Electronic Filing of Annual Reports, 41359-41368 [06-6331]
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Federal Register / Vol. 71, No. 140 / Friday, July 21, 2006 / Rules and Regulations
make certain modifications to the
proposed regulations. These may be
more restrictive than the proposed
regulations under certain limited
circumstances. Consequently, for plan
years beginning after December 31,
1996, but before January 1, 2007, an
employer is permitted to determine the
excludible employees under a section
401(k) plan or section 401(m) plan using
either § 1.410(b)–6(g) in the proposed
regulations or these final regulations.
Special Analyses
It has been determined that this is not
a significant regulatory action as defined
in Executive Order 12866. Therefore, a
regulatory assessment is not required. It
also has been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations, and, because these
regulations do not impose a collection
of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply.
Drafting Information
The principal authors of these
regulations are Linda L. Conway and
Michael P. Brewer of the Office of the
Division Counsel/Associate Chief
Counsel (Tax Exempt and Government
Entities). However, other personnel
from the IRS and Treasury participated
in the development of these regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
amended as follows:
I
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by removing the
entry for §§ 1.410(b)–2 through
1.410(b)–10 and adding entries in
numerical order to read, in part, as
follows:
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I
Authority: 26 U.S.C. 7805. * * *
§ 1.410(b)–2 also issued under 26 U.S.C.
410(b)(6).
§ 1.410(b)–3 also issued under 26 U.S.C.
410(b)(6).
§ 1.410(b)–4 also issued under 26 U.S.C.
410(b)(6).
§ 1.410(b)–5 also issued under 26 U.S.C.
410(b)(6).
§ 1.410(b)–6 also issued under 26 U.S.C.
410(b)(6) and section 664 of the Economic
Growth and Tax Relief Reconciliation Act of
2001 (Public Law 107–16, 115 Stat. 38).
§ 1.410(b)–7 also issued under 26 U.S.C.
410(b)(6).
§ 1.410(b)–8 also issued under 26 U.S.C.
410(b)(6).
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§ 1.410(b)–9 also issued under 26 U.S.C.
410(b)(6).
§ 1.410(b)–10 also issued under 26 U.S.C.
410(b)(6).* * *
I Par. 2. Section 1.410(b)–0 is amended
by:
I 1. Revising the entry for 1.410(b)–6(g).
I 2. Adding entries for 1.410(b)–6(g)(1),
(g)(2), and (g)(3).
The revision and additions read as
follows:
§ 1.410(b)–0
*
*
§ 1.410(b)–6
Table of contents.
*
*
Excludable employees.
*
*
*
*
(g) Employees of certain governmental
or tax-exempt entities.
(1) Plans covered.
(2) Employees of governmental
entities.
(3) Employees of tax-exempt entities.
*
*
*
*
*
I Par. 3. In § 1.410(b)–6, paragraph (g) is
revised to read as follows:
Excludable employees.
*
*
*
*
*
(g) Employees of certain governmental
or tax-exempt entities—(1) Plans
covered. For purposes of testing either a
section 401(k) plan, or a section 401(m)
plan that is provided under the same
general arrangement as a section 401(k)
plan, an employer may treat as
excludable those employees described
in paragraphs (g)(2) and (3) of this
section.
(2) Employees of governmental
entities. Employees of governmental
entities who are precluded from being
eligible employees under a section
401(k) plan by reason of section
401(k)(4)(B)(ii) may be treated as
excludable employees if more than 95
percent of the employees of the
employer who are not precluded from
being eligible employees by reason of
section 401(k)(4)(B)(ii) benefit under the
plan for the year.
(3) Employees of tax-exempt entities.
Employees of an organization described
in section 403(b)(1)(A)(i) who are
eligible to make salary reduction
contributions under section 403(b) may
be treated as excludable with respect to
a section 401(k) plan, or a section
401(m) plan that is provided under the
same general arrangement as a section
401(k) plan, if—
(i) No employee of an organization
described in section 403(b)(1)(A)(i) is
eligible to participate in such section
401(k) plan or section 401(m) plan; and
(ii) At least 95 percent of the
employees who are neither employees
of an organization described in section
403(b)(1)(A)(i) nor employees of a
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governmental entity who are precluded
from being eligible employees under a
section 401(k) plan by reason of section
401(k)(4)(B)(ii) are eligible to participate
in such section 401(k) plan or section
401(m) plan.
*
*
*
*
*
I Par. 4. In § 1.410(b)–10, paragraph (e)
is added to read as follows:
§ 1.410(b)–10 Effective dates and
transition rules.
*
*
*
§ 1.410(b)–6
41359
*
*
*
*
(e) Effective date for provisions
relating to exclusion of employees of
certain tax-exempt entities. The
provisions in § 1.410(b)–6(g) apply to
plan years beginning after December 31,
1996. For plan years to which
§ 1.410(b)–6 applies that begin before
January 1, 1997, § 1.410(b)–6(g) (as it
appeared in the April 1, 2005 edition of
26 CFR part 1) applies.
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
Approved: June 30, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary of the
Treasury (Tax Policy).
[FR Doc. E6–11545 Filed 7–20–06; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Part 2520
RIN 1210–AB04
Electronic Filing of Annual Reports
Employee Benefits Security
Administration, Labor.
ACTION: Final rule.
AGENCY:
SUMMARY: This document contains a
final rule establishing 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, as amended (ERISA), the
Internal Revenue Code of 1986, as
amended (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
‘‘Annual Return/Report of Employee
Benefit Plan,’’ including any required
schedules and attachments (Form 5500).
Currently, the Department of Labor
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(Department), the Pension Benefit
Guaranty Corporation, and the Internal
Revenue Service (Agencies) use an
automated document processing
system—the ERISA Filing Acceptance
System (EFAST)—to process the Form
5500 filings. As part of the Department’s
efforts to update and streamline the
current processing system, the
regulation contained in this document
requires electronic filing of all annual
reports filed with the Secretary of Labor
(Secretary) for plan years beginning on
or after January 1, 2008, to satisfy
annual reporting obligations under Part
1 of Title I of ERISA. This regulation
affects employee pension and welfare
benefit plans, plan sponsors,
administrators, and service providers to
plans subject to Title I of ERISA.
DATES: This rule is effective September
19, 2006.
FOR FURTHER INFORMATION CONTACT:
Elizabeth A. Goodman or Yolanda R.
Wartenberg, Office of Regulations and
Interpretations, Employee Benefits
Security Administration, (202) 693–
8523. This is not a toll-free number.
SUPPLEMENTARY INFORMATION:
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A. Background
Sections 104(a) and 4065 of ERISA,
and sections 6058(a) and 6059(a) of 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 (Form 5500).
On August 30, 2005, the Department of
Labor (Department) published in the
Federal Register (70 FR 51541) a
proposed rule to implement the
Department’s announced intention to
move to a wholly electronic filing
system for receipt of Form 5500 filings
(E-Filing Proposal).
The E-Filing Proposal described the
current automated document processing
system—the ERISA Filing Acceptance
System (EFAST)—maintained by the
Department to process annual reports.
1 Other filing requirements beyond the scope of
this rule may apply to employee benefit plans and
to multiple employer welfare arrangements under
ERISA or to other benefit arrangements under the
Code. 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).
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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. The EFAST
system, which was developed in 1998
and 1999, relies on a mixture of paper
and electronic filing options and
computerized processing methods to
accept, compile, and monitor the Form
5500 filings. A private contractor
performs the EFAST processing under a
contract with the Department’s
Employee Benefits Security
Administration (EBSA). The end of the
time-limited contracting cycle and the
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, the Department
posted, in March 2004, a request for
public comments (Request for
Comment) on its Web site relating to
updating the current EFAST processing
system.2
The Department explained in the EFiling Proposal that it believed 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. In order to ensure an orderly
and cost-effective migration to an
electronic filing system by both the
Department and Form 5500 filers, the
requirement to file electronically was
proposed to be implemented for plan
years beginning on or after January 1,
2007.
The Department received eighteen
comment letters on the E-Filing
Proposal from representatives of
employers, plans, and plan service
providers. The Department also received
a comment letter from the Small
Business Administration’s Office of
Advocacy (SBA). Copies of all the
comments are posted on the
Department’s Web site at https://
www.dol.gov/ebsa/regs/cmt_mefr.html.
Set forth below is a discussion of the
comments received on the proposal,
including changes made in response to
the comments, and an overview of the
final regulation.
2 A more detailed description of the EFAST
processing system is included in the Request for
Comment which may be reviewed at: https://
www.efast.dol.gov/efastrfc.html.
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B. Discussion of Public Comments
Virtually all of the comments received
in response to the E-Filing Proposal
recognized the value of electronic filing
over paper filing, expressed support for
increasing the use of electronic filing,
and recognized that the Department’s
move to a wholly electronic system for
receipt and processing of Form 5500
filings reflects a trend also seen in the
business community to move toward
paperless systems. The majority of
comments endorsed the concept of a
transition to 100 percent electronic
filing and favored the development of a
secure Internet Web site on which a filer
could file the Form 5500 through direct
input of data as an option to hiring a
third party preparer or purchasing
privately developed software to file the
Form 5500. Several commenters,
including the SBA, questioned the
ability of employers, especially small
employers, to make the necessary
adjustments to comply with an
electronic filing mandate for the 2007
plan year, especially in the absence of
information about the technical
specifications that will have to be met
to use the new e-filing system. Most
commenters suggested that the
Department postpone the
implementation to give filers and
service providers enough time to
prepare their own systems and staff to
use the system. Some suggested that the
Department grant a transition year
exemption from annual reporting civil
penalties for unintentional filing
violations caused by lack of familiarity
with the new filing process. One
commenter asked whether electronic
filing would apply for administrators of
one-participant plans required to file the
Form 5500–EZ to satisfy annual
reporting requirements under the Code.3
The E-Filing Proposal specifically
invited comments on the need for an
exception to accommodate any
unanticipated and potentially
significant impediments to some filers’
transition to electronic filing.
Commenters were 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. In response, several
commenters suggested as alternatives
that the Department phase in the e-file
3 For purposes of the annual reporting
requirements under the Code, certain pension
benefit arrangements that cover only sole
proprietors 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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mandate over time and allow filers to
test the system on a voluntary basis or
through a pilot program. One
commenter suggested the Department
continue to offer paper filing along with
electronic filing and, instead of
mandating electronic filing, take steps to
encourage electronic filing by making it
easier and cheaper to use than paper.
1. Electronic Filing Mandate
In developing the 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 electronic
filing requirement.
After having carefully considered the
public comments, the Department
continues to believe, consistent with the
goals of E-government, as recognized by
the Government Paperwork Elimination
Act 4 and the E-Government Act of
2002,5 that the new processing system
designed to replace EFAST must have as
its core component a requirement that
Form 5500 filings be submitted through
electronic means. 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 (Secretary) Strategic Goals of
‘‘protecting workers benefits’’ and of
fostering ‘‘a competitive workforce,’’ as
well as promoting job flexibility and
4 Title XVII, Pub. L. 105–277, 112 Stat. 2681 (Oct.
21, 1998).
5 Pub. L. 107–347, 116 Stat. 2899 (Dec. 17, 2002).
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minimizing regulatory burden.6 A
cornerstone of EBSA’s enforcement
program is the collection, analysis, and
disclosure of benefit plan information.
A comparison of the relative costs and
benefits of the available alternatives
supports the move to a wholly
electronic filing system. The
Department believes that a wholly
electronic system will result in, among
other things, a reduction in filer errors
and a correlative reduction in
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. The
resulting improvement in the timeliness
and accuracy of the information from
electronic filing would assist EBSA in
its enforcement, oversight, and
disclosure roles and ultimately enhance
the security of plan benefits.7 Having a
phase-in period, pilot program, and
providing filers with a voluntary choice
whether to file electronically, as
suggested by some commenters, would
require the Department to continue to
maintain a paper filing system. The
Department still believes that
maintaining any paper filing system,
even on a reduced scale and/or for a
limited period of time, would be
inherently inefficient and unduly costly.
It is the Department’s view that any
economic benefit that might accrue to
some limited class of filers under the
alternatives considered 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. The
Department accordingly is not prepared
to adopt any alternative that would
involve continuation of paper filing
alternatives to electronic filing.
The Department’s conclusions
concerning the public comments and
alternatives are grounded in the
6 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.
7 The Government Accountability Office (GAO)
noted in a June, 2005 report on the Form 5500 that
the current necessity for handling paper filings
under EFAST creates a long processing related
delay between receipt of a filing and the availability
of its information for any enforcement and oversight
purposes even in cases where no filing errors are
detected. Private Pensions: Government Actions
Could Improve the Timeliness and Content of Form
5500 Pension Information (GAO–05–491) (‘‘GAO
Report’’) at 28 and 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.
Electronic filing would eliminate virtually all of
that processing delay, improving outcomes for all
of the users of the Form 5500 information.
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41361
Regulatory Impact Analysis presented in
the E-Filing Proposal and below.
2. Postponed Implementation of
Electronic Filing Requirement
As noted above, commenters
generally expressed concern about the
time line in the proposal calling for the
new electronic requirement to be
implemented for plan years (or
reporting years for non-plan filers)
commencing on or after January 1, 2007.
Several commenters, including the SBA,
questioned the ability of employers,
especially small employers, to make the
necessary adjustments to comply with
an electronic filing mandate for the 2007
plan year and urged that a delay of the
implementation of the e-file mandate
was needed to give all filers and service
providers enough time to train staff,
adopt new procedures, and install new
software.
In light of the concerns raised
regarding the timing of the
implementation of the system, and in
order to ensure an orderly and costeffective migration to an electronic
filing system by both the Department
and Form 5500 filers, the Department
has decided to delay the electronic
filing requirement. Under the final
regulation, the electronic filing
requirement is to become effective for
all annual report filings made under
Part 1 of Title I of ERISA for plan years
(or reporting years for non-plan filings)
beginning on or after January 1, 2008.
Accordingly, the vast majority of filers
will have until at least July 2009 to
make any necessary adjustments to
accommodate the electronic filing of
their annual report.8 This delay also
affords service providers, software
developers, and the Department
adequate time to work through
electronic processing issues.9
In addition, the Department, in
coordination with the Internal Revenue
Service (IRS) and Pension Benefit
Guaranty Corporation (PBGC), is taking
8 Annual reports generally are not required to be
filed until the end of the 7th month following the
end of the plan year.
9 One comment noted that to create a wholly
electronic filing environment, the filing system will
have to be capable of accepting amended filings for
prior years where paper filings were permitted as
well as delinquent filings that currently can be filed
under the Department’s Delinquent Filer Voluntary
Compliance Program by using either the form
issued for the prior year or the most current form
available at the time the administrator files the late
report. As noted above, the Department believes
that the new e-file system must be the exclusive
means for filing all Form 5500s. Accordingly,
delinquent or amended filings for prior plan years
for which paper filing options were available will
be subject to the electronic filing requirement. The
Department will provide instructions prior to the
inauguration of the system on how those filings are
to be made under the electronic filing system.
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Federal Register / Vol. 71, No. 140 / Friday, July 21, 2006 / Rules and Regulations
steps to revise the Form 5500 that
should further mitigate any burdens
associated with transitioning to a new
wholly electronic processing system.
Concurrently with the publication of
this final rule, the Agencies are
separately publishing in today’s Federal
Register proposed revisions to the
annual reporting forms and proposed
amendments to the Department’s
implementing regulations that are to be
applicable for the 2008 plan year, the
reporting year for which the new e-filing
system will be implemented. As
discussed more fully in the separate
Federal Register notices, the Agencies
believe the proposed form changes in
conjunction with the electronic filing
system will substantially reduce plan
administrators’ reporting compliance
burdens and also greatly enhance the
utility and accessibility of reported
information to the government,
participants and beneficiaries, and
others. For example, the Agencies are
developing a simplified, two-page form
(titled the Form 5500–SF with the ‘‘SF’’
standing for ‘‘Short Form’’) for plans
that have fewer than 100 participants
and that invest in secure, easily valued
assets. The Department estimates that
approximately 90 percent of all small
plan filers would be able to use the new
short form. Also, because of limits on
what the IRS can require to be filed
electronically,10 the IRS is removing
from the Form 5500 the schedules,
attachments, and information currently
required solely to comply with an IRS
reporting obligation (e.g., Schedule E
(ESOP Annual Information) and
Schedule SSA (Annual Registration
Statement Identifying Separated
Participants With Deferred Vested
Benefits)). The IRS has advised the
Department that, although there are no
mandatory electronic filing
requirements for the Form 5500 under
the Code or the regulations issued
thereunder, to ease the burdens on plans
the cover only sole proprietors or
partners (and their spouses) that are not
subject to Title I of ERISA but file the
Form 5500–EZ to satisfy the annual
reporting and filing obligations imposed
by the Code, the IRS intends to permit
certain Form 5500–EZ filers to satisfy
the requirement to file the Form 5500–
EZ with the IRS by filing the Form
5500–SF electronically through the
EFAST processing system. Therefore,
under the proposal certain Form 5500–
EZ filers will be provided both
electronic and paper filing options. The
10 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).
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electronic option would allow 5500–EZ
filers to complete and electronically file
with EFAST selected information on the
Short Form 5500. Form 5500–EZ filers
would also be able to choose instead to
file a Form 5500–EZ on paper with the
IRS.
3. Waiver of Filing Penalties
Two commenters, including the SBA,
suggested that the Department consider
providing filers, especially small plan
filers, with a one time exemption from
annual reporting civil penalties for
unintentional filing violations due to
lack of familiarity with the new filing
process. Commenters also expressed
concern that design and operational
issues may arise during the initial stages
of implementing the new electronic
filing system that may require filers to
refile, revise software, or otherwise
incur expenses and delay in adjusting
their systems to address glitches in the
electronic filing system. The comments
expressed the view that a one time
exemption from civil penalties would
help plan sponsors transitioning to an
unfamiliar filing process.
Section 502(c)(2) of ERISA provides
that the Secretary may assess a civil
penalty of up to $1,100 a day from the
date of a plan administrator’s failure or
refusal to file the annual report required
to be filed under ERISA.11 Penalties
under section 502(c)(2) are assessed
only in those instances where there is a
failure or refusal to file any annual
report within the prescribed time frames
or where, subsequent to notification that
a filed report has been rejected and the
reasons for which the filing has been
rejected, the filer fails or refuses to file
a corrected report within the 45-day
period prescribed in section 104(a)(5) of
ERISA. Section 104(a)(5) specifically
contemplates that, where a filing is
rejected under section 104(a)(4), the filer
will be afforded 45 days from the date
of the rejection to submit a revised filing
satisfactory to the Secretary.
Accordingly, in the case of a report
rejected under section 104(a)(4), the
administrator can avoid the assessment
of any penalty under section 502(c)(2)
by making the necessary corrections to
the filing within the prescribed time
frame. In addition, as reflected in the
regulation at § 2560.502c–2, penalties
may be waived, in whole or in part,
upon the administrator’s showing of
mitigating circumstances regarding the
11 In accordance with the requirements of the
Federal Civil Penalties Inflation Act of 1990, as
amended, the Department’s regulation at 29 CFR
2575.502c–2 increased the maximum civil penalty
from $1,000 a day as stated in section 502(c)(2) of
ERISA to $1,100 a day for violations occurring after
July 29, 1997.
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degree or willfulness of the
noncompliance.
The Department recognizes that some
plan administrators, plan sponsors, and
service providers may encounter
technical and logistical problems in
taking the steps necessary to transition
to a wholly electronic filing system for
annually submitting Form 5500 reports.
As noted above, the Department
believes that further delay of the
electronic mandate being adopted in
this final rule will provide plans and
service providers with adequate time to
make necessary adjustments in advance
of the implementation of the new filing
system. The Agencies also will be
conducting outreach activities to help
filers successfully make the transition to
the wholly electronic filing system.
Nonetheless, in assessing civil penalties
under section 502(c)(2) of ERISA, the
Department 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 during the first year of the
wholly electronic filing system. In the
Department’s view it would be
premature at this point to announce a
general exemption from annual
reporting civil penalties, but the
Department will remain open to
reconsidering the issue to the extent
developments suggest that an exemption
for unintentional filing violations
caused by lack of familiarity with the
new filing process would facilitate a
smoother transition to the new
electronic filing system.
Although not specifically raised by
the commentators, annual reporting
penalties assessed under section
502(c)(2) of ERISA are independent
from those penalties that may be
imposed by the IRS for noncompliance
with the annual reporting requirements
of the Code. Therefore, penalties under
one or both statutes could be assessed
or waived in a given situation. In this
regard, the Department will be
coordinating its annual reporting
compliance efforts with those of the IRS.
4. Technical Comments on the E-Filing
System
In connection with the proposal, the
Department reviewed the Request for
Comments on the technical design of
the new electronic filing system and
provided further information regarding
the project to assist the public in
evaluating the electronic filing proposal;
however, the Department noted that the
proposed regulation concerned only the
mandate of electronic filing. A number
of commenters included in their
comments recommendations regarding
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various technical and operational
specifications that the commenters
thought should be part of the new
e-filing system.
The majority of commenters favored
the development of a secure Internet
Web site on which a filer could file the
Form 5500 through direct input of data
as an additional option to hiring a third
party preparer or purchasing privately
developed software to file the Form
5500. Four commenters requested that
the system be structured to allow direct
filing by plan administrators so that
small plans would not have to hire a
paid preparer to file nor have to use
privately developed software at plan
expense. Several commenters
emphasized the need for an automated
way to receive an electronic signature in
the form of a Personal Identification
Number (PIN) or other signer
identification. Other commenters
suggested that the Department establish
both a transmitter-based and a Webbased filing process. Several
commenters suggested that multiple
parties be able to submit information
electronically for single filing, that plan
sponsors be allowed to authorize third
party filers as well as accommodate
multiple signers, and that the plan’s
auditor and actuary be able to access the
forms and provide approval as needed,
including use of a separate electronic
signature. Other commenters suggested
that the system allow for the ability to
download and import into the electronic
Form 5500 filing materials from
multiple sites or entities and allow for
the use of multiple, privately-developed
software formats in a filing. One
commenter wanted the system to
include adequate safeguards against
security vulnerabilities resulting from
multiple-party access to information
saved to a secured Internet Web site.
Another commenter recommended
developing a standard encryption
method for the report of the
independent qualified public
accountant. One commenter
recommended that the e-filing system be
capable of processing extensions, and
amended and late filings, as well as
filings for different years.
The Department reiterates its
intention to ensure that the new e-filing
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. For example, as
explained in the E-Filing Proposal, the
Department anticipates that the new
electronic filing system will incorporate
the Internet as the sole medium for
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transmission of all filings, with this
Internet-based transmission process
superseding all of the other currently
available methods of transmitting Form
5500 filings, including use of computer
diskette, CD–ROM and magnetic tape.
The system is to incorporate immediate
validity and accuracy checks that will
reduce both the error and rejection rate
of filings and will eliminate much of the
costly post-filing paper correspondence
and related potential penalties. It is
intended that the new electronic filing
system will provide more than one
vehicle for the electronic submission of
annual return/reports. 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 5500
filings created through the use of the
software. In making a transition to 100
percent electronic filing, it is
contemplated that the new system will
continue to provide support to private
sector software developers. Indeed, it is
expected that third-party software will
remain the primary means of producing
Form 5500s. 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 based on improved data
exchange technology based on widelyaccepted standards, such as XML. It is
also intended that software file
specifications will be non-proprietary so
that users of different software may
freely share information across different
platforms. The Department also intends
to include in the new system, as a
separate filing method, a dedicated,
secure Internet Web site 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-byplan basis. It is anticipated that the
Internet Web site will provide the filer
with the capability of entering and
saving data for an individual filing
through multiple sessions, 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.
The Department is aware that some
filers may be concerned that the new
electronic filing system could require
changes in their current practices or
their purchase of new software. The
Department does not believe that filers
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are at significant risk of not having
electronic access or that filers will be
required to purchase new software or
make significant changes to their
current practices. As an initial matter,
this filing is made on behalf of
employee benefit plans, not individuals.
Moreover, the Department’s confidence
that these filers should be able to have
electronic access, with relatively little
difficulty or additional cost, is based on
the following considerations. First, the
new system will have two options for
electronic filing: (1) By entering data
directly on screen (through a Web-based
system) and (2) by entering data through
third-party software that many preparers
may choose to use with an XML data
feed. Second, the new system will be
platform neutral; in this regard, the
Department’s Chief Information Officer
will confirm and ensure that the new
system will support all major platforms
(Windows, Mac, UNIX, Linux, etc.) and
browsers (Mozilla, Firefox, Opera, IE,
Netscape, etc.).
Although it is still not possible at this
time to provide full technical details
regarding the new electronic filing
system as many of the technological
aspects of the redesign are still in
development, the Department has been
and will continue to consider the filing
community’s concerns and
recommendations regarding various
technical and operational specifications
in the development of the new
electronic filing system. In that regard,
the Department notes that many of the
commenters’ suggestions were
previously submitted in response to the
Request for Comment that the
Department posted on its Web site
relating to updating the current EFAST
processing system.
C. Overview of the Final Rule
The rule adds a new § 2520.104a–2,
Electronic Filing of Annual Reports, to
subpart E of 29 CFR part 2520 and
establishes a requirement for the
electronic filing of the Form 5500 for
purposes of the annual reporting
provisions of Title I of ERISA. The final
rule provides that any annual report
(including any accompanying schedules
or attachments) filed with the Secretary
under Part 1 of Title I of ERISA for any
plan year beginning on or after January
1, 2008, shall be filed electronically in
accordance with the instructions
applicable to the report and such other
guidance as the Secretary may provide.
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
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with or within the plan year for which
a plan’s annual report is filed, the final
rule makes further reference to the first
‘‘reporting year’’ beginning on or after
January 1, 2008, for such entities.
The rule is designed to ensure that all
annual reports filed under Part 1 of Title
I of ERISA, as well as any statements or
schedules required to be attached to the
report, including those filed by
administrators (29 CFR 2520.103–1),
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 be
filed electronically.
Following the development of a new
electronic filing system, the Department
intends to provide specific instructions
and guidance concerning methods of
electronic filing in the instructions for
the Form 5500 and via its Web site. The
requirement in the final rule to file the
annual report electronically applies
only to annual reports filed under Part
1 of Title I of ERISA.
For purposes of the annual reporting
requirements under section 4065 of
Title IV of ERISA, the PBGC has advised
the Department that all administrators
of plans required to file reports under
ERISA section 4065 also are required to
file reports for purposes of section
104(a) of ERISA and a plan
administrator’s electronic filing of the
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.
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 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). Furthermore, as
noted above, the IRS has determined
that administrators of certain oneparticipant plans may file the Short
Form 5500 electronically through the
EFAST processing system to satisfy the
requirement to file the Form 5500–EZ
with the IRS. Administrators of one-
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participant plans will continue to have
the option of filing the Form 5500–EZ,
but if they file the Form 5500–EZ, they
must file with the IRS, rather than with
EFAST.12 The IRS intends that plan
administrators, employers, and certain
other entities that are subject to 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. With respect to
other 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 Schedule SSA, the IRS has
advised the Department that it is
currently exploring how best to make a
transition from paper filing to electronic
filing in a manner that minimizes the
burdens on taxpayers and practitioners.
For example, the IRS notes that it has
promulgated regulations mandating or
permitting electronic filing of certain
returns filed by pension and welfare
benefit plans. 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 section
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).
The rule also makes it 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 made
in order to reflect the electronic filing
requirement in 29 CFR 2520.103–1(f)
(contents of the annual report),
2520.103–2(c) (contents of the annual
12 Under the voluntary electronic filing option,
one participant plan filers filing an amended return
for a plan year must file the amended return
electronically using the Form 5500–SF if they
initially filed the Form 5500–SF electronically for
the plan year and must file the amendment with the
IRS using the paper Form 5500–EZ if they initially
filed for plan year with the IRS on a paper Form
5500–EZ.
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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).
D. Regulatory Impact Analysis
Summary
The Department has considered the
costs and benefits of this final
regulation, taking into account the
public comments submitted in response
to the proposed regulation, the changes
to the proposal incorporated into this
final regulation, and the Department’s
process to transition from EFAST to a
new electronic filing system. The
Department believes that the benefits
that will arise from mandatory
electronic filing beginning with the
2008 plan year will justify its costs.
Those costs, which will fall principally
on plans, will consist mainly of a onetime, transition or start-up cost to make
the change to electronic filing, generally
to be incurred in 2009, which on
aggregate is estimated to be $22 million.
Benefits to plans, which will include
ongoing savings on material and postage
and efficiency gains from the early
detection and elimination of potential
filing errors in the course of electronic
filing, are estimated to total $10 million
annually beginning in 2009. Over time
the ongoing savings attributable to this
regulation are expected to outweigh its
one-time transition cost. Aggregate
savings are estimated to exceed
aggregate costs by $24 million over the
first five years (discounting future
savings at a real rate of 3 percent).
As previously stated, additional,
substantial, although not quantifiable,
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
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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
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 and describes below an
analysis of the costs and benefits of this
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
are likely to have a significant economic
impact on a substantial number of small
entities. For purposes of analysis under
the RFA, EBSA continues 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 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
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small business that is based on size
standards promulgated by the Small
Business Administration (13 CFR
121.201) pursuant to the Small Business
Act (15 U.S.C. 631 et seq.).
The Department presented an initial
regulatory flexibility analysis at the time
this regulation was proposed because
the Department believed that the
proposed regulation might have a
significant economic impact on a
substantial number of small entities, as
defined under section 603 of the RFA.
After reviewing and considering the
public comments submitted in response
to the proposal and the changes that are
incorporated into the final regulation,
the Department has prepared a final
regulatory flexibility analysis, which is
presented in this document as part of a
broader economic analysis.
Costs and Benefits
Under this final regulation, costs to
plans will include a one-time transition
or start-up cost to make the change to
electronic filing, estimated at $22
million. Benefits will include ongoing
savings on material and postage and
efficiency gains from the early detection
and elimination of potential filing errors
in the course of electronic filing,
estimated to total $10 million annually.
Over time the ongoing savings
attributable to this regulation are
expected to outweigh its one-time
transition cost. Aggregate savings are
estimated to exceed aggregate costs by
$24 million over the first five years
(discounting future savings at a real rate
of 3 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.
The costs and benefits of this
regulation will accrue primarily to
815,000 13 plans that file Form 5500s.14
Non-plan entities that file Form 5500s
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.15
13 The numbers used in this analysis for aggregate
plans and for plan subcategories (such as large and
small plans; hand-print, machine-print, and
electronic filers; and correction correspondence) are
derived from Form 5500 data for the 2002 plan year.
14 The economic analysis of the 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 only to satisfy
filing requirements under the Code, data related to
Form 5500–EZ filers is not included in this
analysis.
15 Economic theory predicts that producers in
competitive markets pass costs and savings on to
buyers.
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Transition Costs
This regulation will entail some onetime costs, incurred in making the
transition to electronic filing. The
magnitude of the transition costs will
vary across filer groups. As described in
the economic analysis for the proposed
regulation, the Department believes that
filers that previously relied on the handprint method of filing will generally face
higher transition costs than other filers.
The Department has refined its analysis
of filers’ transition costs to take into
account commenters’ concerns about
the increased risk of initial filing
difficulties when the new electronic
filing system first begins operations,
which is associated with potential
higher filing costs. For purposes of this
analysis, therefore, the Department has
assumed that filers who submit an
electronic filing within the first six
months of operations of the new
processing system, from January 1,
2009, through June 30, 2009 (the early
filing period), may experience a higher
cost.16
Hand-print Filers. Hand-print filers as
a group are likely to face larger
transition costs than others.17 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) of these
hand-print filers already have an
electronic infrastructure (mainly a
personal computer and Internet service)
sufficient to support electronic filing.
Nonetheless, hand-print filers are likely
to incur some expense to learn about the
new requirement, and some will incur
16 In order to estimate how many filers within
each relevant category would be likely to file within
the first six months of the new filing system’s
operation, the Department analyzed filing patterns
of the relevant types of plans for each calendar year
from 2000 to 2002 and averaged the resulting data
to produce an estimate for each category.
17 The comments focused on small plans in
discussing the potential difficulties that hand-print
filers may experience. The Department believes that
all hand-print filers, regardless of plan size, may
experience larger transition costs than machineprint filers, since the size and complexity of the
reports filed by larger hand-print filers may create
a burden equivalent to that of the small hand-print
filers. Accordingly, these estimates treat all handprint filers the same with regard to transition costs.
18 A very small fraction of all hand-print filers,
typically a few percent, file 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 result in a small overstatement of the
aggregate transition cost for hand-print filers.
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additional costs, such as in locating and
becoming familiar with Internet access,
as well as in establishing a secured
filing account.
For the 96,000 current hand-print
filers, the Department estimates that
11,000 will file their 2008 Form 5500
filing during the early filing period
(from January 1, 2009, through June 30,
2009). The filers in that group, whether
large or small, are assumed to require on
average three hours to transition to
electronic filing. The hand-print filers
who file their 2008 reports after June 30,
2009, are assumed to require on average
one and one-half hours each. The
resulting transition cost to electronic
filing for all hand-print filers is
estimated at a one-time, aggregate of $9
million. This assumes that a
professional-level employee, who costs
the plans on average $58.80 per hour in
wages, benefits, and overhead,19 would
perform the work required to make the
transition to electronic filing. As
discussed in the preamble to the
proposed regulation, the Department
recognizes that transition costs may vary
greatly among hand-print filers and may
be larger or smaller than these estimates.
For example, some hand-filers may
decide to switch to use of a service
provider for completing the Form 5500
filing, which might entail greater initial
expense; others may experience lower
costs because they are highly
experienced Internet users already
engaged in electronic business
activities.
Machine-Print Filers. The Department
has also revised its estimates for
machine-print filers to take into account
a potentially higher cost of making the
transition during the early filing period.
The Department believes that a large
proportion of machine-print filers hire
service providers to complete their
filings. For purposes of these estimates,
that proportion is conservatively
assumed to be 50 percent.
With respect to filings on behalf of
machine-print filers by service
providers during the early filing period,
it is likely that service providers will
quickly encounter and resolve any early
period filing difficulties, reducing the
transition cost per plan. Accordingly,
the Department has assumed that, for
that class of filings, the transition to
electronic will require an average of five
minutes per filing; later filings are
assumed to require no transition costs.
These assumptions, applied to an
19 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.
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estimated 58,000 of service-provider
filings that are expected to be made
during early filing period, add $300,000
to the aggregate transition costs.
For machine-print filers who prepare
their own filings and file them during
the early filing period, the Department
has assumed that the transition to the
electronic filing system will require on
average one hour; for later filers, the
Department has assumed a transition
time averaging 30 minutes. The
Department estimates that 355,000
machine-print filers will transition to
electronic filing using their own
resources, with 58,000 filing during the
early filing period, incurring an
estimated aggregate transition cost of
$12 million.
Based on the above-described
calculations, the Department estimates
that the total aggregate transition costs
for all machine-print filers will be $12
million.
Electronic Filers
The Department has also revised its
estimates to include costs attributable to
filers who have previously used the
electronic methods of filing available
under EFAST in order to account for the
possibility that electronic filers who file
during the early filing period might
have larger transition costs than those
who make that transition later. The
Department estimates that 500 previous
electronic filers will file during the early
filing period and that their transition to
the new electronic processing system
will require five minutes per plan. The
Department assumes that later filers in
this category will have only negligible
transition costs. This results in an
estimate of $2,000 in aggregate
transition costs attributable to electronic
filers.
In summary, the total aggregate startup, transition cost to electronic filing
under this regulation is estimated at $22
million, incurred primarily in 2009.
Ongoing Costs and Benefits
Preparation Costs. This regulation
pertains to the filing, and not to the
preparation, of the Form 5500. It is
possible, however, that for some filers
mandatory electronic filing will 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 may prepare
future filings by entering information
into a government Web site. The
Department considered the cost of
making such transitions in preparation
methods to be part of the overall
transition cost of the regulation,
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included in the estimates presented
above.
With respect to ongoing preparation
costs, it is possible 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, while others will incur
lower costs. For example, it is not
immediately determinable whether
entering information into a Web site
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 Web site
interface will be designed with attention
to ease of preparation. As it did not have
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 the
regulation.
Filing Cost Savings. Filing costs
generally are expected to be reduced by
the implementation of this 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, 815,000
plans will benefit from approximately
$900,000 in such 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 softwarebased system generally have fewer filing
errors. In 2002, 6 percent and 16 percent
of electronic and machine-print filings,
respectively, had filing errors compared
to 38 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
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additional information or clarifications
about Form 5500 filings for the 2002
plan year, the Department mailed
150,000 letters to filers requesting
corrections or additions. This correction
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 $9
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 $2.2 million, would accrue
to current hand-print filers (reflecting
their historically higher filing error
rates), while $6.6 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 of E-Filing and EGovernment
The Department believes, as
previously stated in the preamble to the
proposed regulation, that the
implementation of a fully electronic
processing system for Form 5500 filings
will produce substantial additional
benefits for both the government and the
public through reduced processing costs
and more timely availability of accurate
filing data. The decrease in erroneous
filings and corrective correspondence
will produce immediate savings to the
Federal Government and therefore to
taxpayers, and improvements in the
data accuracy and accelerated
processing will improve the timeliness
and reliability of national statistics on
private employee benefit plans.
In addition, the Department continues
to believe that this regulation will
contribute to the Federal Government’s
progress in implementing E-government
initiatives, taking advantage of the
electronic information technologies that
are becoming increasingly central to
business success in the United States.
The proliferation of such technologies,
and of expertise and familiarity with
using them, is expected to moderate the
cost of compliance with this regulation
and to increase the importance of its
implementation. The Department
reviewed current literature on this topic
in depth in the preamble to the E-Filing
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14:42 Jul 20, 2006
Jkt 208001
Proposal and continues to rely on those
studies and their conclusions in
adopting this final regulation.
Alternatives Considered
As discussed in the preamble to the
E-Filing Proposal, before electing to
pursue a wholly electronic filing
system, the Department considered
alternative options for reconfiguring the
filing methods for the Form 5500,
focusing in particular on the gradual
approach advocated generally in the
public comments on the Request for
Comment, which described technical
aspects of the development of the new
processing system. The preamble to the
proposed regulation described these
alternatives and the Department’s
reasons for rejecting them in favor of
mandated electronic filing. The
Department continues to believe that
allowing filers to choose whether to file
electronically or on paper is undesirable
because it would perpetuate the
inefficiencies inherent in paper filing,
such as avoidable filing errors and
associated correspondence and civil
penalties, delays in processing filings,
and inferior data quality, as well as
higher costs for the Federal government
(and by extension taxpayers).
The Department received several
comments on the E-Filing Proposal
requesting that the Department
reconsider some of the rejected
alternatives. Commenters also asked the
Department to consider providing small
plans a one-year deferral of the
electronic filing mandate, a one-year
period of relief for filing violations, or
a voluntary pilot program during the
new system’s first year of operations.
These commenters suggested that
providing this sort of transition relief
would ameliorate public concerns about
the burden of transitioning to electronic
filing. In response to these comments
the Department considered delaying the
applicability date of the electronic filing
mandate an additional year, until the
2009 year. To evaluate this alternative,
the Department assessed the relative
costs and benefits of mandating
electronic filing beginning with the
2008 or 2009 plan year. In each
scenario, the Department assumed that
the new processing system would be
operational as of January 1, 2009.
The Department’s economic analysis
supports its decision to require
electronic filing beginning with the
2008 plan year. As noted earlier, some
commenters anticipate that filers who
file during the new electronic filing
system’s initial months of operation
may incur higher transition costs than
those who file later. Delaying the
applicability date until plan year 2009
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41367
would reduce the proportion of filers
exposed to such potential higher costs
from a substantial minority to a tiny
one. The Department estimates that
adopting this alternative might reduce
aggregate transition costs by $3 million.
However, delaying the applicability date
would also prolong for an additional
year the estimated $10 million
combined annual cost arising from
paper filing and associated error
correction under EFAST, which
electronic filing is expected to
eliminate, and so on net would increase
aggregate, long-term filer costs by $7
million. It would also delay for a year
the anticipated societal benefits of
electronic filing.
Small Plans
This regulation will have an impact
on small plans. As for all other plans,
costs and benefits for small plans are
expected to vary with the plans’
circumstances. Most will likely incur
moderate transition costs and
subsequently realize moderate ongoing
savings. Some, however, may
experience larger impacts, including
greater transition costs and at least some
period of ongoing net cost increases
rather than ongoing net savings. For
example, some small plans may lack
experience with or easy access to the
Internet. Such plans may incur larger
than typical transition costs to gain
access to the Internet (or to enlist a
service provider with access) and may
find it more time consuming, and
therefore more costly, to prepare their
filing on a government Web site (or to
interact with a service provider) than to
prepare their filing using a government
printed form that is completed ‘‘by
hand’’ and filed on paper through the
mails.
The Department estimates that
667,000 small plans will incur one-time
transition costs of $18 million; this
includes $7 million for 72,000 current
hand-print filers, $11 million for
587,000 current machine-print filers,
and $2,000 for 9,000 current electronic
filers. It is further estimated that small
plans will realize on-going annual
savings from the elimination of
materials and postage costs
(approximately $715,000) and from the
elimination of the need to correct
deficient filings ($1.8 million accruing
to hand-print filers, $5.6 million to
machine-print filers, and $36,000 to
electronic filers) for a total of
approximately $8 million in annual
savings. As with all other plans, over
time the aggregate ongoing savings
realized by small plans are expected to
outweigh their aggregate one-time
transition costs. Over five years, savings
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Federal Register / Vol. 71, No. 140 / Friday, July 21, 2006 / Rules and Regulations
are estimated to exceed costs by $17
million (discounting future savings at a
real rate of 3 percent). The Department
believes that impacts may vary among
small plans, depending for example on
their (or their service providers’) access
to and familiarity with associated
technologies, and possibly on their size.
The Department, however, lacks a basis
on which to estimate such variations.
benefit plan covered under ERISA. The
requirements implemented in this final
rule do not alter the fundamental
reporting and disclosure requirements
of the statute with respect to employee
benefit plans, and as such have no
implications for the States or the
relationship or distribution of power
between the national government and
the States.
Paperwork Reduction Act
This final regulation does not
introduce, or materially modify, any
information collection requirement, but
furthers the Department’s goal of
automating the submission of the Form
5500. As such, this final rule is not
subject to the requirements of the
Paperwork Reduction Act of 1995 (44
U.S.C. 3501 et seq.) because it does not
contain a ‘‘collection of information’’ as
defined in 44 U.S.C. 3502(3).
List of Subjects in 29 CFR Part 2520
Employee benefit plans, Pensions,
Reporting and recordkeeping
requirements.
I For the reasons set forth in the
preamble, the Department amends 29
CFR part 2520 as follows:
PART 2520—RULES AND
REGULATIONS FOR REPORTING AND
DISCLOSURE
*
*
*
*
(c) Electronic filing. See § 2520.104a–
2 and the instructions for the Form 5500
‘‘Annual Return/Report of Employee
Benefit Plan’’ for electronic filing
requirements. The trust or other entity
described in § 2520.104–43(b) filing
under this section must maintain an
original copy, with all required
signatures, as part of its records.
I
I
1. The authority section of part 2520
continues to read as follows:
§ 2520.103–9 Direct filing for bank or
insurance carrier trusts and accounts.
Authority: 29 U.S.C. 1021–1025, 1027,
1029–31, 1059, 1134, and 1135; Secretary of
Labor’s Order 1–2003, 68 FR 5374 (Feb. 3,
2003). Sec. 2520.101–2 also issued under 29
U.S.C. 1132, 1181–1183, 1181 note, 1185,
1185a–b, 1191, and 1191a–c. Secs. 2520.102–
3, 2520.104b–1, and 2520.104b–3 also issued
under 29 U.S.C. 1003, 1181–1183, 1181 note,
1185, 1185a–b, 1191, and 1191a–c. Secs.
2520.104b–1 and 2520.107 also issued under
26 U.S.C. 401 note, 111 Stat. 788.
*
Congressional Review Act
The notice of final rulemaking being
issued here is subject to the provisions
of the Congressional Review Act
provisions of the Small Business
Regulatory Enforcement Fairness Act of
1996 (5 U.S.C. 801 et seq.) and will be
transmitted to the Congress and the
Comptroller General for review.
rmajette on PROD1PC65 with RULES
Unfunded Mandates Reform Act
Pursuant to provisions of the
Unfunded Mandates Reform Act of 1995
(Pub. L. 104–4), this rule does not
include any Federal mandate that may
result in expenditures by State, local, or
tribal governments, or the private sector,
which may impose an annual burden of
$100 million or more.
Federalism Statement
Executive Order 13132 (August 4,
1999) outlines fundamental principles
of federalism, and requires Federal
agencies to adhere to specific criteria in
the process of their formulation and
implementation of policies that have
substantial direct effects on the States,
the relationship between the national
government and States, or on the
distribution of power and
responsibilities among the various
levels of government. This final rule
does not have federalism implications
because it has no substantial direct
effect on the States, on the relationship
between the national government and
the States, or on the distribution of
power and responsibilities among the
various levels of government. Section
514 of ERISA provides, with certain
exceptions specifically enumerated, that
the provisions of Titles I and IV of
ERISA supersede any and all laws of the
States as they relate to any employee
VerDate Aug<31>2005
14:42 Jul 20, 2006
Jkt 208001
I 2. Add § 2520.104a–2 after
§ 2520.104a–1 to read as follows:
§ 2520.104a–2
reports.
Electronic filing of annual
must maintain an original copy, with all
required signatures, as part of the plan’s
records.
4. Amend § 2520.103–2 by revising
paragraph (c) as follows:
I
§ 2520.103–2 Contents of the annual report
for a group insurance arrangement.
*
5. Amend § 2520.103–9 by revising
paragraph (d) as follows:
*
*
*
*
(d) Electronic filing. See § 2520.104a–
2 and the instructions for the Form 5500
‘‘Annual Return/Report of Employee
Benefit Plan’’ for electronic filing
requirements. The bank or insurance
company which maintains the common
or collective trust or pooled separate
account must maintain an original copy,
with all required signatures, as part of
its records.
6. Amend § 2520.103–12 by revising
paragraph (f) as follows:
I
(a) Any annual report (including any
accompanying statements or schedules)
filed with the Secretary under part 1 of
title I of the Act for any plan year (or
reporting year, in the case of common or
collective trusts, pooled separate
accounts, and similar non-plan entities)
beginning on or after January 1, 2008,
shall be filed electronically in
accordance with the instructions
applicable to such report, and such
other guidance as the Secretary may
provide.
(b) Nothing in paragraph (a) of this
section is intended to alter or affect the
duties of any person to retain records or
to disclose information to participants,
beneficiaries, or the Secretary.
I 3. Amend § 2520.103–1 by revising
paragraph (f) as follows:
§ 2520.103–12 Limited exemption and
alternative method of compliance for annual
reporting of investments in certain entities.
§ 2520.103–1
report.
BILLING CODE 4510–29–P
Contents of the annual
*
*
*
*
*
(f) Electronic filing. See § 2520.104a–
2 and the instructions for the Form 5500
‘‘Annual Return/Report of Employee
Benefit Plan’’ for electronic filing
requirements. The entity described in
paragraph (c) of this section must
maintain an original copy, with all
required signatures, as part of its
records.
Signed at Washington, DC, this 13th day of
July 2006.
Ann L. Combs,
Assistant Secretary, Employee Benefits
Security Administration.
[FR Doc. 06–6331 Filed 7–20–06; 8:45 am]
*
*
*
*
*
(f) Electronic filing. See § 2520.104a–
2 and the instructions for the Form 5500
‘‘Annual Return/Report of Employee
Benefit Plan’’ for electronic filing
requirements. The plan administrator
PO 00000
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]]>Agencies
[Federal Register Volume 71, Number 140 (Friday, July 21, 2006)]
[Rules and Regulations]
[Pages 41359-41368]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-6331]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2520
RIN 1210-AB04
Electronic Filing of Annual Reports
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document contains a final rule establishing 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, as amended (ERISA),
the Internal Revenue Code of 1986, as amended (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 ``Annual Return/Report of Employee
Benefit Plan,'' including any required schedules and attachments (Form
5500). Currently, the Department of Labor
[[Page 41360]]
(Department), the Pension Benefit Guaranty Corporation, and the
Internal Revenue Service (Agencies) use an automated document
processing system--the ERISA Filing Acceptance System (EFAST)--to
process the Form 5500 filings. As part of the Department's efforts to
update and streamline the current processing system, the regulation
contained in this document requires electronic filing of all annual
reports filed with the Secretary of Labor (Secretary) for plan years
beginning on or after January 1, 2008, to satisfy annual reporting
obligations under Part 1 of Title I of ERISA. This regulation affects
employee pension and welfare benefit plans, plan sponsors,
administrators, and service providers to plans subject to Title I of
ERISA.
DATES: This rule is effective September 19, 2006.
FOR FURTHER INFORMATION CONTACT: Elizabeth A. Goodman or Yolanda R.
Wartenberg, Office of Regulations and Interpretations, Employee
Benefits Security Administration, (202) 693-8523. This is not a toll-
free number.
SUPPLEMENTARY INFORMATION:
A. Background
Sections 104(a) and 4065 of ERISA, and sections 6058(a) and 6059(a)
of 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 (Form 5500). On August 30, 2005, the Department of Labor
(Department) published in the Federal Register (70 FR 51541) a proposed
rule to implement the Department's announced intention to move to a
wholly electronic filing system for receipt of Form 5500 filings (E-
Filing Proposal).
---------------------------------------------------------------------------
\1\ Other filing requirements beyond the scope of this rule may
apply to employee benefit plans and to multiple employer welfare
arrangements under ERISA or to other benefit arrangements under the
Code. 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).
---------------------------------------------------------------------------
The E-Filing Proposal described the current automated document
processing system--the ERISA Filing Acceptance System (EFAST)--
maintained by 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. The EFAST system, which was
developed in 1998 and 1999, relies on a mixture of paper and electronic
filing options and computerized processing methods to accept, compile,
and monitor the Form 5500 filings. A private contractor performs the
EFAST processing under a contract with the Department's Employee
Benefits Security Administration (EBSA). The end of the time-limited
contracting cycle and the 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, the Department posted, in March 2004, a
request for public comments (Request for Comment) on its Web site
relating to updating the current EFAST processing system.\2\
---------------------------------------------------------------------------
\2\ A more detailed description of the EFAST processing system
is included in the Request for Comment which may be reviewed at:
https://www.efast.dol.gov/efastrfc.html.
---------------------------------------------------------------------------
The Department explained in the E-Filing Proposal that it believed
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. In order to ensure an orderly and cost-effective
migration to an electronic filing system by both the Department and
Form 5500 filers, the requirement to file electronically was proposed
to be implemented for plan years beginning on or after January 1, 2007.
The Department received eighteen comment letters on the E-Filing
Proposal from representatives of employers, plans, and plan service
providers. The Department also received a comment letter from the Small
Business Administration's Office of Advocacy (SBA). Copies of all the
comments are posted on the Department's Web site at https://www.dol.gov/
ebsa/regs/cmt_mefr.html.
Set forth below is a discussion of the comments received on the
proposal, including changes made in response to the comments, and an
overview of the final regulation.
B. Discussion of Public Comments
Virtually all of the comments received in response to the E-Filing
Proposal recognized the value of electronic filing over paper filing,
expressed support for increasing the use of electronic filing, and
recognized that the Department's move to a wholly electronic system for
receipt and processing of Form 5500 filings reflects a trend also seen
in the business community to move toward paperless systems. The
majority of comments endorsed the concept of a transition to 100
percent electronic filing and favored the development of a secure
Internet Web site on which a filer could file the Form 5500 through
direct input of data as an option to hiring a third party preparer or
purchasing privately developed software to file the Form 5500. Several
commenters, including the SBA, questioned the ability of employers,
especially small employers, to make the necessary adjustments to comply
with an electronic filing mandate for the 2007 plan year, especially in
the absence of information about the technical specifications that will
have to be met to use the new e-filing system. Most commenters
suggested that the Department postpone the implementation to give
filers and service providers enough time to prepare their own systems
and staff to use the system. Some suggested that the Department grant a
transition year exemption from annual reporting civil penalties for
unintentional filing violations caused by lack of familiarity with the
new filing process. One commenter asked whether electronic filing would
apply for administrators of one-participant plans required to file the
Form 5500-EZ to satisfy annual reporting requirements under the
Code.\3\
---------------------------------------------------------------------------
\3\ For purposes of the annual reporting requirements under the
Code, certain pension benefit arrangements that cover only sole
proprietors 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.
---------------------------------------------------------------------------
The E-Filing Proposal specifically invited comments on the need for
an exception to accommodate any unanticipated and potentially
significant impediments to some filers' transition to electronic
filing. Commenters were 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. In response,
several commenters suggested as alternatives that the Department phase
in the e-file
[[Page 41361]]
mandate over time and allow filers to test the system on a voluntary
basis or through a pilot program. One commenter suggested the
Department continue to offer paper filing along with electronic filing
and, instead of mandating electronic filing, take steps to encourage
electronic filing by making it easier and cheaper to use than paper.
1. Electronic Filing Mandate
In developing the 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 electronic filing
requirement.
After having carefully considered the public comments, the
Department continues to believe, consistent with the goals of E-
government, as recognized by the Government Paperwork Elimination Act
\4\ and the E-Government Act of 2002,\5\ that the new processing system
designed to replace EFAST must have as its core component a requirement
that Form 5500 filings be submitted through electronic means. 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 (Secretary)
Strategic Goals of ``protecting workers benefits'' and of fostering ``a
competitive workforce,'' as well as promoting job flexibility and
minimizing regulatory burden.\6\ A cornerstone of EBSA's enforcement
program is the collection, analysis, and disclosure of benefit plan
information.
---------------------------------------------------------------------------
\4\ Title XVII, Pub. L. 105-277, 112 Stat. 2681 (Oct. 21, 1998).
\5\ Pub. L. 107-347, 116 Stat. 2899 (Dec. 17, 2002).
\6\ 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.
---------------------------------------------------------------------------
A comparison of the relative costs and benefits of the available
alternatives supports the move to a wholly electronic filing system.
The Department believes that a wholly electronic system will result in,
among other things, a reduction in filer errors and a correlative
reduction in 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. The resulting
improvement in the timeliness and accuracy of the information from
electronic filing would assist EBSA in its enforcement, oversight, and
disclosure roles and ultimately enhance the security of plan
benefits.\7\ Having a phase-in period, pilot program, and providing
filers with a voluntary choice whether to file electronically, as
suggested by some commenters, would require the Department to continue
to maintain a paper filing system. The Department still believes that
maintaining any paper filing system, even on a reduced scale and/or for
a limited period of time, would be inherently inefficient and unduly
costly. It is the Department's view that any economic benefit that
might accrue to some limited class of filers under the alternatives
considered 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. The Department
accordingly is not prepared to adopt any alternative that would involve
continuation of paper filing alternatives to electronic filing.
---------------------------------------------------------------------------
\7\ The Government Accountability Office (GAO) noted in a June,
2005 report on the Form 5500 that the current necessity for handling
paper filings under EFAST creates a long processing related delay
between receipt of a filing and the availability of its information
for any enforcement and oversight purposes even in cases where no
filing errors are detected. Private Pensions: Government Actions
Could Improve the Timeliness and Content of Form 5500 Pension
Information (GAO-05-491) (``GAO Report'') at 28 and 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.
Electronic filing would eliminate virtually all of that processing
delay, improving outcomes for all of the users of the Form 5500
information.
---------------------------------------------------------------------------
The Department's conclusions concerning the public comments and
alternatives are grounded in the Regulatory Impact Analysis presented
in the E-Filing Proposal and below.
2. Postponed Implementation of Electronic Filing Requirement
As noted above, commenters generally expressed concern about the
time line in the proposal calling for the new electronic requirement to
be implemented for plan years (or reporting years for non-plan filers)
commencing on or after January 1, 2007. Several commenters, including
the SBA, questioned the ability of employers, especially small
employers, to make the necessary adjustments to comply with an
electronic filing mandate for the 2007 plan year and urged that a delay
of the implementation of the e-file mandate was needed to give all
filers and service providers enough time to train staff, adopt new
procedures, and install new software.
In light of the concerns raised regarding the timing of the
implementation of the system, and in order to ensure an orderly and
cost-effective migration to an electronic filing system by both the
Department and Form 5500 filers, the Department has decided to delay
the electronic filing requirement. Under the final regulation, the
electronic filing requirement is to become effective for all annual
report filings made under Part 1 of Title I of ERISA for plan years (or
reporting years for non-plan filings) beginning on or after January 1,
2008. Accordingly, the vast majority of filers will have until at least
July 2009 to make any necessary adjustments to accommodate the
electronic filing of their annual report.\8\ This delay also affords
service providers, software developers, and the Department adequate
time to work through electronic processing issues.\9\
---------------------------------------------------------------------------
\8\ Annual reports generally are not required to be filed until
the end of the 7th month following the end of the plan year.
\9\ One comment noted that to create a wholly electronic filing
environment, the filing system will have to be capable of accepting
amended filings for prior years where paper filings were permitted
as well as delinquent filings that currently can be filed under the
Department's Delinquent Filer Voluntary Compliance Program by using
either the form issued for the prior year or the most current form
available at the time the administrator files the late report. As
noted above, the Department believes that the new e-file system must
be the exclusive means for filing all Form 5500s. Accordingly,
delinquent or amended filings for prior plan years for which paper
filing options were available will be subject to the electronic
filing requirement. The Department will provide instructions prior
to the inauguration of the system on how those filings are to be
made under the electronic filing system.
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In addition, the Department, in coordination with the Internal
Revenue Service (IRS) and Pension Benefit Guaranty Corporation (PBGC),
is taking
[[Page 41362]]
steps to revise the Form 5500 that should further mitigate any burdens
associated with transitioning to a new wholly electronic processing
system. Concurrently with the publication of this final rule, the
Agencies are separately publishing in today's Federal Register proposed
revisions to the annual reporting forms and proposed amendments to the
Department's implementing regulations that are to be applicable for the
2008 plan year, the reporting year for which the new e-filing system
will be implemented. As discussed more fully in the separate Federal
Register notices, the Agencies believe the proposed form changes in
conjunction with the electronic filing system will substantially reduce
plan administrators' reporting compliance burdens and also greatly
enhance the utility and accessibility of reported information to the
government, participants and beneficiaries, and others. For example,
the Agencies are developing a simplified, two-page form (titled the
Form 5500-SF with the ``SF'' standing for ``Short Form'') for plans
that have fewer than 100 participants and that invest in secure, easily
valued assets. The Department estimates that approximately 90 percent
of all small plan filers would be able to use the new short form. Also,
because of limits on what the IRS can require to be filed
electronically,\10\ the IRS is removing from the Form 5500 the
schedules, attachments, and information currently required solely to
comply with an IRS reporting obligation (e.g., Schedule E (ESOP Annual
Information) and Schedule SSA (Annual Registration Statement
Identifying Separated Participants With Deferred Vested Benefits)). The
IRS has advised the Department that, although there are no mandatory
electronic filing requirements for the Form 5500 under the Code or the
regulations issued thereunder, to ease the burdens on plans the cover
only sole proprietors or partners (and their spouses) that are not
subject to Title I of ERISA but file the Form 5500-EZ to satisfy the
annual reporting and filing obligations imposed by the Code, the IRS
intends to permit certain Form 5500-EZ filers to satisfy the
requirement to file the Form 5500-EZ with the IRS by filing the Form
5500-SF electronically through the EFAST processing system. Therefore,
under the proposal certain Form 5500-EZ filers will be provided both
electronic and paper filing options. The electronic option would allow
5500-EZ filers to complete and electronically file with EFAST selected
information on the Short Form 5500. Form 5500-EZ filers would also be
able to choose instead to file a Form 5500-EZ on paper with the IRS.
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\10\ 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).
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3. Waiver of Filing Penalties
Two commenters, including the SBA, suggested that the Department
consider providing filers, especially small plan filers, with a one
time exemption from annual reporting civil penalties for unintentional
filing violations due to lack of familiarity with the new filing
process. Commenters also expressed concern that design and operational
issues may arise during the initial stages of implementing the new
electronic filing system that may require filers to refile, revise
software, or otherwise incur expenses and delay in adjusting their
systems to address glitches in the electronic filing system. The
comments expressed the view that a one time exemption from civil
penalties would help plan sponsors transitioning to an unfamiliar
filing process.
Section 502(c)(2) of ERISA provides that the Secretary may assess a
civil penalty of up to $1,100 a day from the date of a plan
administrator's failure or refusal to file the annual report required
to be filed under ERISA.\11\ Penalties under section 502(c)(2) are
assessed only in those instances where there is a failure or refusal to
file any annual report within the prescribed time frames or where,
subsequent to notification that a filed report has been rejected and
the reasons for which the filing has been rejected, the filer fails or
refuses to file a corrected report within the 45-day period prescribed
in section 104(a)(5) of ERISA. Section 104(a)(5) specifically
contemplates that, where a filing is rejected under section 104(a)(4),
the filer will be afforded 45 days from the date of the rejection to
submit a revised filing satisfactory to the Secretary. Accordingly, in
the case of a report rejected under section 104(a)(4), the
administrator can avoid the assessment of any penalty under section
502(c)(2) by making the necessary corrections to the filing within the
prescribed time frame. In addition, as reflected in the regulation at
Sec. 2560.502c-2, penalties may be waived, in whole or in part, upon
the administrator's showing of mitigating circumstances regarding the
degree or willfulness of the noncompliance.
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\11\ In accordance with the requirements of the Federal Civil
Penalties Inflation Act of 1990, as amended, the Department's
regulation at 29 CFR 2575.502c-2 increased the maximum civil penalty
from $1,000 a day as stated in section 502(c)(2) of ERISA to $1,100
a day for violations occurring after July 29, 1997.
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The Department recognizes that some plan administrators, plan
sponsors, and service providers may encounter technical and logistical
problems in taking the steps necessary to transition to a wholly
electronic filing system for annually submitting Form 5500 reports. As
noted above, the Department believes that further delay of the
electronic mandate being adopted in this final rule will provide plans
and service providers with adequate time to make necessary adjustments
in advance of the implementation of the new filing system. The Agencies
also will be conducting outreach activities to help filers successfully
make the transition to the wholly electronic filing system.
Nonetheless, in assessing civil penalties under section 502(c)(2) of
ERISA, the Department 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 during
the first year of the wholly electronic filing system. In the
Department's view it would be premature at this point to announce a
general exemption from annual reporting civil penalties, but the
Department will remain open to reconsidering the issue to the extent
developments suggest that an exemption for unintentional filing
violations caused by lack of familiarity with the new filing process
would facilitate a smoother transition to the new electronic filing
system.
Although not specifically raised by the commentators, annual
reporting penalties assessed under section 502(c)(2) of ERISA are
independent from those penalties that may be imposed by the IRS for
noncompliance with the annual reporting requirements of the Code.
Therefore, penalties under one or both statutes could be assessed or
waived in a given situation. In this regard, the Department will be
coordinating its annual reporting compliance efforts with those of the
IRS.
4. Technical Comments on the E-Filing System
In connection with the proposal, the Department reviewed the
Request for Comments on the technical design of the new electronic
filing system and provided further information regarding the project to
assist the public in evaluating the electronic filing proposal;
however, the Department noted that the proposed regulation concerned
only the mandate of electronic filing. A number of commenters included
in their comments recommendations regarding
[[Page 41363]]
various technical and operational specifications that the commenters
thought should be part of the new e-filing system.
The majority of commenters favored the development of a secure
Internet Web site on which a filer could file the Form 5500 through
direct input of data as an additional option to hiring a third party
preparer or purchasing privately developed software to file the Form
5500. Four commenters requested that the system be structured to allow
direct filing by plan administrators so that small plans would not have
to hire a paid preparer to file nor have to use privately developed
software at plan expense. Several commenters emphasized the need for an
automated way to receive an electronic signature in the form of a
Personal Identification Number (PIN) or other signer identification.
Other commenters suggested that the Department establish both a
transmitter-based and a Web-based filing process. Several commenters
suggested that multiple parties be able to submit information
electronically for single filing, that plan sponsors be allowed to
authorize third party filers as well as accommodate multiple signers,
and that the plan's auditor and actuary be able to access the forms and
provide approval as needed, including use of a separate electronic
signature. Other commenters suggested that the system allow for the
ability to download and import into the electronic Form 5500 filing
materials from multiple sites or entities and allow for the use of
multiple, privately-developed software formats in a filing. One
commenter wanted the system to include adequate safeguards against
security vulnerabilities resulting from multiple-party access to
information saved to a secured Internet Web site. Another commenter
recommended developing a standard encryption method for the report of
the independent qualified public accountant. One commenter recommended
that the e-filing system be capable of processing extensions, and
amended and late filings, as well as filings for different years.
The Department reiterates its intention to ensure that the new e-
filing 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. For example, as
explained in the E-Filing Proposal, the Department anticipates that the
new electronic filing system will incorporate the Internet as the sole
medium for transmission of all filings, with this Internet-based
transmission process superseding all of the other currently available
methods of transmitting Form 5500 filings, including use of computer
diskette, CD-ROM and magnetic tape. The system is to incorporate
immediate validity and accuracy checks that will reduce both the error
and rejection rate of filings and will eliminate much of the costly
post-filing paper correspondence and related potential penalties. It is
intended that the new electronic filing system will provide more than
one vehicle for the electronic submission of annual return/reports. 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 5500 filings created through the use of the
software. In making a transition to 100 percent electronic filing, it
is contemplated that the new system will continue to provide support to
private sector software developers. Indeed, it is expected that third-
party software will remain the primary means of producing Form 5500s.
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 based
on improved data exchange technology based on widely-accepted
standards, such as XML. It is also intended that software file
specifications will be non-proprietary so that users of different
software may freely share information across different platforms. The
Department also intends to include in the new system, as a separate
filing method, a dedicated, secure Internet Web site 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 Web site will
provide the filer with the capability of entering and saving data for
an individual filing through multiple sessions, 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.
The Department is aware that some filers may be concerned that the
new electronic filing system could require changes in their current
practices or their purchase of new software. The Department does not
believe that filers are at significant risk of not having electronic
access or that filers will be required to purchase new software or make
significant changes to their current practices. As an initial matter,
this filing is made on behalf of employee benefit plans, not
individuals. Moreover, the Department's confidence that these filers
should be able to have electronic access, with relatively little
difficulty or additional cost, is based on the following
considerations. First, the new system will have two options for
electronic filing: (1) By entering data directly on screen (through a
Web-based system) and (2) by entering data through third-party software
that many preparers may choose to use with an XML data feed. Second,
the new system will be platform neutral; in this regard, the
Department's Chief Information Officer will confirm and ensure that the
new system will support all major platforms (Windows, Mac, UNIX, Linux,
etc.) and browsers (Mozilla, Firefox, Opera, IE, Netscape, etc.).
Although it is still not possible at this time to provide full
technical details regarding the new electronic filing system as many of
the technological aspects of the redesign are still in development, the
Department has been and will continue to consider the filing
community's concerns and recommendations regarding various technical
and operational specifications in the development of the new electronic
filing system. In that regard, the Department notes that many of the
commenters' suggestions were previously submitted in response to the
Request for Comment that the Department posted on its Web site relating
to updating the current EFAST processing system.
C. Overview of the Final Rule
The rule adds a new Sec. 2520.104a-2, Electronic Filing of Annual
Reports, to subpart E of 29 CFR part 2520 and establishes a requirement
for the electronic filing of the Form 5500 for purposes of the annual
reporting provisions of Title I of ERISA. The final rule provides that
any annual report (including any accompanying schedules or attachments)
filed with the Secretary under Part 1 of Title I of ERISA for any plan
year beginning on or after January 1, 2008, shall be filed
electronically in accordance with the instructions applicable to the
report and such other guidance as the Secretary may provide. 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
[[Page 41364]]
with or within the plan year for which a plan's annual report is filed,
the final rule makes further reference to the first ``reporting year''
beginning on or after January 1, 2008, for such entities.
The rule is designed to ensure that all annual reports filed under
Part 1 of Title I of ERISA, as well as any statements or schedules
required to be attached to the report, including those filed by
administrators (29 CFR 2520.103-1), 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 be filed
electronically.
Following the development of a new electronic filing system, the
Department intends to provide specific instructions and guidance
concerning methods of electronic filing in the instructions for the
Form 5500 and via its Web site. The requirement in the final rule to
file the annual report electronically applies only to annual reports
filed under Part 1 of Title I of ERISA.
For purposes of the annual reporting requirements under section
4065 of Title IV of ERISA, the PBGC has advised the Department that all
administrators of plans required to file reports under ERISA section
4065 also are required to file reports for purposes of section 104(a)
of ERISA and a plan administrator's electronic filing of the 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.
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 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). Furthermore, as noted above, the IRS has determined that
administrators of certain one-participant plans may file the Short Form
5500 electronically through the EFAST processing system to satisfy the
requirement to file the Form 5500-EZ with the IRS. Administrators of
one-participant plans will continue to have the option of filing the
Form 5500-EZ, but if they file the Form 5500-EZ, they must file with
the IRS, rather than with EFAST.\12\ The IRS intends that plan
administrators, employers, and certain other entities that are subject
to 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. With respect to other 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 Schedule
SSA, the IRS has advised the Department that it is currently exploring
how best to make a transition from paper filing to electronic filing in
a manner that minimizes the burdens on taxpayers and practitioners. For
example, the IRS notes that it has promulgated regulations mandating or
permitting electronic filing of certain returns filed by pension and
welfare benefit plans. 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 section 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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\12\ Under the voluntary electronic filing option, one
participant plan filers filing an amended return for a plan year
must file the amended return electronically using the Form 5500-SF
if they initially filed the Form 5500-SF electronically for the plan
year and must file the amendment with the IRS using the paper Form
5500-EZ if they initially filed for plan year with the IRS on a
paper Form 5500-EZ.
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The rule also makes it 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 made in order to reflect the
electronic filing requirement in 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).
D. Regulatory Impact Analysis
Summary
The Department has considered the costs and benefits of this final
regulation, taking into account the public comments submitted in
response to the proposed regulation, the changes to the proposal
incorporated into this final regulation, and the Department's process
to transition from EFAST to a new electronic filing system. The
Department believes that the benefits that will arise from mandatory
electronic filing beginning with the 2008 plan year will justify its
costs. Those costs, which will fall principally on plans, will consist
mainly of a one-time, transition or start-up cost to make the change to
electronic filing, generally to be incurred in 2009, which on aggregate
is estimated to be $22 million. Benefits to plans, which will include
ongoing savings on material and postage and efficiency gains from the
early detection and elimination of potential filing errors in the
course of electronic filing, are estimated to total $10 million
annually beginning in 2009. Over time the ongoing savings attributable
to this regulation are expected to outweigh its one-time transition
cost. Aggregate savings are estimated to exceed aggregate costs by $24
million over the first five years (discounting future savings at a real
rate of 3 percent).
As previously stated, additional, substantial, although not
quantifiable, 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
[[Page 41365]]
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 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 and
describes below an analysis of the costs and benefits of this
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 are likely to
have a significant economic impact on a substantial number of small
entities. For purposes of analysis under the RFA, EBSA continues 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 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 (13 CFR 121.201) pursuant to the Small Business Act (15
U.S.C. 631 et seq.).
The Department presented an initial regulatory flexibility analysis
at the time this regulation was proposed because the Department
believed that the proposed regulation might have a significant economic
impact on a substantial number of small entities, as defined under
section 603 of the RFA. After reviewing and considering the public
comments submitted in response to the proposal and the changes that are
incorporated into the final regulation, the Department has prepared a
final regulatory flexibility analysis, which is presented in this
document as part of a broader economic analysis.
Costs and Benefits
Under this final regulation, costs to plans will include a one-time
transition or start-up cost to make the change to electronic filing,
estimated at $22 million. Benefits will include ongoing savings on
material and postage and efficiency gains from the early detection and
elimination of potential filing errors in the course of electronic
filing, estimated to total $10 million annually. Over time the ongoing
savings attributable to this regulation are expected to outweigh its
one-time transition cost. Aggregate savings are estimated to exceed
aggregate costs by $24 million over the first five years (discounting
future savings at a real rate of 3 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.
The costs and benefits of this regulation will accrue primarily to
815,000 \13\ plans that file Form 5500s.\14\ Non-plan entities that
file Form 5500s 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.\15\
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\13\ The numbers used in this analysis for aggregate plans and
for plan subcategories (such as large and small plans; hand-print,
machine-print, and electronic filers; and correction correspondence)
are derived from Form 5500 data for the 2002 plan year.
\14\ The economic analysis of the 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 only to
satisfy filing requirements under the Code, data related to Form
5500-EZ filers is not included in this analysis.
\15\ Economic theory predicts that producers in competitive
markets pass costs and savings on to buyers.
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Transition Costs
This regulation will entail some one-time costs, incurred in making
the transition to electronic filing. The magnitude of the transition
costs will vary across filer groups. As described in the economic
analysis for the proposed regulation, the Department believes that
filers that previously relied on the hand-print method of filing will
generally face higher transition costs than other filers. The
Department has refined its analysis of filers' transition costs to take
into account commenters' concerns about the increased risk of initial
filing difficulties when the new electronic filing system first begins
operations, which is associated with potential higher filing costs. For
purposes of this analysis, therefore, the Department has assumed that
filers who submit an electronic filing within the first six months of
operations of the new processing system, from January 1, 2009, through
June 30, 2009 (the early filing period), may experience a higher
cost.\16\
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\16\ In order to estimate how many filers within each relevant
category would be likely to file within the first six months of the
new filing system's operation, the Department analyzed filing
patterns of the relevant types of plans for each calendar year from
2000 to 2002 and averaged the resulting data to produce an estimate
for each category.
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Hand-print Filers. Hand-print filers as a group are likely to face
larger transition costs than others.\17\ 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) of these hand-print filers
already have an electronic infrastructure (mainly a personal computer
and Internet service) sufficient to support electronic filing.
Nonetheless, hand-print filers are likely to incur some expense to
learn about the new requirement, and some will incur
[[Page 41366]]
additional costs, such as in locating and becoming familiar with
Internet access, as well as in establishing a secured filing account.
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\17\ The comments focused on small plans in discussing the
potential difficulties that hand-print filers may experience. The
Department believes that all hand-print filers, regardless of plan
size, may experience larger transition costs than machine-print
filers, since the size and complexity of the reports filed by larger
hand-print filers may create a burden equivalent to that of the
small hand-print filers. Accordingly, these estimates treat all
hand-print filers the same with regard to transition costs.
\18\ A very small fraction of all hand-print filers, typically a
few percent, file 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 result in a small
overstatement of the aggregate transition cost for hand-print
filers.
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For the 96,000 current hand-print filers, the Department estimates
that 11,000 will file their 2008 Form 5500 filing during the early
filing period (from January 1, 2009, through June 30, 2009). The filers
in that group, whether large or small, are assumed to require on
average three hours to transition to electronic filing. The hand-print
filers who file their 2008 reports after June 30, 2009, are assumed to
require on average one and one-half hours each. The resulting
transition cost to electronic filing for all hand-print filers is
estimated at a one-time, aggregate of $9 million. This assumes that a
professional-level employee, who costs the plans on average $58.80 per
hour in wages, benefits, and overhead,\19\ would perform the work
required to make the transition to electronic filing. As discussed in
the preamble to the proposed regulation, the Department recognizes that
transition costs may vary greatly among hand-print filers and may be
larger or smaller than these estimates. For example, some hand-filers
may decide to switch to use of a service provider for completing the
Form 5500 filing, which might entail greater initial expense; others
may experience lower costs because they are highly experienced Internet
users already engaged in electronic business activities.
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\19\ 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.
---------------------------------------------------------------------------
Machine-Print Filers. The Department has also revised its estimates
for machine-print filers to take into account a potentially higher cost
of making the transition during the early filing period. The Department
believes that a large proportion of machine-print filers hire service
providers to complete their filings. For purposes of these estimates,
that proportion is conservatively assumed to be 50 percent.
With respect to filings on behalf of machine-print filers by
service providers during the early filing period, it is likely that
service providers will quickly encounter and resolve any early period
filing difficulties, reducing the transition cost per plan.
Accordingly, the Department has assumed that, for that class of
filings, the transition to electronic will require an average of five
minutes per filing; later filings are assumed to require no transition
costs. These assumptions, applied to an estimated 58,000 of service-
provider filings that are expected to be made during early filing
period, add $300,000 to the aggregate transition costs.
For machine-print filers who prepare their own filings and file
them during the early filing period, the Department has assumed that
the transition to the electronic filing system will require on average
one hour; for later filers, the Department has assumed a transition
time averaging 30 minutes. The Department estimates that 355,000
machine-print filers will transition to electronic filing using their
own resources, with 58,000 filing during the early filing period,
incurring an estimated aggregate transition cost of $12 million.
Based on the above-described calculations, the Department estimates
that the total aggregate transition costs for all machine-print filers
will be $12 million.
Electronic Filers
The Department has also revised its estimates to include costs
attributable to filers who have previously used the electronic methods
of filing available under EFAST in order to account for the possibility
that electronic filers who file during the early filing period might
have larger transition costs than those who make that transition later.
The Department estimates that 500 previous electronic filers will file
during the early filing period and that their transition to the new
electronic processing system will require five minutes per plan. The
Department assumes that later filers in this category will have only
negligible transition costs. This results in an estimate of $2,000 in
aggregate transition costs attributable to electronic filers.
In summary, the total aggregate start-up, transition cost to
electronic filing under this regulation is estimated at $22 million,
incurred primarily in 2009.
Ongoing Costs and Benefits
Preparation Costs. This regulation pertains to the filing, and not
to the preparation, of the Form 5500. It is possible, however, that for
some filers mandatory electronic filing will 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 may prepare future filings by entering information into a
government Web site. The Department considered the cost of making such
transitions in preparation methods to be part of the overall transition
cost of the regulation, included in the estimates presented above.
With respect to ongoing preparation costs, it is possible 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, while others will incur
lower costs. For example, it is not immediately determinable whether
entering information into a Web site 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 Web site
interface will be designed with attention to ease of preparation. As it
did not have 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 the regulation.
Filing Cost Savings. Filing costs generally are expected to be
reduced by the implementation of this 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, 815,000 plans will benefit from
approximately $900,000 in such 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, 6 percent and 16 percent of
electronic and machine-print filings, respectively, had filing errors
compared to 38 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
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additional information or clarifications about Form 5500 filings for
the 2002 plan year, the Department mailed 150,000 letters to filers
requesting corrections or additions. This correction 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 $9 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 $2.2 million, would accrue to current hand-print
filers (reflecting their historically higher filing error rates), while
$6.6 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 of E-Filing and E-Government
The Department believes, as previously stated in the preamble to
the proposed regulation, that the implementation of a fully electronic
processing system for Form 5500 filings will produce substantial
additional benefits for both the government and the public through
reduced processing costs and more timely availability of accurate
filing data. The decrease in erroneous filings and corrective
correspondence will produce immediate savings to the Federal Government
and therefore to taxpayers, and improvements in the data accuracy and
accelerated processing will improve the timeliness and reliability of
national statistics on private employee benefit plans.
In addition, the Department continues to believe that this
regulation will contribute to the Federal Government's progress in
implementing E-government initiatives, taking advantage of the
electronic information technologies that are becoming increasingly
central to business success in the United States. The proliferation of
such technologies, and of expertise and familiarity with using them, is
expected to moderate the cost of compliance with this regulation and to
increase the importance of its implementation. The Department reviewed
current literature on this topic in depth in the preamble to the E-
Filing Proposal and continues to rely on those studies and their
conclusions in adopting this final regulation.
Alternatives Considered
As discussed in the preamble to the E-Filing Proposal, before
electing to pursue a wholly electronic filing system, the Department
considered alternative options for reconfiguring the filing methods for
the Form 5500, focusing in particular on the gradual approach advocated
generally in the public comments on the Request for Comment, which
described technical aspects of the development of the new processing
system. The preamble to the proposed regulation described these
alternatives and the Department's reasons for rejecting them in favor
of mandated electronic filing. The Department continues to believe that
allowing filers to choose whether to file electronically or on paper is
undesirable because it would perpetuate the inefficiencies inherent in
paper filing, such as avoidable filing errors and associated
correspondence and civil penalties, delays in processing filings, and
inferior data quality, as well as higher costs for the Federal
government (and by extension taxpayers).
The Department received several comments on the E-Filing Proposal
requesting that the Department reconsider some of the rejected
alternatives. Commenters also asked the Department to consider
providing small plans a one-year deferral of the electronic filing
mandate, a one-year period of relief for filing violations, or a
voluntary pilot program during the new system's first year of
operations. These commenters suggested that providing this sort of
transition relief would ameliorate public concerns about the burden of
transitioning to electronic filing. In response to these comments the
Department considered delaying the applicability date of the electronic
filing mandate an additional year, until the 2009 year. To evaluate
this alternative, the Department assessed the relative costs and
benefits of mandating electronic filing beginning with the 2008 or 2009
plan year. In each scenario, the Department assumed that the new
processing system would be operational as of January 1, 2009.
The Department's economic analysis supports its decision to require
electronic filing beginning with the 2008 plan year. As noted earlier,
some commenters anticipate that filers who file during the new
electronic filing system's initial months of operation may incur higher
transition costs than those who file later. Delaying the applicability
date until plan year 2009 would reduce the proportion of filers exposed
to such potential higher costs from a substantial minority to a tiny
one. The Department estimates that adopting this alternative might
reduce aggregate transition costs by $3 million. However, delaying the
applicability date would also prolong for an additional year the
estimated $10 million combined annual cost arising from paper filing
and associated error correction under EFAST, which electronic filing is
expected to eliminate, and so on net would increase aggregate, long-
term filer costs by $7 million. It would also delay for a year the
anticipated societal benefits of electronic filing.
Small Plans
This regulation will have an impact on small plans. As for all
other plans, costs and benefits for small plans are expected to vary
with the plans' circumstances. Most will likely incur moderate
transition costs and subsequently realize moderate ongoing savings.
Some, however, may experience larger impacts, including greater
transition costs and at least some period of ongoing net cost increases
rather than ongoing net savings. For example, some small plans may lack
experience with or easy access to the Internet. Such plans may incur
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