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Regulation

Big players pan modifications to DOL’s Form 5500

No real benefits seen from proposed changes, only more of a burden

Bradford Campbell
Bradford Campbell believes the current proposal will see changes.

The reviews are in for the Department of Labor's proposed changes to the Form 5500 annual report — and they're not raves.

Among major players in the retirement, benefits and financial industries, the sentiments submitted to regulators often ranged from revising the proposal to rejecting the document as currently offered.

The proposals will create “unnecessary burdens on plan sponsors with little, if any, benefit,” asserted a trade organization representing large employers. “Costs outweigh benefits,” argued a group of record keepers. The DOL's recommendations will produce “a further disincentive for small employers to adopt plans,” contended the world's largest money manager.

The object of their disaffection is Form 5500 revisions the DOL said would “improve publicly available information about employee benefit plans and reinforce for plan fiduciaries” their ERISA duties to “operate plans prudently and monitor service providers.”

After the department introduced the proposals in July, it sought public comment. In October, the DOL extended the comment period until Dec. 5 because companies and organizations said they needed more time. Of 200 public comments filed with the DOL, more than half were filed in December.

Industry participants say the proposed rules offer some improvements, but they add the DOL must perform a better cost-benefit analysis, hold public hearings and reconsider some recommendations.

“It still has legs — but not in its present form,” Bradford Campbell, Washington-based counsel for Drinker, Biddle & Reath LLP and the former head of the Employee Benefits Security Administration, said in an interview. “A rule will proceed in a few years, but it will probably look quite different.”

The DOL's effort to generate more data “is strongly positive,” said Lew Minsky, executive director of the Defined Contribution Institutional Investment Association, Washington, also in an interview. “Like every other regulatory initiative, it is "to be determined.'”

Mr. Minsky added: “I don't think it will be scrapped. I expect high-level changes in scope and philosophy, as you would in any change of administration.”

The DOL proposals, which would take effect in 2019, include:

nImproving the “reliability and transparency” of information, including the reporting of alternative investments, “hard-to-value-assets” and investments through collective investment trusts.

nHarmonizing Form 5500 requirements with those of the DOL's regulation governing fee information provided by providers to sponsors. This will produce “improved evaluation of service arrangements involving investments, record keeping and other administrative services.”

nAdding questions about “plan operations, service provider relationships and financial management of plans,” that would “compel fiduciaries” to evaluate plans' compliance with the Employee Retirement Income Security Act and the federal tax code.

nExpanding the annual report to many group health plans subject to ERISA. “This includes eliminating for group health plans the current exemption ... for small insured and self-insured welfare benefit plans.”

The proposed changes in the Form 5500 also were endorsed by the IRS and the Pension Benefit Guaranty Corp.

“I think they overreached in several aspects,” said Mr. Campbell, citing the reporting requirements for health plans. “This would be a huge burden on health plans, because most health plans have not filed a Form 5500 at all. They are completely changing that.”

The DOL's proposed harmonizing of Form 5500 with the ERISA fee regulation “is not an apples-to-apples comparison,” Mr. Campbell added. As written, the proposed rules “create confusion” for researchers and could encourage more litigation, he said.

The DOL's suggestions on Form 5500 and the ERISA rule — known as Section 408(b)(2) — “leads to a “numerical zinger,” said Andrew Oringer, a New York-based partner at Dechert LLP.

Because the DOL proposal “wants to convert high-level information” in the ERISA regulation into numerical information for Form 5500, “people are concerned,” he said. “People got comfortable with 408(b)(2) to describe what they were doing. Putting it in a numerical form is more work.”

Given the changing political environment, “I don't know if this will happen,” Mr. Oringer said.

Some organizations said the DOL proposals didn't go far enough. Washington-based AARP, in a Dec. 5 letter, said the DOL should require additional information “that a participant needs to know, and in the language they are most likely to understand.” AARP asked for stronger enforcement of filing deadlines, better notices to employees of document filings and greater detail for fee information.

However, many large organizations and companies didn't mince words in their criticism.

“The proposed amendments should be withdrawn at this time,” said a Dec. 5 letter from the ERISA Industry Committee, Washington, a trade group that represents large employers on retirement, health and compensation matters.

It noted that President-elect Donald Trump and top GOP leaders have stated that they wish to “repeal, delay, dismantle and otherwise not enforce” the Affordable Care Act. Requiring new, health plan-related rules in this environment “will likely cause a considerable waste of time and resources.”

Costs outweigh benefits

Record keepers told the DOL that the proposed rules should be rewritten, subject to public hearings. “Costs outweigh the benefits,” said a Dec. 5 letter from the Groom Recordkeeper Group, a collection of record keepers represented by the Washington law firm Groom Law Group.

“Record keepers currently are expending significant resources” to comply with the fiduciary rule, which takes effect in April, the letter said.

“Record keepers and others in the industry simply do not have the resources to implement so many major regulatory changes in such a short period of time.”

The American Retirement Association complained the DOL “significantly underestimates the cost and burden to comply with the reporting requirements,” in a letter filed Dec. 1. The Arlington, Va.-based trade group represents financial advisers, actuaries, consultants, accountants and attorneys who provide services to retirement-plan sponsors.

The ARA warned the proposed rules “will require large-scale changes to investment platforms, trust accounting systems, record-keeping systems, reporting systems and the software that supports the preparation of the form.” Such costs, it added, would “likely” be passed on to participants and beneficiaries.

BlackRock (BLK) Inc. (BLK), New York, said the DOL should revise its proposals, maintaining they would create extra administrative requirements, especially on small plans, and would “significantly” raise costs to sponsors and providers.

“Imposing additional burdens on small plans will create a further disincentive for small employers to adopt plans,” BlackRock wrote in its Dec. 5 comment letter. “We question whether there are sufficient benefits to justify the regulatory burden.”

T. Rowe Price Inc., Baltimore, in a Dec. 5 letter, said the DOL's proposals would force it to make “substantial modifications” to the technology that operates its record-keeping platforms, boosting costs to clients and service providers.

Those costs “will ultimately be borne by plans, participants and beneficiaries,” the letter said.

This article originally appeared in the January 9, 2017 print issue as, "Big players pan modifications to DOL's Form 5500".