifically, small plan Form 5500 filers would file the Form 
5500, Schedules A, B, D, I, and R, where applicable. This proposal also 
would not change the conditions for the small pension plan audit waiver 
in 29 CFR 2520.104-46. Small pension plans will still be able to claim 
the audit waiver even if they are not eligible to file the Short Form. 
Conversely, small pension plans filing the Short Form would continue to 
be required to meet all applicable requirements for the audit waiver, 
including the enhanced Summary Annual Report (SAR) and other disclosure 
requirements of that regulation. Similarly, all welfare plans that file 
the Form 5500 Annual Return/Report and have fewer than 100 participants 
are currently exempt from the audit requirement without regard to how 
their assets are invested. See 29 CFR 2520.104-46(b)(2). The proposed 
Short Form would not change the welfare plan audit waiver conditions. 
For a funded welfare plan to be eligible to file the Short Form, 
however, the plan would have to meet the Short Form requirements 
regarding investment assets.

B. Removal of IRS-Only Components From the Form 5500 Annual Return/
Report

    The second category of changes involves the removal of schedules 
and information that were filed as part of the Form 5500 Annual Return/
Report to meet various annual reporting requirements under the Code. 
The IRS has advised that there are currently no mandatory electronic 
filing requirements for a Form 5500 Annual Return/Report under the Code 
or the regulations issued thereunder. As described more fully in the 
Electronic Filing Rule, the Department has concluded that, taking into 
account the costs and inefficiencies inherent in the maintenance of any 
form of a paper filing system, it is not in the overall interest of 
plan participants and beneficiaries, the Department, and taxpayers 
generally to continue to accept and process paper Form 5500 Annual 
Returns/Reports filings as part of a new processing system. To 
effectuate the electronic filing requirement, the portions of the Form 
5500 Annual Return/Report required to satisfy filing obligations 
imposed by the Code, but not required under ERISA, had to be removed. 
Accordingly, under this proposal, the following schedules will no 
longer be required to be filed as part of the Form 5500 Annual Return/
Report: Schedule E (ESOP Annual Information), Schedule P (Annual Return 
of Fiduciary of Employee Benefit Trust), and Schedule SSA (Annual 
Registration Statement Identifying Separated Participants With Deferred 
Vested Benefits). In that regard, the IRS has independently eliminated 
the Schedule P (which served as the Trust's information return that is 
filed under Code section 6033(a)) from the 2006 Form 5500 in 
anticipation of the transition to a wholly electronic filing 
environment. Further, as described elsewhere in this document, the 
Department is proposing to move to the Schedule R three questions on 
ESOP information formerly on the Schedule E, and the IRS has advised 
the Department that it does not anticipate requiring separate filings 
by ESOPs on the remaining questions from the Schedule E. The IRS is 
evaluating the information collected on Schedule SSA, and considering 
whether other existing information collections could be used in place 
of the Form 5500 Annual Return/Report.
    The IRS, however, also advised the Department that it intends that 
plan administrators, employers, and certain other entities that are 
subject to 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.
    The Form 5500 Annual Return/Report would thus be comprised of the 
Form 5500, and Schedule A (Insurance Information), Schedule B 
(Actuarial Information), Schedule C (Service Provider Information), 
Schedule D (DFE/Participating Plan Information), Schedule G (Financial 
Transaction Schedules), Schedule H (Financial Information), Schedule I 
(Financial Information Small Plan), and Schedule R (Retirement Plan 
Information).

C. Elimination of Limited Reporting Option for Code Section 403(b) 
Pension Plans

    Code section 403(b) pension plans that are subject to Title I of 
ERISA generally have had limited reporting obligations under the Form 
5500 Annual Return/Report. A pension plan or arrangement using an 
annuity contract under Code section 403(b)(1) and/or a custodial 
account for regulated investment company stock under Code section 
403(b)(7) as the sole funding vehicle for providing pension benefits 
currently files only a Form 5500, containing basic plan identification 
information. The administrator currently is not required to engage an 
independent qualified public accountant (IQPA) to conduct an annual 
audit of the plan, attach an accountant's opinion to the Form 5500, or 
attach any schedules to the Form 5500. Over the years, the Code has 
been amended to give favorable tax treatment to Code section 403(b) 
plans similar to that for Code section 401(k) plans, and these 
arrangements have grown both in size and number during this time. In 
this regard, the IRS promulgated regulations to update the current 
regulations under section 403(b) generally to reflect the numerous 
legal changes that have been made in section 403(b) since 1964 when the 
IRS originally promulgated its section 403(b) regulations. 69 FR 67075, 
67076 (Nov. 16, 2004). The IRS's proposed regulations note the 
increasing similarity among arrangements that include salary reduction 
contributions, i.e., section 401(k), section 403(b), and governmental 
section 457(b) plans.
    The Department understands that the IRS has found a number of Code 
compliance issues with section 403(b) plans. The Department, in its own 
reviews, has detected violations of Title I in a high percentage of its 
Code section 403(b) plan investigations. The predominant issue has been 
the improper handling of employee contributions.
    The Department concluded that these developments warrant a 
reexamination of the continued reporting exemptions for Code section 
403(b) plans. Amending the annual reporting requirements to put Code 
section 403(b) plans on par with other pension plans covered by Title I 
of ERISA would enhance the Department's oversight capabilities and 
improve compliance in this area without substantial additional burden. 
For example, the reporting in the proposed Short Form, or on Schedules 
H and I, for delinquent participant contributions may help to ensure 
that participant contributions are

[[Page 41620]]

transferred to individual investment accounts on a timely basis.
    Under the proposal, Code section 403(b) plans that are subject to 
Title I of ERISA would be subject to the same annual reporting rules 
that apply to other ERISA-covered pension plans, including eligibility 
for the proposed Short Form 5500. In this regard, the Department notes 
that because Code section 403(b) plans are generally required to be 
invested exclusively in annuity contracts or mutual funds, they 
generally would be eligible to file the proposed Short Form 5500. 
Moreover, under section 107 of ERISA, every person who is required to 
file a report under Title I of ERISA, but for an exemption or 
simplified reporting requirement under section 104(a)(2) or (3), 
already is required to maintain records on which disclosure would be 
required but for the simplified reporting requirement.

D. Addition of New Questions to Schedules on Title I Compliance, 
Service Provider Compensation, and Pension Plan Funding

Schedule A: Identify Insurers That Fail To Supply Information
    It is the view of the Department that compliance with annual 
reporting requirements consists both of filing complete, accurate, and 
timely annual returns/reports, including disclosing the information 
required to be reported on the Schedule A, and maintaining records 
regarding the information required to be provided under section 103 of 
ERISA. Plan administrators, thus, are required to take reasonable and 
prudent steps to secure the necessary Schedule A information. In this 
regard, section 103(a)(2) of ERISA provides that, if some or all of the 
information necessary to enable the administrator to comply with the 
requirements of Title I of ERISA is maintained by an insurance carrier 
or other organization that provides some or all of the benefits under a 
plan or holds assets of the plan in a separate account, such carrier or 
other organization is required to transmit and certify the accuracy of 
such information to the administrator within 120 days after the end of 
the plan year. The current instructions for the Schedule A state that, 
if necessary information is missing because of an insurer's refusal to 
provide the information, administrators should, to the extent possible, 
complete the Schedule A and file a timely return/report noting the 
refusal and any deficiencies in the Schedule A.
    The 2004 ERISA Advisory Council Working Group on Health and Welfare 
Plan Reporting concluded that many employers have difficulty obtaining 
timely Schedule A information from insurers. See 2004 ERISA Advisory 
Council Working Group Reports at https://www.dol.gov/ebsa. When the Form 
5500 Annual Return/Report was revised in 1988 and 1999, public 
commenters had complained about the difficulties administrators 
confronted in obtaining timely and complete Schedule A information from 
their insurers. See 65 FR 5026 (Feb. 2, 2000) and 54 FR 8631 (Mar. 1, 
1989). In light of these continuing difficulties for plan 
administrators, the Department proposes to add a check box to the 
Schedule A to permit plans to identify situations in which the 
insurance company or other organization that provides some or all of 
the benefits under a plan has failed to provide Schedule A information. 
Space would also be provided for the administrator to indicate the type 
of information that was not provided. As a separate Schedule A is 
required for each insurance contract, the identity of the insurance 
company or organization will be self-evident. This would give the 
Department more usable data on insurers that fail to satisfy their 
disclosure obligations under section 103(a)(2) of ERISA and the 
Department's regulations.
Schedule B: Asset Allocations in Very Large Defined Benefit Pension 
Plans
    The PBGC believes that it is important to obtain more detailed 
information regarding the asset allocations of very large defined 
benefit plans in order to help the PBGC assess the financial viability 
of those plans. Although the Schedule H collects certain investment 
information, the PBGC has found that it needs additional information on 
the breakdown of assets held by defined benefit plans. The funding 
status of these plans is highly dependent on the level and types of 
assets in the plan and the sensitivity of these assets to changes in 
market conditions. Readily ascertainable information on asset 
distribution information would improve the PBGC's ability to estimate 
the impact of economic changes on the financial status of the plans it 
insures, and, by extension, on the future financial status of the PBGC.
    Under this proposal, new questions would be added to the Schedule B 
that are designed to obtain a ''look-through'' allocation of plan 
investments in certain pooled investment funds for defined benefit 
plans with 1,000 or more participants. The new questions would obtain 
the percentage of assets held in each of four categories--Stocks, Debt 
Instruments (Bonds), Real Estate, and Other. The debt instrument data 
would be further disaggregated into three categories--governmental 
debt, investment-grade corporate debt, and high-yield corporate debt. 
The new Schedule B questions would also require plans to provide a 
measure of the duration of the aggregate debt instruments (``Macaulay 
duration'') in order to provide the PBGC with a more accurate basis for 
reflecting bond duration for modeling purposes. For this purpose, the 
Macaulay duration is a weighted average of the number of years until 
each interest payment and the principal are received. The weights are 
the amounts of the payments discounted by the yield-to-maturity of the 
bond. When calculating the distribution of debt securities, any 
corporate debt that has not been rated will have to be included in the 
High-Yield Corporate Debt category. Foreign debt will be expected to be 
allocated to the appropriate category as if it were debt issued by 
United States corporations or governmental entities.
    The asset distribution information, other than the Macaulay 
duration, should be readily available to single-employer plans because 
the Financial Accounting Standards Board (FASB) requires that the 
aggregate asset distribution for all employer plans be included as a 
part of the sponsor's 10-k filings with the Securities and Exchange 
Commission. Multiemployer plans are not currently required to calculate 
these distributions, but the data should be readily available from the 
plan's investment committee. In addition, data from Section C of EBSA's 
Private Pension Plan Bulletin \8\ indicates that multiemployer plans 
tend to have a much smaller percentage of assets invested in assets 
whose type is difficult to ascertain. Obtaining the overall 
distribution of assets should not be overly burdensome for the 
administrators of multiemployer plans. The Macaulay duration should be 
a simple computation for managers of bond portfolios. Only in rare 
instances would this computation be time consuming. For instance, 
combining these durations into an aggregate duration could be time 
consuming if the plan has several bond portfolio managers.
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    \8\ The Private Pension Bulletin is available on-line at https://
www.dol.gov/ebsa/PDF/2000pensionplanbulletin.PDF.
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Schedule C: Compensation Received by Plan Service Providers
    The Department has been examining issues regarding service provider

[[Page 41621]]

compensation from a number of perspectives.\9\ Questions and issues 
relating to the appropriate manner and scope of the reporting of 
service provider compensation on the Schedule C have been raised by the 
ERISA Advisory Council. See ERISA Advisory Council Report of the 
Working Group on Plan Fees and Reporting on Form 5500 (Nov. 10, 2004) 
and the Government Accountability Office (See Private Pensions: 
Government Actions Could Improve the Timeliness and Content of Form 
5500 Pension Information, GAO-05-491) (discussing fee disclosure 
generally), as well as by Form 5500 Annual Return/Report filers and 
service providers. The Department has determined it is appropriate to 
modify the Schedule C reporting requirements in an effort both to 
clarify the reporting requirements and to ensure that plan officials 
obtain the information they need to assess the reasonableness of the 
compensation paid for services rendered to the plan, taking into 
account revenue sharing and other financial relationships or 
arrangements and potential conflicts of interest that might affect the 
quality of those services.\10\
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    \9\ In its Spring 2006 Semi-Annual Regulatory Agenda, the 
Department indicated that it is considering proposed rulemaking 
which would amend the regulation setting forth the standards 
applicable to the exemption under ERISA section 408(b)(2) for 
contracting or making reasonable arrangements with a party in 
interest for office spaces for services (29 CFR 2550.408b-2). The 
amendment would ensure that plan fiduciaries are provided or have 
access to that information necessary to a determination whether an 
arrangement for services is ``reasonable'' within the meaning of the 
statutory exemption, as well as the prudence requirements of ERISA 
section 404(a)(1)(B). This regulation is needed to eliminate the 
current uncertainty as to what information relating to services and 
fees plan fiduciaries must obtain and service providers must furnish 
for purposes of determining whether a contract for services to be 
rendered to a plan is reasonable.
    \10\ See Staff Report Concerning Examinations of Select Pension 
Consultants, issued on May 16, 2005, by the Office of Compliance 
Inspections and Examinations, U.S. Securities and Exchange 
Commission.
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    As proposed, the Schedule C would consist of three parts. Part I of 
the Schedule C would require 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. This requirement would no longer be limited to the 40 highest 
paid service providers. Filers also would have to indicate for all 
service providers whether the service provider received any 
compensation attributable to the person's relationship with or services 
provided to the plan from a party other than the plan or plan sponsor. 
If a fiduciary to the plan or any of an enumerated list of service 
providers received, directly or indirectly, $5,000 or more in total 
compensation and also received more than $1,000 in compensation from a 
person other than the plan or plan sponsor, then the Schedule C would 
have to provide information identifying the payor of the compensation, 
the relationship or services provided to the plan by the payor, the 
amount paid, and the nature of the compensation. The enumerated service 
providers are contract administrator, securities brokerage (stock, 
bonds, commodities), insurance brokerage or agent, custodial, 
consulting, investment advisory (plan or participants), investment or 
money management, recordkeeping, trustee, appraisal, or investment 
evaluation.
    A new Part II for Schedule C would provide a place for plan 
administrators to identify each fiduciary or service provider that 
failed or refused to provide the information necessary to complete Part 
I of the Schedule C.
    The proposed Schedule C requirements would raise the threshold for 
reporting on non-fiduciary employees of the plan from the current 
$1,000 per month to $25,000 per year. It would also revise the current 
instructions to make clear that the exception for reporting employees 
of the plan sponsor or institutional service providers does not apply 
if those employees receive compensation in connection with the plan or 
services provided to the plan other than salary from the plan sponsor 
or institutional service provider.
    The Department is also proposing to update the ``codes'' for 
identifying services. It is expanding certain codes and modifying 
others to reflect changes in the plan services industry and to provide 
greater clarity. It is also eliminating the codes for medical and legal 
benefit providers to make clear that self-insured plans need not report 
payments to persons who provide medical services or legal services to 
participants and beneficiaries. Unlike payments to other service 
providers required to be reported on the Schedule C, such payments by 
self-insured plans to medical and legal service providers constitute 
benefit payments under the plan. The Department notes that insured 
plans are not required to report on the Schedule C individual providers 
who are paid by the insurance company for medical and legal services 
provided to participants and beneficiaries. In the Department's view, 
the Schedule C was intended to capture information regarding payment of 
plan assets to persons rendering services to plans, and not information 
on benefit payments by the plan to participants and beneficiaries.
    The proposal would change the Schedule C instructions to make 
explicit that, except to the extent not otherwise excluded (e.g., non-
employee compensation of less than $5,000 and plan employee 
compensation of less than $25,000 a year), compensation in connection 
with services rendered to the plan or their position with the plan 
includes ``float'' or similar earnings on plan assets or plan deposits 
that are retained by a service provider as part of its compensation 
package.
    Under the proposal, reportable compensation would include brokerage 
commissions and fees charged to the plan on purchase, sale, and 
exchange transactions regardless of whether the broker is granted 
discretion. As brokerage fees and commissions may constitute a 
significant part of a plan's annual expenses, the Department does not 
believe that continuing the current exemption from the Schedule C 
reporting for such expenses is appropriate. The Department believes 
that an annual review of such expenses is part of a plan fiduciary's 
on-going obligation to monitor service provider arrangements with the 
plan. Requiring the reporting of such information should emphasize that 
monitoring obligation.
    When a plan acquires a unified package or bundle of services from a 
provider, and the amount paid for the package or bundle reflects the 
amount paid for all services included within the package or bundle, 
direct compensation would include only the aggregate amount paid by the 
plan to the provider of the package or bundle of services. In such 
cases, it would not be necessary to break out or report amounts on a 
service-by-service basis. Similarly, amounts paid by the provider of 
the bundled services to other service providers to the plan would not 
be reported on Schedule C unless (1) the plan is also paying the 
provider directly for services in addition to those included in the 
package or bundle, or (2) the recipient of such compensation is a 
fiduciary to the plan or one of the other listed service providers from 
whom additional information is required to be reported where the 
provider receives compensation in excess of $1,000 from a person other 
than the plan or plan sponsor.
    To address possible burdens associated with allocating such 
revenue-sharing income and third-party payments to individual plans, 
the Schedule C would provide that

[[Page 41622]]

``indirect'' compensation (i.e., amounts paid by a party other than the 
plan or plan sponsor) could be reported as an actual amount or an 
estimate of the compensation received during the reporting period. If 
any part of the compensation is an estimate, the Schedule C will also 
require an explanation of the formula used for calculating the 
payments.
    The third part of the Schedule C (Part III) would be the current 
Part II of the Schedule C, used for reporting termination information 
on accountants and enrolled actuaries. The proposal would not alter 
these current requirements.
Schedule H and I: Compliance With Blackout Notice Requirements
    On January 24, 2003, the Department of Labor published final rules 
on the disclosure of blackout periods to participants and 
beneficiaries. 68 FR 3716. EBSA proposes adding questions to Schedules 
H and I regarding whether a plan has had a blackout period during the 
plan year, and if so, whether it has provided the notice required by 
statute and regulation. The proposal would require plan administrators 
to report on Schedule H or I, or the Short Form 5500, as appropriate, 
whether there has been a temporary suspension, limitation, or 
restriction lasting more than three consecutive business days of the 
rights of participants or beneficiaries to direct or diversify assets 
credited to their accounts, to obtain loans from the plan, or to obtain 
plan distributions. If so, plan administrators will have to state 
whether participants have been provided the required notice of this 
suspension period. There are an estimated 655,000 defined contribution 
plans, approximately 400,000 of which are wholly or partially 
participant-directed. EBSA believes that incorporating a line item in 
the fiduciary compliance sections of the Form 5500 financial schedules 
regarding blackout periods and compliance with the blackout notice 
regulation will promote awareness among the regulated community of the 
blackout notice requirements, and will give EBSA an objective tool to 
measure its enforcement activities in the area.
Schedules H and I: Failure To Pay Benefits When Due
    The proposal would add to the Schedule H and Schedule I, also 
included on the new Short Form 5500, a compliance question that would 
require plan administrators to answer whether the plan has failed to 
pay any benefits when due during the plan year. A similar question on 
the Form 5500-C/R had not been carried forward to the Form 5500 Annual 
Return/Report as part of the restructuring of the form for the 1999 
plan year. The Department has now determined that requiring filers to 
respond to a modified version of this question would provide the 
Department with important information about plans with potentially 
serious management or funding problems. The information would also 
provide participants and beneficiaries with information that could 
alert them to potentially serious problems with their plan.
Schedule I: Separate Disclosure of Fees Paid to Administrative Service 
Providers
    The Department is proposing to enhance the disclosure requirements 
for direct compensation paid by small plans for administrative 
expenses, i.e., professional and administrative salary, fee, and 
commission payments. Small plans currently file simplified financial 
information on Schedule I without having to file the more detailed 
Schedule C information on plan service providers. As described above, 
the Agencies developed an even more streamlined Short Form 5500 that 
small plans with secure and easily valued investment portfolios may use 
as their annual return/report. The proposed Short Form 5500 requires 
filers to report administrative service fees separately from other 
expenses of operating the plan. The Agencies are making a parallel 
change to the Schedule I for those small plans that are not eligible to 
file the Short Form 5500. This fee information is currently required to 
be reported on the Schedule I as part of an aggregate plan expense line 
item. The Agencies believe that having a separate line item for 
payments to professional and administrative service providers will 
promote better awareness among plan fiduciaries regarding these fee 
payments and will provide participants, beneficiaries, and government 
regulatory agencies with improved disclosure of these plan expenses.
Schedule R: Contributors to Multiemployer Pension Plans
    The PBGC seeks to have plan administrators identify major 
contributing employers to multiemployer defined benefit pension plans. 
The Form 5500 Annual Return/Report lacks information describing the 
basis for employer contributions to multiemployer plans. This 
information is needed by the PBGC to assess the financial risk posed to 
multiemployer pension plans by the financial collapse or withdrawal of 
one or more contributing employers. For a number of plans, one or two 
employers are responsible for a large portion of the funding. If these 
sponsors go out of business or run into severe financial difficulties, 
the plan's funding can deteriorate rapidly, increasing the PBGC's 
exposure. As a part of its single-employer monitoring activities (the 
Early Warning Program), the PBGC follows the business transactions and 
financial conditions of many companies. When certain conditions are 
met, the PBGC contacts the company to negotiate protections for plan 
participants and the PBGC. Because the PBGC is unable to identify the 
major contributors to multiemployer plans, it cannot establish a 
similar monitoring program for its multiemployer insurance program. 
Over the past several years, the financial condition of many 
multiemployer plans has been deteriorating. The PBGC believes it is 
prudent to monitor those companies that are major contributors to the 
multiemployer plans. To accomplish this, the PBGC must be able to 
identify these companies.
    The PBGC recognizes that the multiemployer plans most at risk when 
a major contributing employer encounters financial difficulties are 
those plans that depend upon a few employers for a large portion of the 
plan's funding. Accordingly, the new requirement strikes a balance 
between the burden that would be imposed on the plan by this 
information collection and the benefit to the PBGC by requiring the new 
information on contributions by an employer only if that employer's 
contributions constitute at least five percent of the total 
contributions for the plan year. For these employers, the plan would be 
required to report on Schedule R: (1) The name of the contributing 
employer; (2) the employer's EIN; (3) the dollar amount contributed; 
(4) the contribution rate; (5) the type of base units for the 
contribution; and (6) the expiration date for the collective bargaining 
agreement pursuant to which contributions are required to be made to 
the plan.

E. Other Improvements and Clarifications of Existing Form 5500 
Reporting Requirements

    The last category of revisions involves proposed amendments to the 
Form 5500, individual schedules, and instructions to clarify and 
improve existing reporting requirements.
Form 5500: Addition of Question Seeking Total Number of Contributing 
Employers to Multiemployer Plans
    Currently, the Form 5500 Annual Return/Report does not collect any

[[Page 41623]]

information that identifies the employers participating in the 
approximately 10,000 multiemployer plans currently in existence. The 
Agencies do not have any information as to the number of individual 
employers who provide benefits to their employees through such plans. 
Multiemployer plans are currently required by the Department's 
regulations to keep information on participating employers on file and 
to make such information available to participants on request. See 29 
CFR 2520.102-3(b)(4). Accordingly, adding a question to the Form 5500 
asking the number of participating employers in a multiemployer plan 
would not create new record-keeping requirements. The Agencies believe 
this information would be useful to other governmental entities and 
private firms that use the Form 5500 data for policy and research 
purposes.
Form 5500: Improved Schedule Checklist
    The Form 5500 includes a checklist of the various schedules that 
may be required to be attached. In addition to revising the checklist 
to eliminate the IRS-only Schedules, the Agencies have also made other 
cosmetic changes to the presentation of the schedule checklist to 
improve it as a disclosure document for participants, beneficiaries, 
and others. The Agencies solicit comment on whether and how the clarity 
and readability of the schedule checklist or other presentation on the 
face of the Form 5500 could be improved.
Form 5500: New Plan Characteristics Code for Pension Plans
    Under the current filing requirements, plans must include on the 
Form 5500 all of the plan characteristics that apply to the plan from a 
list of codes included in the instructions. These ``feature'' codes 
allow the Agencies to identify and classify the universe of filers by 
their major characteristics. The Agencies do not currently collect any 
information as to the number of plans that provide for automatic 
enrollment or the number of plans that provide default investments in 
the event participants with the ability to direct investments in their 
individual accounts fail to provide directions. The Department has 
decided to add new plan feature codes for defined contribution pension 
plans with automatic enrollment features and default investment 
provisions. The Department believes this information would be useful 
both to the Department and to other governmental and non-governmental 
organizations for policy and research purposes. The Department added 
these new feature codes partly in response to the Reports of the ERISA 
Advisory Council and the GAO, discussed previously, that noted that the 
Form 5500 Annual Return/Report could be updated to better reflect the 
current plan and financial universe. The Department seeks comments as 
to whether any additional feature codes should be added to better 
describe the types of benefit and funding arrangements used for defined 
benefit pension plans, defined contribution pension plans, and welfare 
benefit plans. The Agencies also have eliminated the feature codes for 
certain types of plans that are not subject to Title I of ERISA because 
they will not be filing the Form 5500 with EFAST under the proposed 
electronic filing system.
Schedules H and I: New Supplemental Schedule for Line 4a of the 
Schedule H for Reporting Delinquent Participant Contributions
    Beginning with the 2003 Form 5500 Annual Return/Report, information 
on delinquent participant contributions must be reported only on 
Schedule H, Line 4a, or on Schedule I, Line 4a, and should not be 
reported on Schedule H, Line 4d, on Schedule G, Part III, Nonexempt 
Transactions, or on Schedule I, Line 4d. This change was made to avoid 
double reporting of information on delinquent participant contributions 
and otherwise to simplify the reporting requirements. In the case of 
employee benefit plans subject to an ERISA audit requirement, the 
supplemental schedules referenced in ERISA section 103(a)(3)(A) and 29 
CFR 2520.103-1(b) and 2520.103-2(b), including information on nonexempt 
prohibited transactions, are subject to the IQPA audit. The IQPA must 
express an opinion on whether the scheduled information is presented 
fairly in all material respects in relation to the basic financial 
statements taken as a whole. In that regard, the instructions state 
that delinquent participant contributions reported on Schedule H, Line 
4a, should be treated as part of the supplemental schedules for 
purposes of the required IQPA audit and opinion. The instructions also 
provide that, if the information contained on Schedule H, Line 4a is 
not presented in accordance with the Department's regulatory 
requirements, the IQPA report must make the appropriate disclosures in 
accordance with Generally Accepted Auditing Standards (GAAS). In 
response to requests for guidance from some in the accounting 
profession, the Department posted on its Web site FAQs about reporting 
delinquent participant contributions, including examples of formats for 
supplemental schedules that plan administrators and IQPAs could use to 
meet those reporting and disclosure obligations.
    The Department proposes modifying the Instructions to Schedule H, 
Line 4a to require delinquent participant contributions to be presented 
on a standardized supplemental schedule. The proposed Schedule H, Line 
4a--Schedule of Delinquent Participant Contributions would identify the 
total participant contributions transferred late to the plan, the total 
that are nonexempt prohibited transactions, and the total contributions 
fully corrected under the Voluntary Fiduciary Correction Program (VFCP) 
71 FR 20261 and 20135 (Apr. 19, 2006). Those that constitute nonexempt 
prohibited transactions would be broken down into contributions not 
corrected, contributions corrected outside of the VFCP, and 
contributions pending correction in the VFCP. This supplemental 
schedule is one of those already published on the Department's Web site 
at https://www.dol.gov/ebsa/faqs/faq_compliance_5500.html and can be 
viewed as part of the proposed forms mark-ups displayed on the 
Department's Web site.\11\ The Department specifically seeks comments 
from the accounting profession as to whether this supplemental schedule 
should in fact be made mandatory, whether the Department should 
continue to allow filers to choose the format in which to present the 
required information, or whether a different version of the 
supplemental schedule should be made mandatory.
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    \11\ A similar addition would be made to the instructions for 
Line 4a of the Schedule I applicable to small plans filers who are 
not eligible for the audit waiver.
---------------------------------------------------------------------------

    The Schedule H and I instructions for Line 4a would also be revised 
to incorporate guidance included in FAQs on the Department's website on 
including delinquent forwarding of participant loan repayments on line 
4a. In Advisory Opinion 2002-02A (May 17, 2002), the Department stated 
that participant loan repayments paid to or withheld by an employer for 
purposes of transmittal to an employee benefit plan are sufficiently 
similar to participant contributions to justify, in the absence of 
regulations providing otherwise, the application of principles similar 
to those underlying the participant contribution regulation for 
purposes of determining when such repayments become assets of the plan. 
Delinquent forwarding of participant loan repayments is eligible for

[[Page 41624]]

correction under the VFCP and PTE 2002-51 on terms similar to those 
that apply to delinquent participant contributions. The Department 
advised filers in its FAQs that the Department would not reject a Form 
5500 Annual Return/Report based solely on the fact that delinquent 
forwarding of participant loan repayments are included on Line 4a of 
the Schedule H or Schedule I, provided that filers that choose to 
include such participant loan repayments on Line 4a use the same 
supplemental schedule and IQPA disclosure requirements for the loan 
repayments as for delinquent transmittals of participant contributions.
Schedule R: ESOP Questions Moved From Schedule E
    In evaluating the consequences of removing the IRS-only schedules 
from the Form 5500 Return/Report, the Department determined that ESOP-
filers should continue to be asked the following questions regarding 
the operations and investments of the ESOP: (1) Whether any unallocated 
employer securities or proceeds from the sale of unallocated securities 
were used to repay any exempt loan; (2) whether the ESOP holds any 
preferred stock, and if so, whether the ESOP has an exempt loan with 
the employer as lender that is part of a ``back-to-back'' loan--the 
repayment terms of the employer loan to the ESOP are substantially 
similar to the repayment terms of a loan to the employer from a 
commercial lender; and (3) whether the ESOP holds any stock that is not 
readily tradable on an established securities market. The Department 
believes these questions provide important information for 
investigators in reviewing the operations and activities of ESOPs and 
identifying potential violations of the statute and regulations. Public 
discl