What you need to know about proposed updates to Form 5500

The Employee Retirement Income Security Act (ERISA) imposes an annual reporting obligation on welfare and retirement benefit plans. In general this reporting requirement is met by annually filing a Form 5500.

This is the primary source of information about the operation, funding and assets of employee benefit plans. Thus, the annual report contains certain financial and other information about a plan, such as name and addresses of plan fiduciaries, number of covered employees, plan name, number and year, says Frances Horn, employee benefits compliance officer at JRG Advisors.

The Form 5500 is also the primary source of information for both the federal government and the private sector for assessing employee benefit, tax, and economic trends and policies.

Smart Business spoke with Horn about how Form 5500s work and the proposed revisions that were recently announced.

What are employers’ responsibilities with Form 5500?

Generally, the annual report must be filed with the Department of Labor (DOL) and be readily available for inspection by participants and beneficiaries.

Before panic sets in, be advised that currently there is an exemption from the welfare benefit plan Form 5500 requirement for small unfunded, insured or combination unfunded/insured plans. To qualify for the exemption, a plan must cover ‘fewer than 100 participants at the beginning of the plan year.’ Please, keep in mind this exemption is NOT applicable to retirement plans.

Depending on the type and size of the plan, the plan administrator may have to attach a report of an independent auditor, or other required schedules and attachments.

There are a lot of nuances that determine whether a Form 5500 is required to be filed by an employer. Any uncertainty about a Form 5500 obligation should be discussed with a benefit advisor.

What’s important to know about updates to these forms?

On July 21, 2016, the DOL and IRS published a notice to revise the Form 5500 Annual Report. The revisions are intended to meet several goals, including:

  • Modernizing the financial statements and investment information filed about employee benefit plans.
  • Updating the reporting requirements for service provider fee and expense information.
  • Requiring Form 5500 reporting by all group plans covered by Title I of ERISA.

One of the biggest changes is the addition of a new Schedule J-Group Health Plan Information. This schedule would gather a broad range of information, such as:

  • Number of persons offered and receiving COBRA coverage.
  • Information on whether the plan offers coverage for employees, retirees and dependents.
  • The type of benefits the plan offers.
  • Plan funding.
  • Grandfather status of the plan.
  • Whether the plan is a high deductible health plan, a health flexible spending account or a health reimbursement arrangement.
  • Information on receipt of rebates, refunds or reimbursements from a service provider.
  • Stop loss information including premium, individual and aggregate claim limits.
  • Information on compliance with the Summary Plan Description, Summary of Material Modifications and Summary of Benefits and Coverage.
  • Information on compliance with applicable federal laws and DOL regulations, such as, among others, HIPAA and the Affordable Care Act.

The key concern of the smaller employer is that these proposed revisions would eliminate the current small insured and self-insured welfare benefit plan exemption. Thus, every private employer offering its employees a welfare benefit plan would be subject to the Form 5500 reporting. It should also be noted that small employers would only be required to answer limited questions on the new Schedule J.

These proposed rules, if adopted, would become applicable for plan years beginning on or after Jan. 1, 2019. In the meantime, employers should follow any updates on these proposed revisions, since generally every private employer offering a welfare benefit plan could be affected.

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