Revision of Annual Information Return/Reports, 64731-64857 [07-5521]

Agencies

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

[Federal Register Volume 72, Number 221 (Friday, November 16, 2007)]
[Notices]
[Pages 64731-64857]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-5521]



Federal Register / Vol. 72, No. 221 / Friday, November 16, 2007 / 
Notices

[[Page 64731]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

DEPARTMENT OF THE TREASURY

Internal Revenue Service

PENSION BENEFIT GUARANTY CORPORATION

RIN 1210-AB06


Revision of Annual Information Return/Reports

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

ACTION: Notice of adoption of revisions to annual return/report forms.

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SUMMARY: This document contains revisions to the Form 5500 Annual 
Return/Report forms, including the Form 5500 Annual Return/Report of 
Employee Benefit Plan and a new Form 5500-SF, Short Form Annual Return/
Report of Small Employee Benefit Plan (Short Form 5500 or Form 5500-
SF), filed for employee pension and welfare benefit plans under the 
Employee Retirement Income Security Act of 1974, as amended (ERISA), 
and the Internal Revenue Code of 1986, as amended (Code). The Form 5500 
Annual Return/Report forms, including the schedules and attachments, 
are an important source of financial, funding, and other information 
about employee benefit plans for the Department of Labor, the Pension 
Benefit Guaranty Corporation, and the Internal Revenue Service (the 
Agencies), as well as for plan sponsors, participants and 
beneficiaries, and the general public. The revisions to the Form 5500 
Annual Return/Report forms contained in this document, including the 
new Short Form 5500, are intended to streamline the annual reporting 
process, reduce annual reporting burdens, especially for small 
businesses, update the annual reporting forms to reflect current issues 
and agency priorities, incorporate new reporting requirements contained 
in the Pension Protection Act of 2006, and facilitate electronic 
filing. Some of the forms revisions will apply on a transitional basis 
for the 2008 reporting year before all of the forms revisions are fully 
implemented for the 2009 reporting year as part of the switch under the 
ERISA Filing Acceptance System (EFAST) to a wholly electronic filing 
system (EFAST2). The forms revisions affect employee pension and 
welfare benefit plans, plan sponsors, administrators, and service 
providers to plans subject to annual reporting requirements under ERISA 
and the Code.

DATES: Effective January 15, 2008.

FOR FURTHER INFORMATION CONTACT: Elizabeth A. Goodman or Michael I. 
Baird, Employee Benefits Security Administration (EBSA), U.S. 
Department of Labor, (202) 693-8523, for questions relating to the Form 
5500, and its Schedules A, C, D, G, H, and I, and lines 1 through 11 of 
the Form 5500-SF (Short Form 5500), as well as the general reporting 
requirements under Title I of ERISA; Lisa Mojiri-Azad, Internal Revenue 
Service (IRS), Office of Chief Counsel, (202) 622-6060, or Ann Junkins, 
IRS, (202) 283-0722, for questions relating to Schedules SB, MB, and R 
of the Form 5500, lines 12 and 13 of the Short Form 5500, and the 
filing of Short Form 5500 instead of the Form 5500-EZ for plans that 
are not subject to Title I of ERISA, as well as questions relating to 
the general reporting requirements under the Internal Revenue Code; and 
Michael Packard, Pension Benefit Guaranty Corporation (PBGC), (202) 
326-4080, ext. 3429, for questions relating to Schedules SB and MB of 
the Form 5500, and lines 13 through 19 of Schedule R, as well as 
questions relating to the general reporting requirements under Title IV 
of ERISA. For further information on an item not mentioned above, 
contact Mr. Baird. The telephone numbers referenced above are not toll-
free numbers.

SUPPLEMENTARY INFORMATION: 

A. Background

    Sections 101 and 104 of Title I and section 4065 of Title IV of the 
Employee Retirement Income Security Act of 1974, as amended (ERISA), 
sections 6058(a) and 6059(a) of the Internal Revenue Code of 1986, as 
amended (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 the filing of the Form 5500 Annual Return/
Report of Employee Benefit Plan, including its schedules and 
attachments (Form 5500 Annual Return/Report), in accordance with the 
instructions and related regulations.
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    \1\ Other filing requirements may apply to certain employee 
benefit plans and to multiple-employer welfare arrangements under 
ERISA or to other benefit arrangements under the Code, and such 
other filing requirements are not within the scope of this Notice. 
For example, Code sec. 6033(a) imposes an additional reporting and 
filing obligation on organizations exempt from tax under Code sec. 
501(a), which may be related to retirement trusts that are qualified 
under sec. 401(a) of the Code.
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    The Form 5500 Annual Return/Report is the principal source of 
information and data available to the Department of Labor (Department 
or Labor), the Internal Revenue Service (IRS), and the Pension Benefit 
Guaranty Corporation (PBGC) (collectively, Agencies) concerning the 
operations, funding, and investments of about 800,000 pension and 
welfare benefit plans. These plans cover an estimated 150 million 
participants and hold an estimated $4.3 trillion in assets. 
Accordingly, the Form 5500 Annual Return/Report constitutes an integral 
part of each Agency's enforcement, research, and policy formulation 
programs, and is a source of information and data for use by other 
federal agencies, Congress, and the private sector in assessing 
employee benefit, tax, and economic trends and policies. The Form 5500 
Annual Return/Report also serves as a primary means by which plan 
operations can be monitored by participants and beneficiaries and by 
the general public.
    On July 21, 2006, the Department published a final rule requiring 
electronic filing of the Form 5500 Annual Return/Report for reporting 
years beginning on or after January 1, 2008 (Electronic Filing Rule). 
71 FR 41359. Simultaneously with the publication of the Electronic 
Filing Rule, the Agencies published a notice of proposed forms 
revisions (July 2006 Proposal) proposing changes to the Form 5500 
Annual Return/Report for the 2008 reporting year. 71 FR 41615. On 
December 11, 2006, the Agencies published a Notice of Supplemental 
Proposed Forms Revisions (Supplemental Notice). 71 FR 71562. The 
Supplemental Notice was necessary to make changes to the Form 5500 
Annual Return/Report required by the Pension Protection Act of 2006, 
Pub. L. 109-280, 120 Stat. 780 (2006), enacted on August 17, 2006 
(PPA).
    The Agencies received 38 comment letters on the July 2006 
Proposal,\2\ and seven comments on the Supplemental Notice. Comments 
were submitted by various members of the regulated community, including 
representatives of employers, plans, and plan service providers. Copies 
of the comments are

[[Page 64732]]

posted on the Department's Web site at https://www.dol.gov/ebsa/regs.
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    \2\ The Agencies also received a comment letter from the United 
States Department of Commerce, Economic and Statistics 
Administration, Bureau of Economic Analysis (BEA), that indicated 
that the BEA relies on the information collected in the Form 5500 to 
prepare certain statistics.
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    After careful consideration of the issues raised by the written 
public comments, the Agencies decided to adopt the forms largely as 
proposed, but, in an attempt to strike a balance between ensuring 
adequate reporting and disclosure to participants, beneficiaries, and 
the Agencies, on the one hand, and the costs and administrative burdens 
attendant to the administration and maintenance of employee benefit 
plans on the other, the Agencies revised some of the annual reporting 
requirements in response to public comments. The Agencies now are 
publishing in this Notice the final forms revisions for the Form 5500 
Annual Return/Report (including the Short Form 5500), generally 
effective for the 2009 reporting year (with certain transition changes 
effective for the 2008 reporting year). Set forth below is a general 
summary of the public comments received in response to the proposals, 
changes made in response to those comments, and an overview of the 
final forms revisions being adopted in this Notice.
    The Agencies are printing in this Notice information copies of the 
2009 Form 5500, 2009 Form 5500-SF, and 2009 Schedules A, SB, MB, C, D, 
G, H, I, and R. This Notice also includes information copies of the 
related instructions, except for the instructions to the Schedule SB 
and MB and certain new questions on the Schedule R, which the Agencies 
will publish after the Treasury/IRS develop the underlying substantive 
guidance under the PPA, and certain instructions relating to electronic 
filing procedures under the EFAST2 system. Information copies of the 
forms and the instruction package will also be posted on the 
Department's Web page at https://www.dol.gov/ebsa. Because of the switch 
to EFAST2 and a wholly electronic filing requirement, the information 
copies of the 2009 annual return/report forms printed in this Notice 
are not acceptable for and cannot be used for filing an annual return/
report under the EFAST2 system. Once the EFAST2 contract is awarded to 
a firm to develop the new wholly electronic filing system for the 2009 
Form 5500 Annual Return/Report forms, including the Form 5500-SF, the 
contractor may as part of its development of the new system need to 
make technical reformatting changes to the forms that may affect the 
appearance of the forms. Details on any changes to the appearance of 
the forms and on the wholly electronic filing and processing system, 
including details on electronic signature requirements, will be 
available as the contract is awarded and the system development is 
finalized. Although the paper forms will not be used for filing under 
the EFAST2 system, the final format of the forms and schedules will be 
the required format for satisfying disclosure obligations under ERISA, 
including the plan administrator's obligation to furnish copies of the 
annual report to participants and beneficiaries on request pursuant to 
section 104(b) of ERISA.

B. Discussion of the Public Comments

1. Deferral of Forms Revisions and Electronic Filing Mandate to the 
2009 Plan Year

    A significant number of the commenters, including several large 
industry groups representing plan sponsors and service providers, asked 
for a delay in the effective date of the forms changes. A number of the 
commenters asked for additional time to comment due to work being done 
to implement new statutory requirements enacted as part of the PPA. 
Some commenters also suggested that the comment period should be 
extended to allow more time to address the Schedule C (Service Provider 
Information) changes due to the significance of the changes in plan fee 
and expense reporting, the attendant compliance costs, and a desire to 
evaluate the Schedule C changes in conjunction with proposed 
regulations the Department has announced it will be publishing under 
ERISA section 408(b)(2).\3\ Three different commenters suggested that 
the effective date for the new reporting requirements for Code section 
403(b) plans be delayed until after the IRS publishes its final 
regulation on Code section 403(b) plans. Some commenters urged that the 
effective date be extended for the Form 5500 Annual Return/Report 
changes until 2009 or 2010 at the earliest to allow sufficient time to 
make necessary changes to comply with the new requirements. One 
commenter, who requested a delayed implementation date generally for 
the new forms and electronic filing requirement, suggested an earlier 
implementation date for the Short Form 5500 as a way of satisfying the 
PPA requirement of a simplified report for plans with fewer than 25 
participants.
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    \3\ As set forth in the Department's semi-annual regulatory 
agenda, 72 FR 22845, the rulemaking would amend the regulation at 29 
CFR section 2550.408b-2 setting forth the standards applicable to 
the exemption under ERISA section 408(b)(2) for contracting or 
making reasonable arrangements with a party in interest for office 
spaces or services. The proposed amendment is intended to ensure 
that plan fiduciaries are provided or have access to the information 
necessary to determine whether an arrangement for services is 
``reasonable'' within the meaning of the statutory exemption, as 
well as within the meaning of the prudence requirements of ERISA 
section 404(a)(1)(B).
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    The proposed revisions to the Form 5500 Annual Return/Report, which 
include both those set forth in the Agencies' July 2006 Proposal and 
those in the Supplemental Notice to address changes required by the 
PPA, are part of the switch under the ERISA Filing Acceptance System 
(EFAST) to a wholly electronic filing and processing system (EFAST2) 
that would replace the existing largely paper-based filing system. As 
part of that e-filing initiative, and as noted above, the Department 
published the Electronic Filing Rule, establishing an electronic filing 
requirement for annual reports filed for plan years beginning on or 
after January 1, 2008. In adopting the final Electronic Filing Rule, 
the Department responded to public comments seeking a delay in the 
wholly electronic filing system by agreeing to a one year deferral of 
the electronic filing mandate from the 2007 plan year to the 2008 plan 
year. The Department agreed to the deferral in order to facilitate an 
orderly and cost-effective migration to an electronic filing system by 
both the Department and the regulated community. Under the final 
Electronic Filing Rule published in July 2006, the vast majority of 
filers would have had until at least July 2009 to make any necessary 
adjustments to accommodate the electronic filing of their annual report 
because annual reports generally are not required to be filed until the 
end of the 7th month following the end of the plan year. The timing 
also provided service providers, software developers, and the 
Department additional time to work through electronic filing and 
processing issues.
    In evaluating the public comments seeking a further deferral of the 
implementation of the revised forms and, as a consequence, the 
electronic filing requirement, the Agencies evaluated the benefits of 
giving the regulated community more time to transition to the new 
EFAST2 electronic filing system, keeping in mind the effective dates 
mandated by the PPA for certain of the annual reporting changes. The 
Agencies continue to believe it is important for plans, service 
providers, and the Agencies to have an orderly and cost-effective 
migration to the EFAST2 electronic filing system. In light of the 
substantial number of comments expressing concern about needing more 
time to adjust recordkeeping and other annual reporting systems, the 
Agencies have decided to defer for an additional

[[Page 64733]]

year the implementation of annual reporting forms changes not mandated 
by the PPA,\4\ except for a few Schedule R items that the PBGC had 
determined that it needs to enable it to properly monitor the plans it 
insures. Thus, the current EFAST filing system will be continued for 
the 2007 and 2008 plan year filings. This includes the requirements to 
file the Schedule E, the Schedule SSA, and the IRS Form 5500-EZ, 
``Annual Return of One-Participant (Owners and Their Spouses) 
Retirement Plan'' (Form 5500-EZ), under the current EFAST system with 
the Department for the 2007 and 2008 reporting years. Also, as provided 
in the Electronic Filing Rule, delinquent or amended filings for prior 
plan years for which paper filing options were available also will be 
subject to the electronic filing requirement. The deferral of the 
electronic filing requirement applies to delinquent and amended 
filings. 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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    \4\ It is significant to note that the implementation of the 
annual reporting form changes not mandated by the PPA has been 
deferred until after the publication of the IRS final regulations on 
Code section 403(b) plans.
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    Under the final regulations, the electronic filing requirement and 
all of the forms changes, except for those mandated by the PPA and the 
PBGC's new Schedule R items discussed below, will become effective for 
all annual report filings made under Part 1 of Subtitle B of Title I of 
ERISA for plan years (or reporting years for non-plan filings) 
beginning on or after January 1, 2009.\5\
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    \5\ The Supplemental Notice explained that the Department 
believed that the EFAST2 system would satisfy the PPA requirement 
that the Department make available electronically on its Web site 
certain actuarial information filed as part of the Form 5500 Annual 
Return/Report. See PPA Sec.  504, 29 U.S.C. Sec.  104(b). The 
Department believes that the related provision in the PPA calling 
for actuarial information to be filed electronically was intended to 
facilitate the Department's ability to meet its obligation to post 
the actuarial information on its Web site within 90 days after the 
information is filed as part of the plan's annual report. The 
Department believes it can still satisfy the web posting requirement 
under the current EFAST system without imposing a special electronic 
filing requirement on defined benefit pension plans for the 
transition 2008 plan year.
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    To effectuate the postponement of the electronic filing 
requirement, the Department, in the final rule being published 
contemporaneously with this Notice amending its annual reporting 
regulations, is including an amendment to the Electronic Filing Rule. 
Specifically, that final rule amends the Department's regulation at 29 
CFR 2520.104a-2 to provide that the electronic filing requirement is 
applicable for plan years beginning on or after January 1, 2009. The 
vast majority of filers will now have until at least July 2010 to make 
any necessary adjustments to accommodate the non-PPA required changes 
(other than the PBGC Schedule R changes) to the form and those required 
for electronic filing of their annual report because, as noted above, 
annual reports generally are not required to be filed until the end of 
the 7th month following the end of the plan year.
    Short plan year filings for 2009 plan years and filings for DFEs 
for 2009 reporting years will be subject to a special transition rule. 
The instructions to the Form 5500 Annual Return/Report advise filers 
that the due date for their Form 5500 for a plan year of less than 12 
months (short plan year) is the last day of the 7th month after the 
short plan year ends. For purposes of determining the filing deadline, 
the instructions state that a short plan year ends on the date of the 
change in accounting period or upon the complete distribution of assets 
of the plan in the case of terminated or merged plans. For DFE filings, 
the instructions provide that DFEs (other than GIAs) must file 2009 
return/reports no later than nine and one half months after the end of 
the DFE year that ended in 2009, and the 2009 Form 5500 must report 
information for the DFE year (not to exceed 12 months in length). The 
Agencies historically have permitted short plan year filers and DFEs to 
use the prior year's forms if the current year forms are not available 
by the plan's or DFE's filing due date. The Agencies expect that, in 
some cases, filings for 2009 short plan years and DFE filings for 2009 
reporting years (e.g., if the DFE year differs from the 2009 calendar 
year) may be due during 2009 and before the January 1, 2010, date on 
which the new EFAST2 wholly electronic filing system is expected to 
become operational for return/report filing purposes. Plans filing for 
2009 short plan years and DFEs filing for 2009 reporting years will 
have the option of using the 2008 Form 5500 Annual Return/Report forms 
and filing for 2009 under the current EFAST filing system if they file 
before the date the new EFAST2 electronic filing system becomes 
operational. Alternatively, plans whose due date for their 2009 short 
plan year filing and DFEs whose due date for their 2009 reporting year 
filing falls before the new EFAST2 system becomes operational but who 
want to file electronically under the new EFAST2 system will be granted 
an automatic extension until after the EFAST2 system becomes 
operational in which to file. The Agencies intend to describe the terms 
and conditions for the automatic extension in the instructions for the 
2008 Form 5500 Return/Report.
a. PPA-Required Actuarial Schedules, Multiemployer Plan Reporting, and 
Asset Allocation Information
    The PPA-required changes in the Form 5500 Annual Return/Report 
(other than the simplified reporting requirement) are the new actuarial 
information schedules (Schedules SB and MB), lines 13a and 13b of the 
Schedule R (identifying information on significant contributors to 
multiemployer defined benefit plans), lines 14-17 of the Schedule R 
(additional information related to multiemployer defined benefit 
pension plans), line 18 of the Schedule R (certain liabilities to 
participants and beneficiaries under two or more pension plans), and, 
for multiemployer defined benefit plans only, the new line 7 of the 
Form 5500 (number of employers with an obligation to contribute to the 
multiemployer plan).\6\ To comply with the PPA, these reporting changes 
are being implemented under the current EFAST system for 2008 plan year 
annual reports.
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    \6\ The text of the question on the new line 7 has been revised 
from that in the July 2006 proposal to exactly match the language in 
the annual reporting requirement in the PPA.
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    The Agencies concluded that it would not be cost-effective or 
practical to create computer scannable versions of the Form 5500 and 
these schedules to be compatible with the outdated EFAST computer 
scannable form technology because these forms would have a limited one 
year useful life under the EFAST system during the transition period 
before implementation of the EFAST2 electronic filing system. Effective 
for the 2008 transition year, plans required to file actuarial 
information must check the box on the Form 5500 to indicate that they 
are filing a Schedule B, but instead of filing the current Schedule B, 
they will file Schedule SB or MB (whichever is applicable). The 
Schedule B will no longer be a valid schedule for 2008 plan year 
filings. Plan year 2008 Form 5500 Annual Return/Reports filed by 
pension plans subject to the minimum funding rules must include a 
Schedule SB or MB and not a Schedule B for 2008 plan years. Filings 
that include a Schedule B instead of a Schedule SB or MB will be 
rejected. As to the other PPA-required items (lines 13a, 13b, and 14-18 
of Schedule R and line 7 of Form 5500), for

[[Page 64734]]

the transition year, filers will be directed in the instructions to 
include answers to those questions as an attachment to the current 
Schedule R. Similarly, lines 13c-e (for multiemployer defined benefit 
plans) and line 19 (asset allocation questions for large defined 
benefit plans) of the Schedule R also are being implemented on a 
transition basis for 2008 plan year annual reports. Filers will also be 
directed in the instructions to include answers to these lines as an 
attachment to the Schedule R.
    The Agencies also changed the 2007 Form 5500 Annual Return/Report 
instructions for short plan year filings (filings for years of less 
than 12 months) to accommodate these PPA changes. Specifically, the 
instructions to the Form 5500 Annual Return/Report historically have 
advised filers that the due date for their Form 5500 for a plan year of 
less than 12 months (short plan year) is the last day of the 7th month 
after the short plan year ends. For purposes of determining the filing 
deadline, the instructions state that a short plan year ends on the 
date of the change in accounting period or upon the complete 
distribution of assets of the plan in the case of terminated or merged 
plans. The Agencies have permitted short plan year filers to use the 
prior year's forms if the current year forms for the short plan year 
are not available by the plan's filing due date. The Agencies expect 
that, in some cases, filings for 2008 short plan years may be due 
during 2008 and before the final regulations and instructions for the 
Schedule SB or MB are available. Since the Schedule B will not be a 
valid schedule for plan year 2008 filings, filers will not have the 
option of using the 2007 Schedule B with a 2008 short plan year filing, 
but will be required to wait until the 2008 Forms are available for 
filing. The Agencies have indicated in the instructions for the 2007 
Form 5500 Annual Return/Report that an automatic extension that will be 
available for 2008 short plan year filings required to include a 
Schedule SB or Schedule MB and/or a supplemental attachment to Schedule 
R.
b. PPA-Required Simplified Reporting for Plans With Fewer Than 25 
Participants
    As noted in the Supplemental Notice, section 1103(b) of the PPA 
requires a simplified report for plans with fewer than 25 participants 
at the beginning of the plan year to be available for 2007 plan year 
filings, i.e., filings for plan years beginning after December 31, 
2006. The Supplemental Notice proposed to satisfy the simplified report 
requirement for 2008 plan years, i.e., those beginning after December 
31, 2007, by implementing the Short Form for 2008 plan year reports 
under the new EFAST2 system. The Supplemental Notice explained the 
Agencies' intention for the interim 2007 reporting year to give plans 
covering fewer than 25 participants that met the conditions for being 
eligible to file the Short Form 5500 the option of filing an 
abbreviated version of the current Form 5500 Annual Return/Report for 
small plan filers. The Supplemental Notice explained that the 
abbreviated version would largely replicate, within the context of the 
existing Form 5500 Annual Return/Report structure, the information that 
would be required to be reported on the proposed Short Form 5500 by 
allowing certain schedules to be excluded from the filing and requiring 
only certain line items to be completed on some of the required 
schedules. With the additional deferral of the electronic filing 
requirement, this simplified reporting option for plans with fewer than 
25 participants will be available for both the 2007 and 2008 plan year 
filings.
    For the 2007 and 2008 plan years, plans with fewer than 25 
participants at the beginning of the plan year that meet the 
eligibility requirements for the Short Form 5500, treating those 
conditions as if they applied for 2007 and 2008 plan year filings, may 
file the following as their annual return/report: (1) The entire Form 
5500; (2) a Schedule A for any insurance contract for which a Schedule 
A is required under current rules, completing lines A, B, C, D and the 
insurance fee and commission information in Part I; (3) if the 
reporting of actuarial information is required, the entire Schedule B 
for the 2007 plan year, and the entire Schedule SB or MB (whichever is 
applicable) for the 2008 plan year; (4) the entire Schedule I; (5) 
Schedule R identifying information and Part II; and (6) the entire 
Schedule SSA. The instructions to the 2007 Form 5500 Annual Return/
Report explain and 2008 Form 5500 Annual Return/Report will explain, 
respectively, this simplified reporting option.
    Some eligible small plan filers may want to wait until the 
implementation of the Short Form 5500 for the 2009 plan year in order 
to avoid having to make changes to their annual reporting systems and 
procedures for 2007 and 2008 plan year filings and then having to 
adjust them again to start filing the Short Form 5500 electronically 
for the 2009 plan year. The above simplified reporting alternative, 
accordingly, is available for plans that voluntarily choose to take 
advantage of the option. Plans with fewer than 25 participants may 
continue to file in accordance with the otherwise applicable small plan 
filing rules for the 2007 and 2008 plan years. Small plans with 25 or 
more participants that meet the eligibility requirements must wait 
until the 2009 plan year to take advantage of the Short Form's 
simplified reporting.

2. Short Form 5500

    The Short Form 5500 was proposed as a new two-page form for small 
plans (generally, plans with fewer than 100 participants) with secure 
and easy to value investment portfolios. As set forth in greater detail 
in the July 2006 Proposal, a plan would be eligible to file the Short 
Form if the plan: (1) Covers fewer than 100 participants or would be 
eligible to file as a small plan under the rule in 29 CFR 2520.103-
1(d); (2) is eligible for the small plan audit waiver under 29 CFR 
2520.104-46 (but not by virtue of enhanced bonding); (3) holds no 
employer securities; (4) has 100% of its assets in investments that 
have a readily determinable fair market value; and (5) is not a 
multiemployer plan.
    Commenters on the July 2006 Proposal generally supported the 
proposed Short Form 5500 as a way to simplify the annual reporting 
requirements and reduce annual reporting burdens for small plans. The 
Agencies, accordingly, have decided to adopt the Short Form 5500 
largely as proposed with only minor technical revisions to the form and 
the accompanying instructions.
    Two commenters suggested that the Agencies relax the conditions for 
plans to be eligible to file the Short Form 5500. The commenters noted 
the requirement in the PPA (enacted after the July 2006 Proposal was 
published) that Labor and the Department of the Treasury (Treasury) 
jointly develop a simplified report for plans that cover fewer than 25 
employees. One of the commenters suggested that Labor and Treasury use 
the Short Form 5500 to meet this requirement by eliminating any other 
eligibility conditions for plans covering fewer than 25 participants. 
That commenter also suggested that the Short Form 5500 eligibility 
requirement--that the plan hold 100% of its assets in secure, easy to 
value investments--be modified so that it tracked the 95% ``qualifying 
plan asset'' threshold that currently applies under the Department's 
regulation at 29 CFR 2520.104-46 for small pension plans to be eligible 
for the waiver of the general Title I requirement for employee benefit 
plans to be audited annually by an independent qualified public 
accountant (IQPA). Two other

[[Page 64735]]

commenters objected to the Short Form 5500 and reduced annual reporting 
for small plans, asserting that small plans, especially those with 
fewer than 25 participants, are more likely than plans of larger 
companies to suffer from mismanagement of funds and improper 
administration. Notwithstanding the PPA mandate to develop a simplified 
annual report, the commenters urged requiring more detailed reporting 
for small plans as a way of protecting against such abuses.
    The Department of Labor and the Department of Treasury continue to 
believe, as set forth in the Supplemental Notice, that the requirement 
in the PPA to provide ``simplified'' reporting for plans with fewer 
than 25 participants is satisfied by the simplified reporting scheme in 
the July 2006 Proposal. In addition, the Department of Labor does not 
view the PPA provision as a direction from Congress that was intended 
to preclude the Department from determining that plans with fewer than 
25 participants should meet conditions consistent with the purposes of 
Title I and the PPA to be eligible to file the new simplified report. 
To the contrary, the Department believes the PPA provision should be 
read consistently with the authority granted the Department in ERISA 
section 104(a)(2) and 104(a)(3) to create simplified reports for 
pension and welfare plans, both of which provisions acknowledge that 
the Department has such discretion. The Short Form 5500, as proposed, 
was targeted to provide a simplified report for plans with fewer than 
25 participants. Approximately 75% of all plans eligible to file the 
Short Form 5500 cover fewer than 25 participants and approximately 95% 
of plans with fewer than 25 participants are estimated to be eligible 
to file the Short Form 5500. The decision to prohibit multiemployer 
plans and plans that invest in employer securities from being eligible 
to use the Short Form 5500 is consistent with the PPA's emphasis on 
expanding the annual reporting requirements for multiemployer plans and 
increasing transparency and participant control over employer 
securities in individual account plans. As under the July 2006 
Proposal, even those small plans not eligible to use the Short Form 
5500 still would be able to avail themselves of the other simplified 
reporting options available to small plans under the Form 5500 Annual 
Return/Report. The commenter's suggestion to eliminate all of the Short 
Form 5500 eligibility conditions for plans covering fewer than 25 
employees therefore has not been adopted.
    The suggestion to modify the condition that 100% of the plan's 
assets are held in investments that have a readily determinable fair 
market value also is not being adopted. As noted above, the Short Form 
5500 conditions already require plans to satisfy the audit waiver 
conditions in 29 CFR 2520.104-46 to be eligible to file the Short Form. 
The condition in the audit waiver regulation that 95% of the plans 
assets be ``qualifying plan assets,'' focuses on whether the assets are 
held by a regulated financial institution, The Short Form 5500 
condition regarding types of plan investments, in contrast, is based on 
a premise that certain small plans, by virtue of all of their assets 
being held by regulated financial institutions and having a readily 
determinable fair market value, present reduced risks for their 
participants and beneficiaries. Using any percentage measure for assets 
with a readily determinable fair market value would create a risk that 
hard to value assets would be materially undervalued in order to meet 
the percentage threshold and result in plans with substantial holdings 
in hard to value assets being eligible to file the Short Form 5500. The 
Agencies continue to believe that the separate financial information 
regarding hard to value investments on the Schedule I is important for 
regulatory, enforcement, and disclosure purposes. The Agencies are not 
changing this provision because of their concerns that allowing plans 
with any hard to value assets to use abbreviated annual report filing 
(i.e., the Short Form 5500) could compromise enforcement and research 
needs of the Agencies and disclosure needs of participants and 
beneficiaries in such plans.

3. Code Section 403(b) Plan Reporting

    Under the July 2006 Proposal, the limited annual reporting options 
currently available to Code section 403(b) plans would have been 
eliminated so that Code section 403(b) plans would be subject to the 
same annual reporting rules that apply to other ERISA-covered pension 
plans. Two commenters representing employee benefit plan auditors and 
administrative service providers were supportive of the Department's 
proposal and agreed that requiring Code section 403(b) plans to comply 
with the same annual reporting rules that applied to other ERISA 
covered pension plans would improve transparency and accountability. 
Other commenters representing 403(b) plan sponsors and insurance and 
investment companies opposed the proposal. Those opposing the expanded 
reporting requirement argued that compliance with the reporting 
requirement would be both burdensome and costly given the fact that 
most 403(b) plans are a composite of individual contracts issued to 
employees by different 403(b) vendors without a central point for 
administration and recordkeeping. The commenters claimed that there is 
no record of abuse in the 403(b) plan area that supported the proposed 
changes. Certain commenters also suggested that different annual 
reporting rules for Code section 403(b) plans are justified by the fact 
that the tax exempt employers that sponsor Code section 403(b) plans do 
not have a tax incentive for sponsoring pension plans for their 
employees and might be more likely to terminate plans or refuse to 
sponsor plans based on concerns about administrative costs and burdens.
    After evaluating the comments, the Department continues to believe 
that subjecting Code section 403(b) plans to the same annual reporting 
rules that apply to other ERISA covered pension plans is consistent 
with the purposes of Title I of ERISA and the interests of covered 
participants and beneficiaries. The approach to annual reporting by tax 
sheltered annuity programs was premised historically on the conclusion 
that they differed from ordinary pension or deferred compensation 
plans. Code section 403(b) plans, which date back to 1958, were 
originally less in the nature of a plan than of an arrangement under 
which an employer purchased from an insurance company on behalf of an 
employee an individual annuity contract that could be tailored to the 
desires and financial means of the individual employee. Because 
contributions were required to be invested only in annuity contracts or 
in certain mutual fund custodial accounts, the Department had believed 
that the regulatory supervision of insured annuity contracts and of 
regulated investment companies provided much of the disclosure, 
fiduciary and funding protection afforded by Title I of the Act. The 
Department also had concluded that because section 403(b) programs may 
be individually tailored, the reporting and disclosure provisions of 
Title I could present substantial administrative difficulties for the 
employer and for the Department. Finally, the Department viewed section 
403(b) programs as similar to individual retirement account (IRA) based 
plans that were granted an exemption from the annual reporting 
requirements under Title I provided they met certain conditions.

[[Page 64736]]

    As the IRS indicated in the preamble to the recently published 
final regulations on Code section 403(b) plans (72 FR 41128, Jul. 26, 
2007), various amendments to section 403(b) over the past 40 years have 
diminished the extent to which the rules governing Code section 403(b) 
plans differ from the rules governing other employer-based plans, such 
as arrangements that include salary reduction contributions, i.e., Code 
section 401(k) plans. The IRS's final Code section 403(b) regulations 
would impose requirements involving the establishment of a more 
centralized system of recordkeeping for all Code section 403(b) plans. 
The establishment and growth since 1978 of 401(k) plans has made the 
``individually tailored'' character of Code section 403(b) plans less 
distinctive. Section 401(k) plans are often structured as participant 
directed with multiple investment options offered by separate 
investment providers, and many plans include brokerage accounts as a 
way of allowing employees to further tailor the plan to their 
individual investment objectives and financial means. Developments in 
the Code section 403(b) plan market have also raised questions about 
whether regulatory supervision of Code section 403(b) plan vendors 
under insurance and securities laws provides much of the disclosure, 
fiduciary, and funding protections afforded by Title I of the Act. In 
the fiscal years 2002 through 2006, the Department found violations in 
78 percent of its investigations of Code section 403(b) plans. Although 
the predominant issue in these investigations was delinquent employee 
salary contributions, investigations of Code section 403(b) plans also 
revealed delinquent employer contributions, imprudence, prohibited uses 
of assets, and reporting and disclosure violations. The high incidence 
of improper handling of employee contributions suggests a potentially 
broader laxity in fiduciary oversight. There are also reports that 
governmental entities that sponsor Code section 403(b) plans (which 
generally would be excluded from ERISA as governmental plans) are 
concerned about undisclosed fees, penalties, and restrictions in their 
Code section 403(b) plans and are making demands for additional 
disclosures. See, e.g., California Assembly Bill 2506, signed Sept. 29, 
2002 (codified at Cal. Education Code secs. 25100-25115).
    The Department believes that the annual report requirements, 
including an audit by an IQPA, provide important oversight of the Code 
section 403(b) plan's internal control structure and overall 
operations. The Department believes that preparing the financial 
statements and schedules as part of the annual report in compliance 
with the Department's requirements for reporting and disclosure under 
ERISA provides participants with greater assurance that the plan 
administrator or other authorized parties have properly monitored the 
financial condition and operation of the plan. The impact of having to 
meet the same annual reporting requirements applicable to other ERISA-
covered plans would be substantially less burdensome for small tax-
exempt employers, which generally should be eligible for the small plan 
audit waiver and for filing the Short Form 5500.
    While the new annual report requirements may result in additional 
costs to a Code section 403(b) plan, these reporting requirements would 
only apply to Code section 403(b) plans that are subject to Title I of 
ERISA and would subject those plans only to the same annual reporting 
requirements that apply to other ERISA-covered pension plans. In such 
cases, the administration and management of the Code section 403(b) 
plan have already been subject to ERISA's general fiduciary 
obligations. Such plans should, therefore, already have an 
administrative structure in place to ensure compliance with various 
Title I requirements, such as having a written plan document, 
furnishing summary plan descriptions and other ERISA required 
disclosures to participants and beneficiaries, and maintaining an 
adequate recordkeeping system so that the plan fiduciaries can 
prudently manage the plan and monitor plan service providers. In the 
Department's view, the process of preparing an annual report reinforces 
a recordkeeping and monitoring discipline on plan officials that 
facilitates better fiduciary compliance. In that regard, the Department 
does not believe that it would be helpful to adopt the suggestion by 
one commenter to have Code section 403(b) plans answer only a single or 
limited number of questions focused just on timely transmission of 
employee salary reduction contributions to the plan. The Department 
does not believe that continuing a general exemption from the audit 
requirement for Code section 403(b) plans subject to Title I annual 
reporting requirements is appropriate.
    As noted in the preamble to the July 2006 Proposal, small Code 
section 403(b) plans (generally covering fewer than 100 participants) 
should be able to meet the conditions for being exempt from the audit 
requirement and be eligible to file the proposed Short Form 5500.\7\ 
Thus, relative to the current requirements, the final rule provides 
significant annual reporting and audit relief for small tax exempt 
employers. In that regard, in the Department's view, Code section 
403(b) plans that were eligible to file as a small plan under 29 CFR 
2520.103-1(d) in the previous year and that have participant counts of 
less than 121 at the beginning of the 2009 plan year can file as small 
plans under the new filing rules.
---------------------------------------------------------------------------

    \7\ One commenter expressed concern that some Code section 
403(b) investments might not meet the Short Form 5500 eligibility 
requirement that 100% of the plan's assets be held in investments 
that have a readily determinable fair market value. The instructions 
published with the July 2006 Proposal specifically provided that 
investments in mutual fund shares and insurance contracts for which 
valuation information is provided by the insurer at least annually 
were assets that had a ``readily determinable fair market value'' 
for purposes of the Short Form 5500 eligibility conditions. Those 
instructions are carried over into the instructions to the final 
Short Form 5500.
---------------------------------------------------------------------------

    One commenter that supported the proposal to apply generally 
applicable annual reporting rules to Code section 403(b) plans 
suggested that interim relief may be needed because auditors may refuse 
to take on initial engagements because records from prior years may not 
be adequate for current year audit purposes. Although Code section 
403(b) plans have not yet been subject to an audit requirement as part 
of the annual reporting process, as noted above, fiduciaries of such 
plans must keep records under ERISA section 107 to verify that they are 
in fact eligible to file as Code section 403(b) plans and have a 
general fiduciary obligation to keep adequate records to monitor the 
plan and ensure compliance with the fiduciary and other substantive 
requirements of Title I of ERISA.\8\

[[Page 64737]]

Further, Code section 403(b) plans are required to maintain various 
records in order to comply with Code requirements including, for 
example, discrimination testing, required distributions and compliance 
with maximum contribution limitations. Despite the existing 
recordkeeping requirements, the Department recognizes that auditors may 
face difficulties in providing an unqualified opinion in their initial 
audits of Code section 403(b) plans. In that regard, the final forms 
changes defer the reporting year to which this requirement applies for 
an additional year from that in the proposal. This Notice is thus being 
published over a year before the first plan year for which plan audits 
would be required, and over two years before the plan audits themselves 
would likely be commenced. In light of the extended lead time the 
publication date gives plans to make changes to their recordkeeping 
practices and make certain they have access to the necessary records in 
anticipation of the audit for the 2009 plan year, in the Department's 
view, it would be premature at this point to announce general 
transitional relief from the audit requirement. The Department will, 
however, remain open to reconsidering the issue to the extent 
developments suggest that a transitional enforcement policy or other 
transitional relief would be appropriate to address problems caused by 
lack of familiarity with the audit process or is needed to facilitate a 
smoother transition to the new annual reporting regime by Code section 
403(b) plans.
---------------------------------------------------------------------------

    \8\ One commenter argued that Code section 403(b) plans covered 
by ERISA have no ERISA section 107 recordkeeping obligations under 
Title I because they file under an alternative method of compliance 
under section 110 of ERISA, not under a simplified report or 
exemption under section 104 of ERISA, and ERISA section 107 only 
requires administrators to keep records necessary to verify the 
information actually filed on the Form 5500 when it is filed as an 
alternative method of compliance. ERISA section 107 provides that 
``[e]very person subject to a simplified requirement to file any 
report or to certify any information therefor under this title or 
who would be subject to such a requirement but for an exemption or 
simplified reporting requirement under section 104(a)(2) or (3) of 
this title, shall maintain records on the matters of which 
disclosure is required which will provide in sufficient detail the 
necessary basic information and data from which the documents thus 
required may be verified, explained, or clarified, and checked for 
accuracy and completeness. . . .'' Accepting the commenter's 
argument would lead to the anomalous result that large Code section 
403(b) plans would have very limited recordkeeping obligations under 
ERISA section 107, but plans exempt from any Form 5500 filing 
requirement would be required to keep records necessary to verify 
the information that would be required to be filed under section 103 
of ERISA. In any event, all Code section 403(b) plans filing a Form 
5500 under the limited reporting provisions available to Code 
section 403(b) plans would have to keep records under ERISA section 
107 to verify that they are in fact a pension plan or arrangement 
using a tax deferred annuity arrangement under Code section 
403(b)(1) and/or a custodial account for regulated investment 
company stock under Code section 403(b)(7) as the sole funding 
vehicle for providing pension benefits and would have a general 
fiduciary obligation to keep records adequate to ensure compliance 
with the fiduciary and other substantive requirements in Title I of 
ERISA.
---------------------------------------------------------------------------

    A few commenters contended that the ``universal availability'' 
requirement applicable to Code section 403(b) plans under the Internal 
Revenue Code and Treasury Department regulations will unfairly result 
in Code section 403(b) plans with only a small number of active 
participants being subject to the large plan audit requirement because 
all eligible employees are counted as covered participants. The 
Department notes that Code section 401(k) plans are currently subject 
to a similar rule where all employees who are eligible to make salary 
reduction contributions are required to be counted as participants 
regardless of whether they in fact make any contributions. The 
Department also expects that, like Code section 401(k) plans, a 
substantial percentage of large Code section 403(b) plans should be 
eligible for limited relief from the full audit requirement by taking 
advantage of the limited scope audit option available under the 
Department's regulation at 29 CFR 2520.103-8.
    Some additional technical changes were made to the final forms to 
make it clear that certain annual reporting options available to Code 
section 401(k) plans are also available to Code section 403(b) plans. 
Specifically, the Schedule H instructions have been modified to provide 
for aggregate reporting on Lines 4i (Schedule of Assets Held for 
Investment Purposes) and Line 4j (Schedule of Reportable Transactions) 
for individual annuity contracts and custodial accounts in Code section 
403(b) plans as is currently permitted for participant-directed 
accounts in Code section 401(k) plans. In addition, the Schedule A 
instructions have been expanded to make clear that the current rule 
allowing filers to report a group of individual policies issued by the 
same insurer on a single Schedule A would apply for Code section 403(b) 
individual annuity contracts. At the request of one commenter, Line 9 
of the Form 5500 has been changed to make clear that Code section 
403(b) plans that are funded with and pay benefits through Code section 
403(b)(7) ``custodial accounts'' should check ``trust'' for both 
funding and benefit arrangement.
    Finally, in light of the additional annual reporting obligations 
associated with maintaining a Code section 403(b) plan that is covered 
by Title I, several commenters stated that more guidance was necessary 
on the Department's safe harbor regulation at 29 CFR 2510.3-2(f) to 
assist plans in determining whether they were covered by Title I of 
ERISA. The commenters stated that this guidance was especially 
important in light of Treasury's then anticipated issuance of final 
regulations at 72 FR 41128, TD 9340 reflecting legislative changes made 
to Code section 403(b) since the existing regulations were adopted in 
1964 and incorporating interpretive positions that Treasury has taken 
in other guidance on Code section 403(b). The Department's safe harbor 
at 29 CFR 2510.3-2(f) states that a program for the purchase of an 
annuity contract or the establishment of a custodial account in 
accordance with provisions set forth in Code section 403(b) and funded 
solely through salary reduction agreements or agreements to forego an 
increase in salary, are not ``established or maintained'' by an 
employer under section 3(2) of ERISA, and, therefore, are not employee 
pension benefit plans subject to Title I, provided that certain factors 
are present. The Department agrees that it is important for Code 
section 403(b) plans to be able to determine whether they are covered 
by Title I for annual reporting and other ERISA compliance purposes. 
Thus, the Department issued guidance contemporaneously with Treasury's 
issuance of its revised regulations under Code section 403(b) on the 
continued availability of the safe harbor at 29 CFR 2510.3-2(f) and the 
interaction of the Department's safe harbor and the provisions of the 
Treasury regulations addressing employer tax compliance obligations in 
the ongoing operation of a Code section 403(b) arrangement. See FAB 
2007-02 (July 24, 2007) (available on the Internet at https://
www.dol.gov/ebsa/regs/fabmain.html).

4. Schedules SB and MB (Pension Plan Actuarial Information)

    Draft Schedules SB and MB were posted on the Department's Web site 
in conjunction with the Supplemental Notice. Instructions for these 
draft Schedules were not posted nor are they included in this Notice 
because their development hinges on guidance to be issued by the IRS 
and/or the PBGC implementing the PPA requirements underlying the Form 
5500 Annual Return/Report data elements. Specific guidance regarding 
the details required in Schedule SB and Schedule MB will be provided in 
future guidance and will be included in the instructions.
    The Agencies received no comments related to the new Schedule MB 
and multiple comments from one commenter on Schedule SB. That commenter 
suggested that Line 4a be eliminated because it is identical to the 
entry in the second column of Line 3d. The Agencies note that the 
amount reported on Line 4a will not be the same as the amount reported 
in Line 3d and that this will be made clear in the instructions.
    This commenter also suggested that item 6 be expanded to have one 
line for reporting regular target normal cost and another line for 
reporting at-risk target normal cost. The Agencies acknowledge that 
some plans will need to calculate both amounts in order to determine 
target normal cost, but conclude that it is not necessary to require 
that these interim calculations be reported. Guidance regarding the 
details of this calculation will be included in the instructions.
    This commenter suggested that the words ``not less than zero'' be 
added to

[[Page 64738]]

the end of the parenthetical definition for Line 30 on the Schedule SB. 
The Agencies concluded that this change is not necessary. Guidance 
regarding Line 30 will be included in the instructions.
    This commenter noted that the definitions for Lines 7 and 8 refer 
to Lines 13 and 35 from the prior year, but that these definitions will 
not be valid for 2008 unless the 2007 Schedule B is changed to include 
Lines 13 and 35 as defined in the 2008 Schedule SB. The Agencies note 
that Lines 13 and 35 will not be included on the 2007 Schedule B. The 
Schedule SB was designed to reflect various PPA reporting and 
disclosure provisions (generally effective for 2008 and subsequent 
years). Information on ``look back'' rules applicable for completing 
the questions on the Schedule SB will be included in the instructions.

5. Schedule C (Service Provider Information)

    The Department believes that an annual review of plan fees and 
expenses as part of the annual reporting process is part of a plan 
fiduciary's on-going obligation to monitor service provider 
arrangements with the plan. Commenters generally supported the goals of 
the proposed changes to the Schedule C, as stated in the proposal, of 
increasing transparency regarding fees and expenses paid by employee 
benefit plans and ensuring that plan officials obtain the information 
they need to assess the compensation paid for services rendered to the 
plan, taking into account revenue-sharing arrangements among plan 
service providers and potential conflicts of interests.
    Commenters representing insurance companies, banks, and other 
financial institutions, however, while generally supporting fee 
transparency and applauding the Department's initiatives in this area, 
raised concerns that the proposed Schedule C reporting scheme for 
indirect compensation was more extensive than necessary. They asserted 
that the proposed changes could result in duplicative, misleading, and 
confusing reporting. The commenters also argued that the proposed 
changes, if not narrowed, would impose significant administrative costs 
on service providers to track and disclose information on indirect 
compensation, which costs they likely would pass on to their employee 
benefit plan clients. These commenters suggested that reporting of 
indirect compensation, as proposed, should be narrowed in various ways: 
(1) Eliminate or narrow reporting of ``float'' income; (2) postpone any 
requirement to report ``soft dollars'' until after the Securities and 
Exchange Commission (SEC), as the primary regulator of soft dollar 
compensation, addresses the subject as it applies to investors 
generally; (3) except from reporting revenue sharing payments among 
affiliates and by other bundled service providers to entities that the 
bundled provider engages to provide services; (4) retain the current 
rules under which brokerage commissions are not required to be reported 
unless the broker is granted some discretion; (5) define ``service 
providers'' required to be listed in the Schedule C as limited to 
persons with direct service relationships with the plan and exclude 
from Schedule C reporting payments to ``subcontractors'' based on the 
premise that subcontractors are merely assisting the direct service 
provider in fulfilling its contractual obligations and are not 
providing services to the plan; (6) confirm that insurers and 
investment providers are not required to be listed as service providers 
on Schedule C solely as a result of the plan's purchase of the 
insurance contract or investment with the investment provider; and (7) 
integrate the annual reporting requirement into other regulatory 
disclosure requirements regarding fee and expense disclosure to avoid 
duplicative and confusing disclosure requirements.
    Two individual commenters suggested that the Schedule C should be 
completed by small plans as well as large plans and that the $5,000 
reporting threshold for listing a service provider on the Schedule C 
should be lowered or eliminated. Another commenter suggested that, if 
full Schedule C reporting was not expanded to small plans, investment-
related fees and expenses should be reported separately in a similar 
manner as administrative service provider expenses under the July 2006 
Proposal which called for administrative service provider expenses paid 
by the plan to be reported as an aggregate line item on Schedule I and 
the Short Form.
    As noted in the July 2006 Proposal, issues relating to the 
appropriate manner and scope of the reporting of service provider 
compensation on the Schedule C have been raised by the ERISA Advisory 
Council and the Government Accountability Office, as well as by Form 
5500 Annual Return/Report filers and plan service providers. The 
Department is working on a separate regulation setting forth the 
standards applicable to the exemption under ERISA section 408(b)(2) for 
contracting or making reasonable arrangements with a party in interest 
for services. See 72 FR 22845. That regulation is intended to eliminate 
the current uncertainty as to the information relating to services and 
fees that plan fiduciaries must obtain and service providers must 
furnish for purposes of determining whether a contract for services to 
be rendered to a plan is reasonable. Another rulemaking initiative on 
the Department's regulatory agenda involves review of participant-level 
disclosure, including the regulation governing ERISA section 404(c) 
plans (29 CFR 2550.404c-1), to ensure that participants and 
beneficiaries in individual account plans are provided the information 
they need, including information about fees and expenses, to make 
informed investment decisions. Id. Other federal agencies, for example 
the SEC, are also focusing on efforts to give investors, including 
employee benefit plans, better information about the actual amount they 
have paid investment fund managers during a given period.
    Against this backdrop, and inasmuch as plan administrative costs 
are being passed on to plan participants with increasing frequency, it 
is critical to ensure that the benefits of any new annual reporting 
requirement outweigh the attendant compliance costs--costs that may 
ultimately reduce retirement savings. The Schedule C requirements 
historically have been limited to large plans that are required to file 
the Form 5500 Annual Return/Report and have not covered the broader 
class of plans covered by the Department's other fee transparency 
initiatives. Considered in context with other fee disclosure 
initiatives at the Department and elsewhere that are more tailored to 
the concerns expressed by GAO and the ERISA Advisory Council on changes 
needed to provide 401(k) plan participants better information on fees, 
particularly investment fees indirectly incurred by participants 
directing the investment of assets in their individual 401(k) plan 
accounts, the Department does not believe expanding the Schedule C 
annual reporting requirements to small pension plans would be 
consistent with the direction from Congress in the PPA for the 
Department to simplify the annual report for plans sponsored by small 
businesses.
    The Department continues to believe that it is appropriate to 
modify the Schedule C reporting requirements for large plans in an 
effort both to clarify the reporting requirements and to ensure that 
the Form 5500 Annual Return/Report serves a role in helping plan 
officials obtain the information they need to assess the reasonableness

[[Page 64739]]

of the compensation paid for services rendered to the plan, taking into 
account revenue sharing and other financial relationships or 
arrangements and potential conflicts of interest that might affect the 
quality of those services. After having carefully reviewed the public 
comments on the Schedule C proposal, the Schedule C is being adopted 
largely as proposed, but some revisions are being made to the proposed 
requirements. The changes are intended to reduce the administrative 
burdens on plans and plan service providers and clarify the reporting 
requirements without compromising the proposal's overall objectives.
a. Indirect Compensation Reporting on Schedule C
    Reportable compensation under the final Schedule C revisions 
continues to be defined to include money and any other thing of value 
(for example, gifts, awards, trips) received directly or indirectly 
from the plan (including fees charged as a percentage of assets and 
dedu