[Federal Register Volume 63, Number 237 (Thursday, December 10, 1998)]
[Proposed Rules]
[Pages 68370-68390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32659]



[[Page 68369]]

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Part VI





Department of Labor





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Pension and Welfare Benefits Administration



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29 CFR Part 2520



Proposed Revisions to Certain Regulations Regarding Annual Reporting 
and Disclosure Requirements; Proposed Rule

  Federal Register / Vol. 63, No. 237 / Thursday, December 10, 1998 / 
Proposed Rules  

[[Page 68370]]



DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

29 CFR Part 2520

RIN 1210-AA52


Proposed Revisions to Certain Regulations Regarding Annual 
Reporting and Disclosure Requirements

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed rulemaking

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SUMMARY: This document contains proposed amendments to Department of 
Labor (Department) regulations relating to the annual reporting and 
disclosure requirements under part 1 of Title I of the Employee 
Retirement Income Security Act of 1974, as amended (ERISA or the Act). 
In part, the amendments contained in this document are necessary to 
conform the regulations to the previously published revisions to the 
annual return/report forms (Form 5500 Series) filed by administrators 
of employee pension and welfare benefit plans under part 1 of Title I 
of ERISA. The regulatory amendments, in conjunction with the revisions 
to the Form 5500 Series, are intended to reduce the annual reporting 
burdens on employee benefit plans while ensuring that the Department 
has access to the information it needs to carry out its administrative 
and enforcement responsibilities under ERISA and that participants and 
beneficiaries have access to the information they need to protect their 
rights and benefits under ERISA. Other proposed amendments contained in 
this document would modify the reporting requirements for certain group 
insurance arrangements. The remaining amendments are technical in 
nature and are designed to either simplify or clarify the existing 
reporting regulations. If adopted, the amendments will affect the 
financial and other information required to be reported and disclosed 
by employee benefit plans filing Form 5500 Series reports under part 1 
of Title I of ERISA.

DATES: Written comments on the proposed regulations must be received by 
the Department on or before February 8, 1999.

ADDRESSES: Interested persons are invited to submit written comments 
(preferably three copies) concerning the proposals herein to: Office of 
Regulations and Interpretations, Room N-5669, Pension and Welfare 
Benefits Administration, U.S. Department of Labor, 200 Constitution 
Avenue, N.W., Washington, DC 20210, ATTENTION: Proposed Amendments to 
Annual Reporting Regulations. All written comments should clearly 
reference the relevant proposed amendment(s). All submissions will be 
open to public inspection in the Public Disclosure Room, Pension and 
Welfare Benefits Administration, Room N-5638, 200 Constitution Avenue, 
N.W., Washington, D.C.

FOR FURTHER INFORMATION CONTACT: Eric A. Raps, Office of Regulations 
and Interpretations, Pension and Welfare Benefits Administration, (202) 
219-8515 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

A. Background

    Under Titles I and IV of ERISA, and the Internal Revenue Code, as 
amended, pension and other employee benefit plans are generally 
required to file annual return/reports concerning, among other things, 
the financial condition and operations of the plan. These annual 
reporting requirements can be satisfied by filing the Form 5500 Series 
in accordance with its instructions and related regulations. The Form 
5500 Series is the primary source of information concerning the 
operation, funding, assets and investments of pension and other 
employee benefit plans. In addition to being an important disclosure 
document for plan participants and beneficiaries, the Form 5500 Series 
is a compliance and research tool for the Department, and 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.
    During the last two years, the Department's Pension and Welfare 
Benefits Administration (PWBA), the Internal Revenue Service and the 
Pension Benefit Guaranty Corporation (the Agencies) have conducted an 
extensive review of the Form 5500 Series in an effort to streamline the 
information required to be reported and the methods by which the 
information is filed and processed. A Notice of Proposed Forms 
Revisions soliciting public comments on proposed revision of the Form 
5500 Series was published in the Federal Register on September 3, 1997 
(62 FR 46556). The Agencies' proposal replaced the Form 5500, Form 
5500-C and Form 5500-R with one Form 5500 intended to streamline the 
report and the methods by which it is filed. Concurrent with the 
development of the new forms, the Agencies are also developing a new 
computerized system to process the Form 5500 (the ERISA Filing 
Acceptance System or ``EFAST''). The new computerized processing system 
is designed to simplify and expedite the receipt and processing of the 
new Form 5500 by relying on computer scannable forms and electronic 
filing technologies. The overall proposal is intended to streamline and 
improve the Form 5500 Series and lower the administrative burdens and 
costs incurred by the more than 800,000 employee benefit plans that 
file the Form 5500 Series each year. A public hearing on the proposed 
forms revisions was held on November 17, 1997, and written comments on 
the proposal were received until the public record was closed on 
December 3, 1997. The Agencies received over 60 public comments and 
received oral testimony from employer groups, employee representatives, 
financial institutions, service organizations and others on the form 
streamlining proposal. On February 4, 1998, the Department announced 
that, in response to public comments, the implementation of the new 
Form 5500 would be delayed until the 1999 plan year.
    Public reaction to the September 3, 1997 Notice of Proposed Forms 
Revisions was generally supportive of the new streamlined structure of 
the Form 5500 Series. The Agencies, accordingly, decided to adopt the 
new reporting structure largely as proposed. In response to public 
comments, the Agencies made various adjustments to the proposed forms 
and instructions where consistent with the purposes of the Form 5500 
and the objectives of the streamlining project. A revised Form 5500 was 
submitted to the Office of Management and Budget (OMB) for approval 
under the Paperwork Reduction Act and a Notice was published in the 
Federal Register on June 24, 1998 (63 FR 34493) which provided a 30-day 
opportunity to submit comments to OMB on the new Form 5500 submission. 
The new Form 5500 was also made available on PWBA's internet site 
(http://www.dol.gov/dol/pwba) as part of the Agencies' commitment to 
make information about the new forms available to plans and their 
service providers at the earliest opportunity. Following its Paperwork 
Reduction Act review, OMB gave conditional Paperwork Reduction Act 
approval to the new Form 5500 on August 26, 1998. The approval is 
conditioned on the Agencies soliciting public comments on the computer 
scannable version of the new form after its development and making 
minor technical adjustments to

[[Page 68371]]

the form.1 After the computer scannable versions of the new 
forms and electronic filing options are developed as part of the EFAST 
project, the Agencies intend to publish a Federal Register notice 
soliciting public comments. The final computer scannable version of the 
forms which will be required to be used for 1999 plan year filings will 
be published in the Federal Register following the Agencies' evaluation 
of public comments.
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    \1\ The conditions regarding form changes involved (i) 
consolidating the separate reporting of long-term and short-term 
corporate debt instruments into one line item for all corporate debt 
instruments on the Schedule H (Income and Expense Statement), (ii) 
adding a clarifying instructional statement to the text on line 5 of 
Schedule R, (iii) bolding instructional text on line 3 of Schedule 
T, (iv) adding a statement to the Schedule C instructions that 
trades and businesses (whether or not incorporated) are ``persons'' 
required to be reported as service providers, and (v) clarifying the 
instructions for line 3b(2) of Schedule H regarding the 
inapplicability of the ``short plan year'' provisions of 29 CFR 
2520.104-50 to Direct Filing Entity Form 5500s filed for group 
insurance arrangements and investment entities described in 29 CFR 
2520.103-12 (103-12 IEs) .
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    The proposed amendments published herein to the Department's annual 
reporting regulations (Part 2520 of Chapter XXV of Title 29 of the Code 
of Federal Regulations) are intended, in major part, to make the 
technical and conforming changes to the regulations necessary to 
implement the new Form 5500 Series. As stated in the September 3, 1997 
Notice of Proposed Forms Revisions, the new Form 5500 Series will not 
become effective as an alternative method of compliance and limited 
exemption from the reporting and disclosure requirements of part 1 of 
Title I of ERISA until these regulations are issued in final form.

B. Request for Comments

    Interested persons are invited to submit written comments 
(preferably three copies) concerning the proposals herein to: Office of 
Regulations and Interpretations, Room N-5669, Pension and Welfare 
Benefits Administration, U.S. Department of Labor, 200 Constitution 
Avenue, N.W., Washington, DC 20210, Attention: Proposed Amendments To 
Annual Reporting Regulations. All written comments should clearly 
reference the relevant proposed amendment(s). All submissions will be 
open to public inspection in the Public Disclosure Room, Pension and 
Welfare Benefits Administration, Room N-5638, 200 Constitution Avenue, 
N.W., Washington, D.C.
    The regulatory amendments proposed herein do not involve revisions 
to the Form 5500 Series itself and generally do not announce changes to 
the annual reporting requirements for employee benefit plans in 
addition to those described in the previously published forms 
revisions. The Agencies in developing the revisions to the Form 5500 
Series previously considered the comments submitted in response to the 
September 3, 1997 Notice of Proposed Forms Revisions and the June 24, 
1998 Notice. Those comments will be treated as part of the public 
record for this Notice of Proposed Rulemaking, and, to the extent those 
comments include information relevant to the regulatory amendments 
proposed herein, the Department will treat those comments as comments 
on this Notice of Proposed Rulemaking to avoid the need to submit 
duplicate public comments.

C. Discussion of the Proposal

1. Section 2520.103-1

    Section 2520.103-1 generally describes the content of the Form 5500 
Series as a limited exemption and alternative method of compliance. One 
of the central changes announced in the Notice of Proposed Forms 
Revisions for improving the Form 5500 Series and reducing the reporting 
burden on filers was the development of one Form 5500 for use by both 
``large plan'' filers (plans that previously filed the Form 5500) and 
``small plan'' filers (plans that previously were eligible to file the 
Form 5500-C/R) that was structured along the lines of tax returns 
familiar to individual and corporate taxpayers `` a simple one-page 
main form with basic information necessary to identify the plan for 
which the report is filed that guides each filer to those schedules 
applicable to the filer's specific type of plan. The Form 5500-C/R is 
being eliminated, but limited financial reporting options for small 
plans are being maintained.2 To accommodate these form 
changes, the proposed regulatory amendments would update the references 
in Sec. 2520.103-1 to the annual report to reflect the new structure of 
the Form 5500.3
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    \2\ For example, plans eligible to file as small plans that take 
advantage of the simplified reporting rules would continue to be 
exempt from the annual audit requirements contained in ERISA 
Sec. 103 and would continue to be relieved of the obligation to file 
certain schedules required for large plan filers (e.g., Schedule C 
--Service Provider Information).
    \3\ The proposal also would delete the cross-reference to 
obsolete Sec. 2520.103-7. This provision was removed from the Code 
of Federal Regulations on July 1, 1996 (61 FR 33847).
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2. Section 2520.103-2

    Welfare plans participating in a group insurance arrangement (GIA) 
are exempt from filing individual annual reports under Sec. 2520.104-43 
provided that the trust, trade association, or other entity which holds 
the insurance contracts and acts as a conduit for the payment of 
insurance premiums files an annual report for the entire arrangement. 
Section 2520.103-2 prescribes the contents of the annual report for 
GIAs in order for the participating plans to be eligible for the 
exemption described in Sec. 2520.104-43. The annual report required to 
be filed under Sec. 2520.103-2 must contain a completed Form 5500, 
including any required schedules, a report by an independent qualified 
public accountant (IQPA), and separate financial statements if prepared 
by the IQPA in order to form the opinion required by Sec. 2520.103-
2(b)(5). The Department is proposing amendments to Sec. 2520.103-2 that 
are consistent with the changes proposed for Sec. 2520.103-1, as 
applicable, and Secs. 2520.104-21 and 2520.104-43 (described in section 
C.7 of this preamble). Of particular note for GIAs is the addition of a 
new Schedule D (DFE/Participating Plan Information) to the Form 5500. 
The Schedule D is intended to serve as a multipurpose schedule for 
reporting certain information on relationships between plans and 
entities that are classified as ``Direct Filing Entities'' or DFEs, 
including investment entities covered under Sec. 2520.103-12, master 
trust investment accounts, common or collective trusts (CCTs), pooled 
separate accounts (PSAs), and GIAs. In the case of GIAs, the new 
Schedule D would be a standardized form that GIAs would be required to 
use to satisfy the current requirement to file a list of participating 
plans. (See discussions below of CCTs, PSAs, master trusts and 103-12 
investment entities for more information on applicable requirements for 
plans and entities required to file the new Schedule D).

3. Sections 2520.103-3, 2520.103-4, 2520.103-9, 2520.103-12 and 
2520.103-1(e)

(a) Common/Collective Trusts and Pooled Separate Accounts
    Section 2520.103-3 provides an exemption from certain annual 
reporting requirements for plan assets held in a CCT maintained by a 
bank, trust company or similar institution. Section 2520.103-4 provides 
a similar exemption for plan assets held in a PSA maintained by an 
insurance carrier. Pursuant to Secs. 2520.103-3 and 2520.103-4, a plan 
investing in these entities generally need not include information 
regarding the individual transactions of the entity in the plan's 
annual report. Rather, the plan must

[[Page 68372]]

include in its annual report certain information regarding: (i) the 
current value of the plan's units of participation in the CCT or PSA, 
(ii) transactions involving the acquisition and disposition of units of 
participation in the CCT or PSA, and (iii) a statement of the assets 
and liabilities of the CCT or PSA. Further, the Department, pursuant to 
Sec. 2520.103-9, exempts plans from including a statement of the assets 
and liabilities of the CCT and/or PSA with their annual report if the 
bank, trust company or insurance carrier sponsoring the CCT or PSA, 
respectively, files its statement of assets and liabilities directly 
with the Department and certain other conditions are met. The statement 
of assets and liabilities of a CCT and PSA is not required to be 
reported in a standardized format. The absence of standardized 
reporting for CCTs and PSAs has made it virtually impossible for the 
Department to correlate and effectively use the data regarding the 
approximately 226.2 billion dollars in plan assets held by CCTs and 
PSAs. The Department has concluded that a change in the current 
reporting rules is needed to enable it to continue to satisfy its 
research and enforcement responsibilities.
    Under the proposed forms revisions, as under the current Form 5500 
Series, CCTs and PSAs may elect to file information on behalf of their 
participating plans. As noted above, the revisions to the Form 5500 
Series include a new Schedule D (DFE/Participating Plan Information). 
The Schedule D is a standardized schedule for filing certain 
information on relationships between plans and CCTs and PSAs (as well 
as other entities that are classified as ``Direct Filing Entities'' or 
DFEs, including investment entities covered under Sec. 2520.103-12, 
master trust investment accounts, and GIAs). In the case of a CCT or 
PSA that elects to file as a DFE, the CCT or PSA would be required to 
complete: (1) applicable items on the revised Form 5500; (2) one or 
more Schedules D (to list all participating plans at any time during 
the year and all CCTs, PSAs, or investment entities described in 
Sec. 2520.103-12 (103-12 IEs) that the CCT or PSA invested in during 
the year; and (3) a Schedule H (Financial Information) (formerly 
referred to as the Schedule FIN in the September 3, 1997 Federal 
Register Notice of Proposed Forms Revisions).
    A large plan investing in one or more CCTs or PSAs which file as a 
DFE would report the value of its respective interests in each of these 
entities as a single entry on the appropriate lines in the plan's asset 
and liability statement as of the beginning and end of the plan year. A 
large plan investing in a CCT or PSA which files as a DFE also would 
report on the plan's Schedule H income and expense statement the net 
investment gain/loss for the DFE as part of a single entry for each 
class of DFE. As indicated previously, the new Schedule D (DFE/
Participating Plan Information) would be added to the Form 5500. The 
Schedule D would be required to be attached to the plan's Form 5500 to 
report information about the plan's participation in CCTs and PSAs.
    In the case of small plans with CCT or PSA investments, regardless 
of whether the CCT or PSA files directly with the Department, the small 
plan would file a Schedule D, but would report total assets and total 
income, respectively, on single line items of the small plan Schedule I 
financial statements without separate Schedule I financial statement 
reporting on CCT or PSA investments.
    Thus, the reporting for large plans investing in CCTs and PSAs that 
elect to file as DFEs and for small plan filers would not change 
significantly from the current reporting requirements. Similarly, 
except for the addition of Schedule H (Part II), generally the 
information that would be filed by a CCT or PSA that elects to file as 
a DFE would be substantially the same as the current reporting 
requirements with the major change being that the information would be 
required to be filed on the Form 5500 as the standard reporting format 
for all filers.
    If a CCT or PSA does not file a Form 5500 as a DFE, large employee 
benefit plans would be required to break out their percentage interest 
in the underlying assets of the CCT or PSA and report that interest as 
a dollar value in the appropriate categories on the asset and liability 
statement contained in Schedule H (Financial Information). The failure 
by a large plan to break out its allocated interest in a CCT or PSA on 
the asset and liability statement contained in Schedule H when the CCT 
or PSA does not file as a DFE would be considered a failure by the plan 
administrator to file a complete Form 5500. The Department does not 
envision this as imposing a substantial additional burden on large plan 
filers because there is only a small number of other general investment 
categories on the Schedule H, such as: interest bearing cash; U.S. 
government securities; corporate debt instruments; corporate stock; 
partnership/joint venture interests; real estate; loans; registered 
investment companies, other assets; and employer securities. Further, 
the currently required asset and liability statement of the CCT or PSA 
should provide for many filers most of the detail needed to break the 
assets and liabilities into these categories. Furthermore, large plan 
filers investing in CCTs and PSAs that do not file as DFEs would still 
report the net investment gain/loss with respect to their participation 
in a CCT or PSA as part of single entries on Part II of the Schedule H 
(income and expense statement) and would continue to report their 
interest in a CCT or PSA on the Form 5500 financial schedules (other 
than Part I of Schedule H) in the same general manner as under current 
rules (e.g., current value of the units of participation in CCTs and 
PSAs would be reported on the schedule of assets held for investment 
and the Schedule D).
    The Department believes that changing the reporting requirements 
for plans investing in CCTs and PSAs is the only viable alternative for 
capturing the information needed to carry out its oversight 
responsibilities about plan assets and ensuring that there is adequate 
disclosure of plan investment information to plan participants and 
beneficiaries. The Department, therefore, is exercising its regulatory 
authority under sections 103(b)(4), 104(a)(3), 110 and 505 to modify 
the reporting requirements with respect to plans that participate in 
CCTs and PSAs. The Department views the proposed changes as important 
and necessary in light of the dramatic growth in the value of plan 
assets held by CCTs and PSAs. For example, the value of plan assets 
invested in CCTs and PSAs increased between 1990 and 1995, the latest 
year for which information is available, from $113.9 billion to $226.2 
billion. In order to minimize the costs and paperwork burdens on CCTs 
and PSAs associated with this proposal, it is anticipated that 
processing improvements would be implemented in the near future so this 
information could be filed with the Department either via magnetic 
media (magnetic tapes, floppy diskettes) or other electronic means.
(b) 103-12  Investment Entities and Master Trusts
    Section 2520.103-1(e) provides for special reporting rules for 
plans that participate in a master trust. In general, a master trust is 
a trust maintained by a bank or similar institution to hold the assets 
of several plans that are all sponsored by a single employer or by 
several employers which are under common control. Such plans must 
report the value of their interest in the

[[Page 68373]]

master trust as a single asset category in the plan's statement of 
assets and liabilities. The plan's share of earnings, realized and 
unrealized gains and losses of the master trust is reported in the 
plan's statement of income, expenses and changes in net assets for the 
plan year. A separate annual report for the master trust is required 
under current rules. The proposed amendments to Sec. 2520.103-1(e) do 
not change the information required to be reported regarding the master 
trust, but rather establish the Form 5500 Series as the standard 
reporting format for master trusts.
    Similarly, section 2520.103-12 provides an exemption and 
alternative method of reporting for plans investing in certain 
investment entities the assets of which are deemed to include plan 
assets under section 2510.3-101. Under the alternative method, the plan 
administrator need not include in the plan's annual report any 
information regarding the underlying assets and individual transactions 
of the 103-12 investment entity. Instead, the administrator is required 
to report only the value of the plan's investment or units of 
participation in the investment entity. As a condition to using this 
alternative, however, certain information must be filed by the 103-12 
investment entity directly with the Department. The proposed amendments 
to Sec. 2520.103-12(b) do not change the information required to be 
reported by the 103-12 investment entity, but rather establish the Form 
5500 Series as the standard reporting format.

4. Section 2520.103-5

    Section 2520.103-5 implements section 103(a)(2) of the Act. Section 
103(a)(2) of the Act requires insurance carriers or other organizations 
which provides some or all of the benefits under a plan or holds plan 
assets, banks or similar institutions which holds plan assets, and plan 
sponsors to transmit and certify to the accuracy and completeness of 
such information as is needed by the plan administrator to comply with 
the requirements of Title I of the Act. Because the filing requirements 
for a plan participating in a CCT or PSA generally will be affected by 
whether such CCT or PSA directly files with the Department, section 
2520.103-5 is proposed to be modified to conform to the new direct 
filing entity (DFE) reporting regime and ensure that administrators 
have adequate advance knowledge about their reporting responsibilities.
    In the case of a CCT or PSA, the proposed amendments would require 
that such CCT or PSA notify its participating plans of whether or not 
it intends to file a Form 5500 as a DFE, and to furnish the plan 
administrator with the information about the assets held by such CCT or 
PSA, respectively, needed by the plan administrator to satisfy its 
obligations under Title I of ERISA. These notifications must be made 
within the same period of time for transmitting information already 
required by existing Sec. 2520.103-5 (i.e., 120 days after the close of 
each participating plan's plan year). The proposal does not contain any 
detailed rules relating to the manner of the exchange of information 
between the plan and the CCT or PSA. The Department has decided to let 
the plan administrator develop with the sponsor of the CCT or PSA a 
suitable procedure whereby the plan administrator can establish to his 
or her satisfaction that the administrator and the Department will 
receive all of the required information in a timely fashion. This does 
not, of course, relieve the plan administrator of the responsibility to 
monitor the conduct of the CCT or PSA sponsor and to obtain whatever 
financial information concerning the CCT or PSA that is necessary for 
the administrator to satisfy his or her obligations under ERISA.
    The proposed forms revisions did not affect the information 
required from plan sponsors and the Department is not proposing any 
amendment to the plan sponsors' obligations described in Sec. 2520.103-
5.

5. Section 2520.103-6 and Section 2520.103-11

    Section 2520.103-6 sets forth the definition of reportable (5%) 
transactions for the Form 5500. Section 2520.103-11 provides rules for 
preparing the schedule of assets held for investment purposes and the 
schedule of assets held for investment purposes that were both acquired 
and disposed of within the same plan year (hereinafter collectively 
referred to as the schedules of assets held for investment). The new 
Form 5500 as proposed would have eliminated for large plan filers the 
requirement to file with their annual report a schedule of reportable 
(5%) transactions (line 27d of the current Form 5500) and schedules of 
assets held for investment (line 27a of the current Form 5500). 
Although the Department proposed in September 1997 to remove the 
requirement to submit the line 27a and line 27d schedules as part of 
the annual report, the proposal attempted to preserve affected 
participants' access to the information by providing them with the 
right to request and receive reportable transaction information and a 
detailed list of investments. In developing the proposed forms 
revisions, the Department estimated that fewer than 60,000 plans out of 
the over 800,000 pension and welfare benefit plans that file an annual 
report would be affected by this aspect of the proposal. Because the 
60,000 affected plans are larger plans, the filing of schedules 
detailing plan investments often involves substantial amounts of paper. 
As proposed, the new Form 5500 would still have required a financial 
statement reflecting assets on an aggregate rather than individual 
basis, and the affected plans would have still have been subject to an 
annual audit by an IQPA. Finally, there did not seem to be a 
substantial need for the schedules to be on file at the Department's 
public disclosure room because the Department receives only a small 
number of requests per year for copies, and the Department could make a 
request for copies from the plan administrator on behalf of any plan 
participants or beneficiaries.
    The Department, however, received public comments on the proposal 
that raised serious concerns about adverse consequences of eliminating 
these schedules from the annual report. In light of those comments and 
testimony received at the November 17, 1997 hearing on the proposed 
forms revisions, the Department has decided not to adopt this change. 
The Department nonetheless believes that it is possible to make a 
number of modifications to these schedules to eliminate certain burdens 
associated with the production of information that is already available 
to participants and beneficiaries. Accordingly, the proposal amends the 
reportable transactions rules to no longer require that transactions 
effected at the affirmative direction of participants or beneficiaries 
under an individual account plan be taken into account when completing 
the schedule of reportable transactions. Because of the administrative 
burdens and recordkeeping complexity associated with compiling 
aggregate cost of assets for which investment decisions are directed by 
participants and beneficiaries, the proposal also eliminates for such 
participant directed assets the requirement to prepare the ``historical 
cost'' entry on the schedules of assets held for investment. The 
proposal would not relieve the administrator from including in the 
schedules of assets held for investment descriptions and current values 
for assets held at a participant's or beneficiary's direction. Finally, 
the IQPA's opinion must cover the schedule

[[Page 68374]]

of reportable transactions and schedules of assets held for investment.
    The proposed regulation would also provide that, solely for 
purposes of this reporting relief, a transaction will be considered 
``directed'' by a participant or beneficiary to the extent that the 
individual, in fact, affirmatively authorized the investment of the 
asset allocated to his or her account. This reporting relief is broader 
than the fiduciary liability relief prescribed by Sec. 2550.404c-1 that 
applies to a narrower class of transactions in which participants and 
beneficiaries exercise control over the assets involved in the 
transaction.
    Because the proposal retains the schedule of reportable 
transactions and schedules of assets held for investment as part of the 
annual report primarily to meet participant disclosure concerns, not to 
satisfy research and enforcement needs, the Department is not requiring 
use of a standardized computer scannable form for the schedule of 
reportable transactions or schedules of assets held for investment 
(unlike the Schedule G which will be mandatory for the other financial 
transaction schedules). Rather, administrators would be allowed to use 
any format for preparing the schedule of reportable transactions and 
schedules of assets held for investment as long as the content 
requirements of Secs. 2520.103-6 and 2520.103-11 are met and the same 
size paper as the Form 5500 is used (electronic filing requirements for 
these schedules will be developed as part of the, previously described, 
EFAST project).
    The Department is also proposing to amend section 2520.103-6 to 
include a special rule for the reportable transaction schedule for 
initial plan years. Section 2520.103-6(b)(1)(i) currently requires that 
the 5% thresholds for reportable transactions be calculated using 
current value of assets as of the beginning of the initial plan year. 
Concerns have been expressed by filers that in most cases the current 
rule results in virtually all investment transactions during the 
initial plan year being reportable transactions under section 2520.103-
6. The Department does not believe that this result was intended under 
ERISA inasmuch as the purpose of the reportable transaction rules was 
to identify transactions relating to a significant portion of the 
plan's assets because these transactions may pose the greatest 
financial risk to a plan. Accordingly, the Department is proposing that 
the current value of plan assets for purposes of preparing the schedule 
of reportable transactions for the initial plan year would be the 
current value of plan assets at the end of the initial plan year.

6. Section 2520.103-10

    Section 2520.103-10 identifies the financial schedules that are 
required to be included with the filing of the Form 5500. The 
Department is proposing to amend Sec. 2520.103-10 to conform it to the 
new Form 5500 and other regulatory amendments described elsewhere in 
this preamble. Accordingly, as proposed, Sec. 2520.103-10 would be 
amended to update references to the annual report financial schedules 
to conform the references to the schedules associated with the new Form 
5500.
    Further, under the proposal, the use of the revised Schedule G will 
be mandatory for the schedule of party in interest transactions, 
schedule of obligations in default, and schedule of leases in default. 
These schedules are now required by lines 27b, 27c, 27e and 27f of the 
current Form 5500 and may be filed using a similar format and using the 
same size paper as the current Schedule G. Because the Department will 
be developing and implementing a new system to simplify and expedite 
the receipt and processing of the Form 5500 Series by using optical 
scanning technology and optical character recognition, it would not be 
possible for the Department to process Schedule G information and 
include such information in our data base unless the use of Schedule G 
is mandatory. The proposed Schedule G would have to be attached to the 
Form 5500 of a large plan, master trust investment account or 103-12 IE 
to report loans or fixed income obligations in default or determined to 
be uncollectible as of the close of the reporting year (Part I of 
Schedule G), leases in default or classified as uncollectible during 
the plan year (Part II of the Schedule G) and nonexempt transactions 
(Part III of the Schedule G).
    The proposed changes to the schedule of reportable transactions and 
the schedules of assets held for investment (which are not included on 
the new Schedule G) are discussed in paragraph C.5 of this preamble.

7. Section 2520.104-21 and Section 2520.104-43

    Section 2520.104-21 provides an exemption from certain Title I 
reporting and disclosure requirements for welfare plans that are part 
of a group insurance arrangement (GIA) as defined in paragraph (b) of 
that regulation.4 The exemption is available for welfare 
plans which have fewer than 100 participants and which are part of a 
GIA, if the arrangement, among other things, uses a trust (or other 
entity such as a trade association) as the holder of the insurance 
contracts and the conduit for payment of premiums to an insurance 
company. See Sec. 2520.104-21(b)(3). Section 2520.104-43 provides plans 
(regardless of whether such plans have 100 or more participants) with 
relief from filing the annual report in cases where the GIA described 
in Sec. 2520.104-21 files a Form 5500 report on behalf of all the 
participating plans. The Department is proposing to amend 
Secs. 2520.104-21 and 2520.104-43 to provide that the exemptions would 
only be available in those cases in which the GIA utilizes a trust as 
the conduit for the payment of the premiums. The proposal also would 
modify the examples in paragraph (d) of Sec. 2520.104-21 to reflect 
these changes. The Department believes that interpreting the reporting 
exemption as providing GIAs with an exemption from the substantive 
requirement to hold plan assets in trust is not in the interest of 
participants and beneficiaries, and needs correction. Indeed, adoption 
of the proposed amendment would conform the reporting regulations for 
GIAs with ERISA Sec. 403 and Sec. 2550.403a-1, which do not provide a 
trust exception for GIAs. The Department does not envision that the 
proposed amendment will create administrative burdens for GIAs or 
result in increased costs for participating plans because the plan 
assets collected and held by the intermediary entity must be separately 
accounted for under current law. 5 The Department is also 
proposing that this

[[Page 68375]]

change, if adopted, would be effective for plan years beginning after 
Dec. 31, 1998, to coincide with the 1999 plan year implementation of 
the new Form 5500.
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    \4\ For example, section 2520.104-21 provides relief to certain 
welfare plans from the requirement to file a copy of the summary 
plan description and descriptions of material modifications in the 
terms of a plan or changes in the information required to be 
included in the summary plan description. Section 1503 of The 
Taxpayer Relief Act of 1997 (TRA 97), Pub. L. 105-34 (enacted August 
5, 1997), amended ERISA by repealing the requirement to file the 
aforementioned documents with the Department. A separate notice of 
proposed rulemaking will be published by the Department to conform 
these regulations to TRA 97.
    \5\ The proposed amendment, if adopted, also would be consistent 
with the enforcement policy in ERISA Technical Release 92-01 (TR 92-
01) (57 FR 23272 and 58 FR 45359). TR 92-01 announced interim relief 
from the trust and certain reporting requirements of ERISA for 
certain contributory welfare plans. TR 92-01, however, does not 
apply to Sec. 2520.104-21 GIAs or to participant contributions after 
they have been segregated from an employer's general assets and 
transmitted to an intermediary account. Thus, if the proposed 
amendment is adopted as a final rule, participating cafeteria plans 
may continue to rely on the enforcement policy contained in TR 92-01 
until participant contributions are transmitted to the GIA, but the 
GIA would be required to hold plan assets in trust.
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8. Sections 2520.104-41 and 2520.104-46

    Section 2520.104-41 provides a simplified method of annual 
reporting for plans with fewer than 100 participants and Sec. 2520.104-
46 waives the IQPA requirement for such small plans. In general, small 
plans eligible to file simplified reports are required to file the Form 
5500-C every third plan year and the Form 5500-R (an abbreviated 
version of the Form 5500-C) for the two intervening plan years. As 
indicated previously, the Agencies have proposed to replace the Form 
5500 and the Form 5500-C/R with an improved single Form 5500 for use by 
both large and small plan filers, with simplified reporting options for 
small plans incorporated into the new restructured forms. This proposal 
would amend Secs. 2520.104-41 and 2520.104-46 to conform the terms in 
the regulations to the new Form 5500 Series.

9. Section 2520.104-44

    Section 2520.104-44 contains a limited exemption and alternative 
method of compliance for annual reporting by certain unfunded and 
insured plans. The Department has received inquiries from the public 
about the reporting requirements for pension plans exclusively using a 
tax deferred annuity arrangement under Internal Revenue Code section 
403(b)(1) and/or a custodial account for regulated investment company 
stock under Internal Revenue Code section 403(b)(7). The current Form 
5500 Series instructions provide for limited reporting for these types 
of pension plans. The Department has previously expressed its view that 
such plans are not subject to the IQPA audit requirements as part of 
their annual reporting obligations under Title I of ERISA. See the 
Department's Information Letter issued to Gary H. Friedman (dated 
November 15, 1996). The Department, therefore, is proposing to make 
conforming technical amendments to Sec. 2520.104-44 to clarify the 
annual reporting obligations of such plans.

10. Section 2520.104b-10

    Section 2520.104b-10 sets forth the requirements for the summary 
annual report (SAR) and prescribes the formats for such reports. The 
proposed amendments to section 2520.104b-10 would make the SAR 
requirements conform to the new Form 5500 Series (e.g., by referring to 
the modified list of the attached statements and schedules to the Form 
5500). The proposed amendments also would address the elimination of 
the Form 5500-R. Under current SAR rules, administrators of small plans 
are not required to prepare and furnish a SAR for those plan years in 
which a Form 5500-R is filed if one of the two following methods of 
compliance is met. Under the first method of compliance, plans must 
furnish participants (and beneficiaries receiving benefits under a 
pension plan) with a copy of the filed Form 5500-R as a substitute for 
furnishing the SAR. Under the second method, plans are required to 
notify participants and such beneficiaries in writing of their right 
upon written request to receive free-of-charge a copy of the Form 5500-
R filed by the plan. Under the second method of compliance, 
Sec. 2520.104b-10(b)(2)(ii) permits active participants to be notified 
by posting the notice at worksite locations in a manner reasonably 
calculated to ensure disclosure of the information. The Form 5500-R 
furnished under either method of compliance must be accompanied by a 
prescribed notice. Because the Form 5500-R is proposed to be 
eliminated, small plans will be required to furnish a SAR every year 
rather than every third year. Although the reporting statistics 
indicate that approximately 50 percent of small filers file the Form 
5500-C every year and, therefore, would not be eligible for the 
alternative method of compliance, the Department seeks comments as to 
the burdens associated of complying with proposed Sec. 2520.104b-10, if 
any, for small plan filers who would no longer be able to file a Form 
5500-R. The proposed amendments to Secs. 2520.104b-10(d)(3) and 
2520.104b-10(d)(4) also restate the information available to 
participants and beneficiaries under the heading ``Your Rights to 
Additional Information'' so that it is consistent with the new Form 
5500 Series. These proposed changes are expected to improve the process 
by which information is disclosed to participants and beneficiaries of 
small plans which currently file the Form 5500-R.
    The existing regulations contain a cross-reference guide as an 
appendix. The purpose of this guide is to correspond the line items of 
the SAR to the line items on the Form 5500 and Form 5500-C. The 
Department intends to publish as part of the final regulation a revised 
appendix to conform it to the final version of the new Form 5500 and 
associated schedules.

D. Findings Regarding the New Form 5500 as a Limited Exemption and 
Alternative Method of Compliance

    Section 104(a)(2)(A) of the Act authorizes the Secretary to 
prescribe by regulation simplified reporting for pension plans that 
cover fewer than 100 participants. Section 104(a)(3) authorizes the 
Secretary to exempt any welfare plan from all or part of the reporting 
and disclosure requirements of Title I of ERISA or to provide 
simplified reporting and disclosure, if the Secretary finds that such 
requirements are inappropriate as applied to such plans. Section 110 
permits the Secretary to prescribe for pension plans alternative 
methods of complying with any of the reporting and disclosure 
requirements if the Secretary finds that: (1) the use of the 
alternative method is consistent with the purposes of ERISA and it 
provides adequate disclosure to plan participants and beneficiaries and 
to the Secretary; (2) application of the statutory reporting and 
disclosure requirements would increase costs to the plan or impose 
unreasonable administrative burdens with respect to the operation of 
the plan; and (3) the application of the statutory reporting and 
disclosure requirements would be adverse to the interests of plan 
participants in the aggregate.
    For purposes of Title I of ERISA, the filing of a completed Form 
5500 (including any required statements, schedules, and IQPA report) 
generally constitutes compliance with the limited exemption and 
alternative method of compliance in 29 CFR 2520.103-1(b). As indicated 
in the preamble to the notice of proposed forms revisions, the 
Department stated that the findings required under ERISA sections 
104(a)(3) and 110 relating to the use of the Form 5500, as revised, as 
an alternative method of compliance and limited exemption from the 
reporting and disclosure requirements of part 1 of Title I of ERISA 
would be separately addressed as part of the rulemaking that would 
amend the reporting regulations necessary to implement the new Form 
5500 Series.

1. General Findings

    As reflected in the revisions to the Form 5500 Series and the 
amendments proposed herein, a number of changes are being proposed 
which affect the information required to be reported and disclosed on 
the Form 5500 Series. The Department, in the proposed amendments, has 
attempted to balance the needs of participants, beneficiaries and the 
Department to obtain

[[Page 68376]]

information necessary to protect ERISA rights and interests with the 
needs of administrators to minimize costs attendant with the reporting 
of information to the federal government. In view of these changes, the 
Department proposes to make the following findings under sections 
104(a)(3) and 110 of the Act with regard to the utilization of the 
revised Form 5500 (and revised statements and schedules required to be 
attached to the Form 5500) as an alternative method of compliance and 
limited exemption pursuant to 29 CFR 2520.103-1(b).
    The use of the revised Form 5500 as an alternative method of 
compliance is consistent with the purposes of Title I of ERISA and 
provides adequate disclosure to participants and beneficiaries and 
adequate reporting to the Secretary. While the information required to 
be reported on or in connection with the revised Form 5500 deviates, in 
some respects, from that delineated in section 103 of the Act, the 
information essential to ensuring adequate disclosure and reporting 
under Title I of ERISA is required to be included on or as part of the 
Form 5500, as revised.
    The use of Form 5500 as an alternative method of compliance 
relieves plans subject to the annual reporting requirements from 
increased costs and unreasonable administrative burdens by providing a 
standardized format which facilitates reporting, eliminates duplicative 
reporting requirements, and simplifies the content of the annual report 
in general. The Form 5500, as revised, is intended to further reduce 
the administrative burdens and costs attributable to compliance with 
the annual reporting requirements.
    Taking into account the above, the Department has determined that 
application of the statutory annual reporting and disclosure 
requirements without the availability of the Form 5500 would be adverse 
to the interests of participants in the aggregate. The revised Form 
5500 provides for the reporting and disclosure of basic financial and 
other plan information described in section 103 in a uniform, 
efficient, and understandable manner, thereby facilitating the 
disclosure of such information to plan participants.
    Finally, the Department has determined under section 104(a)(3) that 
a strict application of the statutory reporting requirements, without 
taking into account the proposed revisions to the Form 5500, would be 
inappropriate in the context of welfare plans for the reasons discussed 
in this preamble and the preamble to the notice announcing the proposed 
forms revisions.

2. Special Findings

(a) Schedule A (Insurance Information)
    Schedule A must be attached to the annual report if any pension or 
welfare benefits under any ERISA covered plan are provided by, or if 
the plan holds any investment contracts with, an insurance company or 
other similar organization. Although most of the Schedule A data has 
been retained substantially unchanged, certain changes were made to the 
Schedule A to more closely conform the Schedule A to recent accounting 
industry changes on ``current value'' financial reporting of 
investment-type contracts with insurance companies,6 and to 
collect: (i) better identifying information on the type of insurance 
contracts and type of insured benefits being reported and (ii) the 
insurer's employer identification number and National Association of 
Insurance Commissioners' (NAIC) code. In general, under the current 
Form 5500 Series, the financial reporting required for insurance 
products is not identical to the reporting for other financial 
products.7 In the interest of the efficient administration 
of ERISA, the Department has attempted to align the reporting and 
disclosure requirements, where possible and to the extent consistent 
with the best interests of plan participants, with generally accepted 
accounting principles (GAAP). The Schedule A changes proposed by the 
Department are intended to be consistent with the Financial Accounting 
Standards Board (FASB) Statement of Financial Accounting Standards No. 
110 (FAS 110) and No. 126 (FAS 126) and American Institute of Certified 
Public Accountants Statement of Position 94-4 (SOP 94-4), which 
generally require the disclosure of the fair value of investment 
contracts with insurance companies (except for certain investment 
contracts held by defined benefit pension plans and ``fully benefit 
responsive'' contracts held by defined contribution pension and welfare 
plans with assets of $100 million or less). Because it is the 
Department's view that the Schedule A reporting requirements are 
equally important for small as well as large plans, the proposal would 
not provide different Schedule A reporting standards depending on the 
size of the plan. The Department also believes that the additional 
information being required to identify the type of insurance product 
purchased and NAIC code and EIN of the insurance company (or similar 
organization) from which the product was sold are helpful to the 
Department being able to accomplish its oversight responsibilities, and 
will not be burdensome to plans inasmuch as this information should be 
readily available.
---------------------------------------------------------------------------

    \6\ ERISA Sec. 3(26) defines ``current value'' as fair market 
value where available and otherwise fair value as determined in good 
faith by a trustee or named fiduciary pursuant to the terms of the 
plan and in accordance with the regulations of the Secretary, 
assuming an orderly liquidation at the time of such determination.
    \7\ See, for example, the instructions for line 31c(16) of the 
1997 Form 5500.
---------------------------------------------------------------------------

(b) Schedule C (Service Provider Information)
    Schedule C must be attached to the Form 5500 filed by large plan 
filers if any person who rendered services to the plan received 
directly or indirectly $5,000 or more in compensation from the plan 
during the plan year. The major changes to the Schedule C involve 
eliminating the requirement to annually identify plan trustees, 
limiting the current requirement to explain service provider 
terminations to terminations of accountants and enrolled actuaries, and 
limiting the number of plan service providers required to be reported 
to the forty top paid service providers at or above the $5,000 
threshold. The Department notes that trustee and plan administrator 
information already must be disclosed in the summary plan description 
(SPD), and changes in trustees and plan administrators must be 
disclosed in a summary of material modification (SMM). SPDs and SMMs 
must be furnished automatically, whereas the Form 5500 is required to 
be disclosed only on request. Further, to the extent a service provider 
receives $5,000 or more in compensation from the plan, comparing the 
list of service providers on Schedule Cs from year to year will allow a 
participant or beneficiary to determine whether a particular service 
provider (such as an investment manager, trustee, or custodian) was 
terminated. Similarly, comparing annual Schedule A filings will provide 
information on changes in insurers. With respect to limiting of 
Schedule C list of service providers to the forty top paid providers 
receiving $5,000 or more in compensation, only approximately 100 
employee benefit plans filing the 1994 Form 5500 listed more than 40 
service providers on their Schedule Cs. Those 100 filings constituted 
less than one percent of the Form 5500 filings received. These Schedule 
C changes will not, in the Department's view, result in inadequate 
disclosure to participants and beneficiaries in large plans. Because 
Schedule C is not required to be filed by small plans, the Schedule C 
changes

[[Page 68377]]

described herein would not affect the annual reports of those plans.
(c) Schedule D (Direct Filing Entity/Participating Plan Schedule)
    As indicated previously, the new DFE reporting rules were developed 
in an effort to improve the reporting requirements for plans 
participating in CCTs, PSAs, master trusts, 103-12 IEs and GIAs. With 
the exception for small plans of the Schedule D requirement to report 
year-end dollar value of interests in CCTs, PSAs, master trusts and 
103-12 IEs, substantially all of the information that would be required 
to be reported by employee benefit plans under the new DFE reporting 
regime is currently required to be reported. Compare the new Form 5500 
Series with the 1997 Form 5500 and Form 5500-C/R instructions for line 
6e and page 4 instructions for additional information that must be 
reported for plans participating in CCTs, PSAs, master trusts, 103-12 
IEs, and group insurance arrangements. Similarly, substantially all of 
the information that would be required to be reported by DFEs is 
currently required to be filed by CCTs, PSAs, MTIAs, 103-12IEs and 
GIAs. Compare the new Form 5500 Series with the 1997 Form 5500 and Form 
5500-C/R page 6 instructions on filing requirements for CCTs, PSAs, 
master trusts and 103-12 IEs, and the Form 5500 line 1 instructions for 
GIAs.8 Thus, the Department believes that the major change 
in reporting with respect to DFEs is that information must be reported 
in a standardized format using the Form 5500 and associated schedules. 
The Department does not believe the proposed new DFE rules should 
result in material cost increases or administrative burdens for plans. 
Further, direct reporting by CCTs, PSAs, 103-12 IEs and GIAs continues 
to be optional. To the extent there are cost or burden increases being 
passed through to the plan by the entity, plans can evaluate those 
annual reporting implications when deciding whether to participate in a 
CCT, PSA, 103-12 IE or GIA. The information that is available to be 
disclosed to participants and beneficiaries under the current annual 
reporting regime would not be reduced under the proposed forms 
revision. Finally, as indicated previously, continuation of the current 
rules would result in inadequate reporting to the Department, would 
mean that the Department would continue to be unable to correlate and 
effectively use the data regarding the more than $1 trillion in plan 
assets invested by plans in DFEs, and, therefore, would be adverse to 
the interests of participants and beneficiaries in the aggregate.
---------------------------------------------------------------------------

    \8\ In the case of GIAs, the current rules require use of a Form 
5500. For master trusts and 103-12 IEs, the Form 5500 instructions 
already require the filer either use the Form 5500 and schedules or 
report information in the same format using the same categories as 
those specified in the Form 5500. In the case of CCTs and PSAs, the 
Department does not believe imposing similar formatting requirements 
should involve any significant additional burden. The Department 
also believes that there will be minimal additional burden in 
requiring CCTs and PSAs that elect to file as a DFE to report income 
and expenses on Schedule H (Part II).
---------------------------------------------------------------------------

(d) Schedule of Reportable Transactions and Schedules of Assets Held 
For Investment
    With regard to exclusion of certain participant directed 
transactions under an individual account plan from the schedule of 
reportable transactions, and the deletion of the requirement to include 
historical cost information in the schedules of assets held for 
investment on those transactions, the Department believes, on the basis 
of its enforcement experience, that the revised schedules will still 
result in adequate reporting to the Department and will not hamper its 
ability to identify fiduciary violations. The underlying purpose for 
the schedule of reportable transactions is to identify significant 
transactions that may reveal fiduciary misconduct. In general, 
individualized information on participant directed transactions is not 
especially relevant to that purpose. Similarly, historical cost on the 
schedules of assets held for investment is intended to provide 
individualized information on the investment gain/loss performance of 
the specific assets or classes of assets. The plan's aggregate gain or 
loss on a class of assets does not provide meaningful information on 
the gain or loss to a particular participant's account resulting from 
individually directed transactions. For those reasons, the Department 
does not believe having this information on the annual report is useful 
in targeting its enforcement cases, but including this participant 
directed transaction information in these schedules will result in 
additional costs and administrative burdens to plans. In light of the 
purposes underlying the reportable transaction schedule and the 
historical cost requirement, the Department believes that these 
schedules will still provide adequate disclosure to plan participants 
and beneficiaries.

Other Supplementary Information

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 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 which are 
likely to have a significant economic impact on a substantial number of 
small entities. If an agency determines that a proposed rule is likely 
to have a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires that the agency present an 
initial regulatory flexibility analysis at the time of the publication 
of the notice of proposed rulemaking describing the impact of the rule 
on small entities, and seeking public comment on such impact. Small 
entities include small businesses, organizations, and governmental 
jurisdictions.
    For purposes of analysis under the RFA, PWBA proposes to continue 
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 the Employee Retirement Income Security Act of 1974 
(ERISA), which permits the Secretary of Labor to prescribe simplified 
annual reports for pension plans which cover less than 100 
participants. Under section 104(a)(3), the Secretary may also provide 
for simplified annual reporting and disclosure if the statutory 
requirements of part 1 of Title I of ERISA would otherwise be 
inappropriate for welfare benefit plans. Pursuant to the authority of 
ERISA section 104(a)(3), the Department has previously issued at 
Secs. 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 covering fewer than 100 participants 
and which satisfy certain other requirements.
    Further, while some large employers may have small plans, in 
general, most small plans are maintained by small employers. Thus, PWBA 
believes that assessing the impact of this proposed rule 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 
which is based on size standards promulgated by the Small Business 
Administration (SBA) (13 CFR 121.201) pursuant to the Small Business 
Act (15 U.S.C. 631 et seq.). PWBA, therefore, requests comments on the 
appropriateness of the size standard used in evaluating the

[[Page 68378]]

impact of this proposed rule on small entities. PWBA has consulted with 
the SBA Office of Advocacy concerning use of this participant count 
standard for RFA purposes. See 13 CFR Sec. 121.902(b)(4).
    On this basis, however, PWBA has preliminarily determined that this 
rule will not have a significant economic impact on a substantial 
number of small entities. In support of this determination, and in an 
effort to provide a sound basis for this conclusion, although not 
required, PWBA considers the elements of an initial regulatory 
flexibility analysis to be as follows:
    (1) The Department is promulgating this proposed rule to amend the 
regulations relating to the annual reporting and disclosure 
requirements of section 103 of ERISA to conform existing regulations to 
revisions to the annual return/report forms (Form 5500 Series).
    (2) Section 103 of ERISA requires every employee benefit plan 
covered under part 1 of Title I of ERISA to publish and file an annual 
report concerning, among other things, the financial conditions and 
operations of the plan. Section 109 of ERISA authorizes the Secretary 
to prescribe forms for the reporting of information that is required to 
be submitted as part of the annual report.
    The Secretary may also prescribe alternative methods of complying 
with reporting and disclosure requirements if the Secretary finds that: 
the use of the alternative method is consistent with the purposes of 
ERISA and provides adequate disclosure to participants and 
beneficiaries and the Secretary, application of the statutory reporting 
and disclosure requirements would increase costs to the plan or impose 
unreasonable administrative burdens with respect to the operation of 
the plan, and the application of the statutory reporting and disclosure 
requirements would be adverse to the interests of plan participants in 
the aggregate.
    The Department proposes to find that use of the Form 5500 as 
revised constitutes an alternative method of compliance which is 
consistent with these conditions. Generally, the Department believes 
that use of the revised Form 5500 would relieve plans of all sizes from 
increased costs and unreasonable burdens by providing a standard format 
which facilitates reporting required by the statute, eliminates 
duplicative reporting requirements, and streamlines the content of the 
annual report.
    (3) The Department, in conjunction with the IRS and PBGC, proposed 
a number of changes to the existing Form 5500 Series in an effort to 
reduce paperwork burdens and costs and enhance the utility of the 
annual report forms generally. The regulatory amendments proposed 
herein are designed to ease the burden of plans, both large and small, 
in complying with the reporting and disclosure requirements of ERISA. 
The regulatory amendments proposed do not directly affect the number of 
small plans required to comply with the annual reporting requirements 
or change existing small plan limited exemptions from reporting 
requirements. Thus, for example, under the proposal small plans would 
continue to be exempt from reporting service provider information and 
supplying the report of an independent qualified public accountant. In 
addition, the conforming rules as proposed generally preserve the more 
limited reporting for small plans which is presently in effect.
    (4) Based on information available from 1993 Form 5500 filings, the 
Department estimates that there are approximately 6.7 million small 
pension and welfare benefit plans that are covered under Title I of 
ERISA. About 6 million of these plans with fewer than 100 participants 
are insured or unfunded welfare benefit plans, which are currently 
exempt from Form 5500 filing requirements and will continue to be 
exempt under the proposed revisions to the Form 5500 Series. The 
proposed rules therefore, will have no impact on these small plans. 
Thus, approximately 700,000 small plans, or about 9% of all small 
plans, are required to file the existing Form 5500 Series, and will be 
impacted by the proposed rules conforming existing regulations to the 
revised Form 5500 Series.
    (5) The revisions to the Form 5500 Series are estimated to impose 
no additional filing burden on small plans than that of the current 
forms over the existing three-year filing cycle. In fact, a comparison 
of the burden associated with the existing reporting requirements with 
the revisions to the Form 5500 Series indicates an overall reduction in 
the burden for small plans based on the number of data elements 
required to be reported for each.
    Under current filing requirements, small plans must file a Form 
5500-C at least once every three years and file the less detailed Form 
5500-R in the two intervening years. While the ratio of Form 5500-R to 
Form 5500-C filings varies from year-to-year, on average about 55% of 
all annual small plan filings are on the Form 5500-R and 45% are on the 
Form 5500-C because many small plans annually file the Form 5500-C.
    The burden associated with completion of the Form 5500 Series can 
be divided into two steps: reading the instructions and completing the 
individual line items. The revised Form 5500 Series requires small 
plans to provide more line item information than the Form 5500-R, but 
less information than the Form 5500-C. The burden associated with 
completion of all required items on the revised form is estimated to be 
5% greater than the Form 5500-R and 32% less than the Form 5500-C. 
Based on a ratio of the Form 5500-R to Form 5500-C filings of 55% to 
45%, the proposed revisions to the Form 5500 Series are estimated to 
result in an average reduction of 15% in the burden associated with 
completion of the revised form items.
    The more efficient format of the revisions to the Form 5500 Series, 
with most of the information broken out into separate schedules, should 
also reduce the time required to read the instructions because filers 
will be able to skip over the instructions for schedules that do not 
apply to them. It is, however, expected that all filers will require 
additional time in the initial year of filing to thoroughly read the 
instructions and to familiarize themselves with the revised Form 5500 
Series. It is, therefore, assumed in the initial year of filing the 
revised Form 5500 Series that additional time required for instruction 
reading will result in an overall burden (including the reduction for 
line items) that on average will be 26% greater than the annual burden 
for completion of the Form 5500-C/R. It is assumed that most filers 
will not require this additional time in subsequent years, and that the 
average reduction will be the 15% based on the reduction in the number 
of line items.
    When the higher burden associated with instruction reading is pro-
rated over a three-year period (corresponding with the existing three-
year cycle of Form 5500-C and Form 5500-R filings) the annual burden 
imposed by the proposed revisions to the Form 5500 Series for the 
typical filer is estimated to be 2% less than that of the Form 5500-C/
R. When the initial year burden is pro-rated over a 10-year period, the 
proposed revision to the Form 5500 Series is estimated to result in an 
11% reduction in the annual burden for small plans.
    Entry of the information required by the Form 5500-C/R is made from 
financial and other records maintained

[[Page 68379]]

by plans. Sound accounting and general business practices would 
generally dictate that all or most of these records be maintained even 
in the absence of a reporting requirement. To the extent that specific 
records are kept only for reporting purposes it is assumed that small 
plans currently maintain on an annual basis all records necessary to 
complete the Form 5500-C because of the existing requirement that a 
Form 5500-C (which requires both beginning and ending year financial 
data) must be filed at least once every three years. The reduced 
reporting requirements of the proposed revisions to the Form 5500 
Series compared to the current Form 5500-C, therefore, should not 
increase and may potentially reduce the overall recordkeeping burden 
for small plans.
    Completion of the Form 5500-C/R requires a mixture of professional 
and clerical skills. It is assumed that this mixture will not change as 
a result of the revisions to the Form 5500 Series. The cost savings, 
therefore, should correspond to the savings in burden hours. For 
sponsors using third-party administrators (TPAs) to complete all or 
part of the Form 5500 Series, additional costs attributable to 
instruction reading and understanding the revisions of the Form 5500 
Series are expected to be negligible. However, any savings in this area 
for plan sponsors are expected to be offset by additional costs charged 
by TPAs to modify automated system software to accommodate the proposed 
revisions to the Form 5500 Series. The elimination of the Form 5500-R 
may increase burdens for these small filers because under the proposal 
they will be required to furnish SARs on an annual basis and without 
the accommodations found in the existing regulations at Sec. 2520.104b-
10(b). The Department solicits comments from interested parties on this 
aspect of the proposal.
    (6) No Federal rules have been identified that duplicate, overlap 
or conflict with the proposed rule.
    (7) No significant alternatives to the proposed rule which would 
minimize the impact on small entities have been identified, although 
the review and proposed revision of the Form 5500 Series were 
undertaken to reduce paperwork burden for all filers while maintaining 
the more limited reporting for small plans. The Department believes it 
has minimized the economic impact of the forms revision and conforming 
rules on small plans to the extent possible while recognizing plan 
participants' and the Department's need for information to protect 
participant rights under Title I of ERISA, and needs of other 
interested parties for timely statistical information on employee 
benefit plans.
    The Department invites interested persons to submit comments 
regarding its preliminary determination that the proposal will not have 
a significant economic impact on a substantial number of small 
entities. The Department also requests comments from small entities 
regarding what, if any, special problems they might encounter if the 
proposal were to be adopted, and what changes, if any, could be made to 
minimize those problems. To avoid duplication of comments, comments 
submitted in response to the September 3, 1997 Notice of Proposed 
Revision of Annual Information Return/Report (62 FR 46556) and the June 
24, 1998 request for comments will be treated as comments on this 
Notice of Proposed Rulemaking.

Executive Order 12866 Statement

    Under Executive Order 12866, the Department must determine whether 
the 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), the order defines a 
``significant regulatory action'' as 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 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.
    Pursuant to the terms of the Executive Order, it has been 
determined that this regulatory action creates a novel method of 
statutory compliance consistent with the President's priorities that 
will reduce paperwork and regulatory compliance burdens on businesses, 
including small businesses and organizations, and make better use of 
scarce federal resources, in accord with the mandates of the Paperwork 
Reduction Act and the President's priorities. Therefore, this notice is 
``significant'' and subject to OMB review under Executive Order 
12866(3)(f)(4).
    Under Part 1 of Title I ERISA, administrators of pension and 
welfare benefit plans (collectively referred to as employee benefit 
plans) are required to file annual returns/reports concerning their 
financial condition and operations. ERISA section 104(a)(2)(A) 
authorizes the Secretary of Labor to prescribe by regulation simplified 
reporting for pension plans that cover fewer than 100 participants. 
Section 104(a)(3) authorizes that Secretary to exempt any welfare plan 
from all or part of the reporting and disclosure requirements of Title 
I or to provide simplified reporting and disclosure if the Secretary 
finds that such requirements are inappropriate as applied to such 
plans. Section 110 permits the Secretary to prescribe for pension plans 
alternative methods of complying with any of the reporting and 
disclosure requirements if the Secretary finds that: (1) the use of the 
alternative method is consistent with the purposes of ERISA and 
provides adequate disclosure to plan participants and beneficiaries and 
to the Secretary; (2) application of the statutory reporting and 
disclosure requirements would increase costs to the plan or impose 
unreasonable administrative burdens with respect to the operation of 
the plan; and (3) the application of the statutory reporting and 
disclosure requirements would be adverse to the interests of plan 
participants in the aggregate.
    For purposes of Title I of ERISA, the filing of a completed Form 
5500 (including any required statements, schedules, and report of an 
independent qualified public accountant) generally constitutes 
compliance with the limited exemption and alternative method of 
compliance set forth by regulation in Sec. 2520.103-1(b). As stated in 
this preamble, the Department is proposing to make the determination 
that application of the statutory annual reporting and disclosure 
requirements without the availability of the Form 5500 as revised would 
be adverse to the interests of participants in the aggregate. The use 
of the new Form 5500 as an alternative method of compliance would 
relieve plans subject to the annual reporting requirements from 
increased costs and unreasonable administrative burdens by providing a 
standardized format which facilitates reporting, eliminates duplicative 
reporting requirements, and simplifies the content of the annual report 
in general.
    The Form 5500 Series serves as the primary source of information 
concerning the operation, funding, assets and investments of pension 
and other employee benefit plans. The Form 5500 is not only an 
important disclosure

[[Page 68380]]

document for participants and beneficiaries, but also a compliance and 
research tool for the Department and 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 Pension and Welfare Benefits Administration, the Internal 
Revenue Service, and the Pension Benefit Guaranty Corporation have 
conducted an extensive review of the Form 5500 Series in an effort to 
streamline the information required to be reported and the methods by 
which the information is filed and processed. A proposed revision of 
the Form 5500 Series was published in the Federal Register on September 
3, 1997 (62 FR 46556). The proposal was designed to lower the 
administrative burdens and costs incurred by the more than 900,000 
employee benefit plans that annually file the Form 5500 Series. A 
public hearing on the proposed revision was held on November 17, 1997, 
and written comments on the proposal were received until the public 
record was closed on December 3, 1997. On February 4, 1998, the 
Department announced that, in response to public comments, the 
implementation of the new Form 5500 would be delayed until the 1999 
plan year. A revised Form 5500 was submitted to the Office of 
Management and Budget (OMB) for approval under the Paperwork Reduction 
Act and a Notice was published in the Federal Register on June 24, 1998 
(63 FR 34493) which provided a 30-day opportunity to submit comments to 
OMB on the new Form 5500 submission. The new Form 5500 was also made 
available on PWBA's internet site (http://www.dol.gov/dol/pwba) as part 
of the Agencies' commitment to make information about the new forms 
available to plans and their service providers at the earliest 
opportunity. Following its Paperwork Reduction Act review, OMB gave 
conditional Paperwork Reduction Act approval to the new Form 5500 on 
August 26, 1998. As discussed in paragraph A (Background) of this 
preamble, the approval is conditioned, in part, on the Agencies 
soliciting public comments on the computer scannable version of the new 
form after its development and making minor adjustments to the form. 
The final computer scannable version of the forms, which must be used 
for 1999 plan years, will be published in the Federal Register 
following the Agencies' evaluation of public comments. The amendments 
proposed in this Notice of Proposed Rulemaking are intended to make 
technical changes to the Department's reporting regulations, and 
conform them to requirements of the Form 5500 Series, as revised.
    Because information reported to the Department is also subject to 
ERISA's disclosure provisions, the Department in this proposal has 
attempted to balance the needs of participants, beneficiaries and the 
Department to obtain information necessary to protect ERISA rights and 
interests with the needs of administrators to minimize costs attendant 
with the reporting of information to the federal government.

Costs

    The cost and burden associated with the annual reporting 
requirement for any given plan will vary according to a limited number 
of factors, including whether and to what extent underlying records are 
maintained electronically or manually, whether and to what extent the 
Form 5500 is reproduced electronically or completed manually, and 
whether and to what extent these activities are performed in-house by 
the plan sponsor or purchased from service providers. However, little 
information is available with respect to the actual distribution of 
plans within these ranges. Consideration of the potential cost impact 
of the proposed revisions to the Form 5500 Series results, therefore, 
in estimates which are based on a number of assumptions concerning the 
costs of automated systems and system modifications, the numbers and 
types of users of automated systems, and the numbers and types of users 
of the services of third-party administrators.
    The Department believes that the revisions to the Form 5500 will 
generally impose the greatest additional cost on plan administrators 
whose systems for storing and producing Form 5500 data are most 
completely automated, and the least additional cost on those least 
automated. For this reason, a distinction is made here between ``full-
service automated systems'' and ``basic automated systems.'' A full-
service automated system is considered to be a sophisticated system 
which stores and manipulates the data needed for completion of the 
form, and which also summarizes and prints the data in the Form 5500 
format. A basic automated system generally stores financial data, flags 
the types of transactions required to be reported on the Form 5500, and 
facilitates completion of the form, but does not configure output in 
Form 5500 format.
    Both types of systems are expected to require certain modifications 
in their data storage features, due to the proposed changes in the 
groupings of financial data on the form. However, while the output of 
basic systems may be expected to require some revision to facilitate 
efficient completion of the form, reconfiguration of the existing 
output of full-service systems to conform with the revised Form 5500 
format is considered likely to require substantial system 
modifications.
    For purposes of this discussion of potential costs, it has been 
assumed that the Form 5500 reproduction capability represents one-half 
of the cost of the complete system, and that basic automated systems 
sell for approximately one-half of the cost of full-service automated 
systems. Modification (in contrast to initial purchase) of the output 
capability of a full-service system is assumed to equal one-third of 
the cost of the original system. On this basis, the full-service system 
cost can be adjusted by a factor of .165 to arrive at the cost increase 
attributable to modifying output capability. Several other assumptions 
underlying the costs estimated here are specifically identified where 
applicable.
    The Department believes that the primary purchasers of full-service 
automated systems are third-party administrators (TPAs) serving 
substantial numbers of clients, and banks and trust companies managing 
master trust investment accounts (MTIAs). Such full-service systems 
have been developed by only a small number of vendors. The known cost 
of one such system consists of an initial fee of $11,000 and an 
additional annual fee of $2,000. Given the stated assumptions 
concerning the costs for the output capability and the modification of 
output capability as percentages of original cost, the cost of system 
redesign passed along from vendors to TPA purchasers is estimated to 
amount to an initial fee of $1,815 plus an increased annual fee of 
$333. Assuming a ten-year redesign cycle, and ten-year depreciation of 
the initial fee increase, the annual increase would amount to $182 plus 
the $333 annual fee, or $515.
    This annual increase may be multiplied by the number of TPA 
purchasers which are assumed to be of sufficient size to warrant the 
purchase and modification of these systems to arrive at a total annual 
cost. Fifty-five TPAs with at least 50 client plans were identified for 
this purpose by tabulating the number of unique employer identification 
numbers for plan administrators among 1993 annual reports in which the 
plan administrator

[[Page 68381]]

was different from the plan sponsor. The resulting estimate of the 
annual cost of system modifications for TPAs using full-service systems 
is $28,325.
    Banks and trust companies providing master trust services to plans 
are also assumed to purchase or develop in-house automated systems to 
both complete Direct Filing Entity (DFE) reports filed with the 
Department and to provide plan financial data to plan sponsors filing 
Form 5500 reports. Data from 1993 Form 5500 filings indicate a total of 
160 such banks and trust companies managing MTIAs for approximately 
24,000 plans filing Form 5500 reports completed by the plan sponsor. 
Assuming the same $515 annual cost increase for managers of MTIAs, 
their modification cost is estimated at $82,400.
    Users of basic automated systems are believed to include smaller 
TPAs and large plan sponsors that complete Form 5500 in-house. It is 
assumed that the TPAs and plan sponsors using these systems would 
either purchase redesigned software from vendors or incur direct costs 
to modify software developed in-house. Modification costs would likely 
vary, but are expected to be roughly equivalent to the cost to the 
Department of modifying the internal system which configures balance 
sheet and income statement data in Form 5500 format. This cost is 
estimated to be equal to 2.7% of the initial cost of the system.
    Based on the known cost of a full-service automated system, and the 
assumption that basic systems are available for one-half the cost of 
full-service systems, the basic system might be purchased for $5,500 
plus a $1,000 annual fee. A 2.7% increase in the cost attributable to 
changes in the financial schedule would result in a fee increase of 
$148.50 plus $27 per year. Depreciation of the initial fee over a ten-
year period would result in an annual cost of about $42.
    Because the number of plan sponsors which rely, either directly or 
indirectly, on a basic automated system is unknown, certain assumptions 
are made for the purpose of estimating a cost of modifying basic 
automated systems. It is assumed that two principal types of filers 
will either purchase such systems from vendors or pay an equivalent 
cost for modifying systems developed in-house: small TPAs completing 
Form 5500 in their clients' behalf, and sponsors of self-insured or 
partially insured, partially self-insured plans with at least 100 
participants which complete the forms in-house. Small plan filers which 
complete the forms in-house and large fully-insured filers are excluded 
from this estimate because it is believed that these filers will not 
rely on automated systems.
    The number of plans which have Form 5500 completed by a TPA is 
derived from the review of 1993 Form 5500 data where the plan 
administrator differs from the plan sponsor. The total count of such 
plans in 1993 was 28,900. Subtracting the 18,300 plans previously 
considered as clients of large TPAs leaves 10,600 plans serviced by 
small TPAs. Assuming an average client base of 20 plans for these 
smaller TPAs results in an estimate of approximately 530 TPAs. Given 
the assumption of $42 for the annual increase in costs, these TPAs 
would incur an estimated cost increase of $22,180 for system 
modifications.
    The number of 1993 plan filings which did not show a different plan 
sponsor and plan administrator, which have at least 100 participants, 
and which are not fully-insured was 45,500. Of these, 37,000 plans were 
sponsored by sponsors of single plans; 8,500 sponsored multiple plans, 
totaling 30,000 plans. It is assumed that sponsors of multiple plans 
require systems which handle multiple records, and that systems which 
do not require multiple records will be less costly to modify. The 
8,500 sponsors are expected to incur a $42 annual cost for modifying 
multiple-plan systems, for a total of $357,000. The 37,000 plans which 
do not require multiple-record capability are expected to incur one-
half of the annual cost of multiple-record system modification, or $21 
per plan, for a total of $777,000.
    As summarized below, the annual cost estimated on the basis of the 
stated assumptions to be incurred as a result of modification of 
automated systems to produce or complete Form 5500 is $1.3 million.

           Estimated Number of Form 5500 Series Filings Completed With Assistance of Automated Systems
----------------------------------------------------------------------------------------------------------------
                                     Number of      Annual per     Total annual    Ten-year cost  Total ten-year
                                       plans        plan costs         costs         per plan          costs
----------------------------------------------------------------------------------------------------------------
Large TPAs (full service
 systems).......................          18,300           $1.55         $28,325          $15.50        $283,250
MTIAs (full service systems)....          24,000            3.43          82,400           34.30         823,200
Small TPAs (basic systems)......          10,600            2.09          22,180           20.90         221,800
Large Plans Administered In-
 House--One Plan................          37,000           21.00         777,000          210.00       7,770,000
Large Plans Administered In-
 House--Multiple Plans..........          30,000           11.90         357,000          119.00       3,570,000
                                 -------------------------------------------------------------------------------
      Total.....................         119,900           10.12       1,266,905          101.20      12,668,250
----------------------------------------------------------------------------------------------------------------

    Further, it is estimated that other resources will be required in 
the initial year of implementation of the revised forms. As a result of 
the change in information required to be reported by plans with fewer 
than 100 participants, average time for small plans to complete the 
Department's data elements is assumed to increase from 51.4 minutes for 
existing Form 5500-C filers and 33.6 minutes for Form 5500-R filers (an 
annual average of 41.6 minutes over the existing three-year filing 
cycle for plans with fewer than 100 participants which are not 
otherwise exempt from filing requirements) to 52.4 minutes for the 
revised form. This increase in the initial year is based on the 
assumption that filers will require additional time for reviewing 
instructions to the revised form. The time required for small plan 
filers to complete the Form 5500 is estimated to be 35.2 minutes in 
subsequent years.
    Additional time will also be required in the year of implementation 
of the revised form for DFEs such as common/collective trusts, pooled 
separate accounts, master trusts, 103-12 investment entities, and group 
insurance arrangements to complete the Form 5500 Series in the 
standardized format. Existing rules specify the types of information to 
be filed by DFEs or reported to plan sponsors, but do not require the 
use of a standard format for reporting purposes. It is estimated that 
DFEs will expend approximately 8,429 hours per year in preparing and 
filing plan and asset information in the standardized format and 
providing certifications to participating plans concerning whether or 
not they will file directly with the Department. Corresponding costs 
may be passed on

[[Page 68382]]

to plans which participate in a DFE in the form of increased fees.

Benefits

    The revision of the Form 5500 Series was undertaken in an effort to 
simplify and streamline the annual return/report, and reduce the 
reporting burden on filers. The new form is intended to reduce the 
total amount of information to be reported by many plans by eliminating 
information that is not useful for enforcement, research, or other 
statutorily mandated missions. The revisions are also designed to 
eliminate redundant items and revise questions that have historically 
produced filing errors. The revisions also generally require welfare 
plans to complete fewer items than pension plans, and small plans to 
complete fewer items than large plans.
    The revisions eliminate the Form 5500-C/R, but maintain limited 
financial reporting similar to the existing Form 5500-R for small 
plans. Plans currently exempt from filing a return/report (such as 
certain small unfunded/insured welfare plans and certain SEPs), or 
those eligible for limited reporting options (such as certain Code 
section 403(b) plans) will continue to be eligible for that annual 
reporting relief.
    The revisions restructure the Form 5500 along the lines familiar to 
individual and corporate taxpayers--a simple one-page main form with 
basic information necessary to identify the plan for which the report 
is filed, along with a checklist of the schedules being filed which are 
applicable to the filer's plan type. The structure should aid filers by 
allowing them to assemble and file a return that is customized to their 
plan. Instructions to the form have been reorganized with the intention 
that they be easier to use due to grouping on the basis of the 
schedules to be attached. The revised instructions will allow filers to 
go directly to the instructions which apply to them, and avoid those 
which do not apply.
    Based on the elimination of certain information and reformatting of 
the Form 5500 Series, the burden of preparing and distributing the form 
is estimated to be reduced by between 12% and 13% per year over the 
ten-year life of the form. Assuming an hourly cost ranging from $20 to 
$25 per hour for preparation of the form, the burden hour reduction is 
expected to result in a reduction in filer costs which ranges from $1.7 
million to $2.1 million per year over the life of the form.
    The revisions also establish the Form 5500 as the standardized 
reporting format for DFEs. The DFE reporting rules were intended to 
simplify the annual reporting requirements for participating plans and 
eliminate confusion regarding the reporting obligations of plans which 
participate in DFEs. Standardization of the information reported by 
DFEs is expected to allow the Department to correlate and effectively 
use the data for enforcement and research purposes with respect to the 
over $1 trillion in plan assets held by DFEs.
    The revisions are also designed to support and facilitate the 
processing system currently in developmental stages to simplify and 
expedite the processing of the Form 5500 Series. This new system is 
planned to rely on electronic filing with automatic error detection, 
and optical scanning technology and optical character recognition to 
computerize the paper forms, resulting in reductions in government 
processing costs. Implementation of the single form with multiple 
schedules is also expected to reduce the government's costs to process 
the forms, due to an overall reduction in the number of pages on which 
the information will be submitted.
    The Department believes that the current action conforming rules 
related to annual reporting obligations for employee benefit plan 
administrators to the new Form 5500 Series is consistent with the 
principles set forth in the Executive Order in that it will reduce 
costs and paperwork burden over the life of the forms while enhancing 
the ability to protect benefits with timely and accurate information.

Paperwork Reduction Act Statement

    The Agencies, as part of their continuing efforts to reduce 
paperwork and respondent burden, invite the general public and Federal 
agencies to comment on proposed and/or continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 (PRA 
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data 
are provided in the desired format, reporting burden (time and 
financial resources) is minimized, collection instruments are clearly 
understood, and the impact of collection requirements on respondents is 
properly assessed. The Agencies solicited comments on the information 
collection request (ICR) included in this proposed regulatory action as 
part of the proposed revision of the Form 5500 Series published in the 
Federal Register on September 3, 1997 (62 FR 46556). A public hearing 
on the proposed revision was held on November 17, 1997, and written 
comments on the proposal were received until the public record was 
closed on December 3, 1997. The Agencies received public comments 
stating that, although acknowledging that the forms revisions will 
reduce plan administration costs, estimates of the time required to 
collect the information and prepare the forms and related schedules 
were low resulting in underestimated burden calculations. The Agencies 
are currently exploring approaches to developing a revised burden 
estimation methodology in an effort to respond to those concerns. On 
February 4, 1998, the Department announced that, in response to public 
comments, the implementation of the new Form 5500 would be delayed 
until the 1999 plan year. A new and revised Form 5500 was submitted to 
the Office of Management and Budget (OMB) for approval under the 
Paperwork Reduction Act which was made available on PWBA's internet 
site. A Comment Request published in the Federal Register on June 24, 
1998, 63 FR 34493, provided the public with a 30-day opportunity to 
submit comments to OMB on the new Form 5500 submission. Following OMB's 
review, OMB gave conditional Paperwork Reduction Act approval to the 
new Form 5500 on August 26, 1998. As discussed in paragraph A 
(Background) of this preamble, the approval is conditioned, in part, on 
the Agencies soliciting public comments on the computer scannable 
version of the new form after its development and making minor 
adjustments to the form. The final computer scannable version of the 
forms, which will be required to be used for 1999 plan years, will be 
published in the Federal Register following the Agencies' evaluation of 
public comments. In order to avoid unnecessary duplication of public 
comments, the supplementary PRA 95 information published in the 
September 3, 1997 Notice of Proposed Forms Revisions and the June 24, 
1998 Comment Request is incorporated herein by this reference in its 
entirety, and comments submitted in response to these Federal Register 
publications will be treated as comments on this Notice of Proposed 
Rulemaking. A copy of the ICR may be obtained by contacting the office 
listed under the heading ``Addressee For PRA 95 Comments.''
    The Department has submitted a copy of the proposed information 
collection to the Office of Management and Budget (OMB) in accordance 
with 44 U.S.C. Sec. 3507(d) of the PRA 95 for its review of its 
information collections. The Department is particularly interested in 
comments which:

[[Page 68383]]

     Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
     Evaluate the accuracy of the agency's estimate of the 
burden of the proposed collection of information, including the 
validity of the methodology and assumptions used;
     Enhance the quality, utility, and clarity of the 
information to be collected; and
     Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    Comments should be sent to the Office of Information and Regulatory 
Affairs, OMB, Room 10235, New Executive Office Building, Washington, 
D.C. 20503; Attention: Desk Officer for the Pension and Welfare 
Benefits Administration. Although comments may be submitted through 
February 8, 1999, OMB requests that comments be received within 30 days 
of publication of the Notice of Proposed Rulemaking to ensure their 
consideration.
    Addressee for PRA 95 Comments: Written comments regarding only PRA 
95 and the ICR should be sent to Gerald B. Lindrew, U.S. Department of 
Labor, PWBA/OPR, Room N-5647, 200 Constitution Avenue, N.W., 
Washington, DC 20210, telephone 202-219-4784 (this is not a toll-free 
number). Written comments must be submitted on or before February 8, 
1999, to be assured of consideration.
    I. PRA 95 Background: The Department is proposing to amend its 
annual reporting regulations to conform them to the Agencies' revision 
of the Form 5500 Series in a effort to streamline and simplify this 
annual report.
    II. PRA 95 Current Actions: The amendments contained in this 
document are necessary to conform the Department's annual reporting 
regulations to the new Form 5500 Series for which OMB gave conditional 
Paperwork Reduction Act approval on August 26, 1998. As described in 
paragraph A of this preamble, the approval is conditioned, in part, on 
the Agencies soliciting public comments on the computer scannable 
version of the new form after its development and making minor 
adjustments to the form. See the Notice of Proposed Forms Revisions 
published in the Federal Register on September 3, 1997 (62 FR 46556), 
the Comment Request published in the Federal Register on June 24, 1998 
(63 FR 34493) and PWBA's internet site for the new Form 5500 that was 
submitted to OMB for approval under the Paperwork Reduction Act.
    As indicated in paragraphs C.3 and C.4 of this preamble, the 
proposed amendments would modify the reporting rules for plans 
investing in CCTs and PSAs, and add a new information collection item 
with a small additional burden to existing requirements for CCTs and 
PSAs. Under existing rules, CCTs and PSAs must provide certain 
information to each participating plan's administrator including (i) a 
copy of the annual statement of assets and liabilities for its fiscal 
year that ends with or within the plan year of such plan and (ii) the 
value of the plan's units of participation. This information must be 
certified as accurate and complete and must be provided by the CCT and 
PSA within 120 days after the close of the plan year for each 
participating plan. A participating plan is required to include with 
their annual report a copy of the CCT's or PSA's statement of assets 
and liabilities unless such CCT or PSA files it directly with the 
Department and certain other conditions are met. In such a case, the 
CCT or PSA must certify to the plan administrator that a copy of its 
statement of assets and liabilities has been filed with the Department. 
A PSA's and CCT's statement of assets and liabilities is not required 
to be reported in a uniform format or manner. In addition, under the 
existing rules a participating plan must report the current value of 
its interest in a CCT or PSA at the beginning and end of its plan year 
regardless of whether the CCT or PSA files directly with the 
Department.
    Under the proposal, CCTs and PSAs which elect to file directly with 
the Department, like other DFEs, must use a standardized form. In the 
case of a CCT or PSA that intends to file as a DFE, the proposed 
amendments would require that such CCT or PSA notify its participating 
plans of its intention to do so. In the case of a CCT or PSA that does 
not file as a DFE, the proposed amendments would require that such CCT 
or PSA notify its participating plans of this fact and furnish the 
information needed about its assets (i.e., break out their interest in 
the CCT or PSA into general asset categories such as stocks, debt, real 
estate, etc.) so the participating plan can satisfy its own annual 
reporting obligations. These notifications must be made within the same 
time period for transmitting information already required under the 
existing rules (i.e., 120 days after the close of the plan year for 
each participating plan).
    The impact of these proposed changes with respect to CCTs and PSAs 
and plans which participate in these entities has been estimated and 
included in the total estimated burden for this ICR under PRA 95. The 
total additional burden imposed by standardization of reporting and 
modification of the certification requirement for CCTs and PSAs is 
estimated at 2,725 hours per year. This includes only a nominal 
adjustment for the change in the certification requirement. The 
Department believes that the certification will be based on a decision 
made once per year for each CCT or PSA. CCTs or PSAs that file as a DFE 
are under current rules required to certify essentially the same 
substantive information as would be required under the new DFE rules. 
The requirement to certify that the entity is filing as a DFE within 
120 days after the end of the participating plans year-ends should be a 
brief statement that should not impose any measurable burden in 
addition to that resulting from the current requirements. In the case 
of CCTs and PSAs that do not file as a DFE, the entities under current 
rules already must certify various substantive information to their 
participating plans within 120 days after the plans' year-ends. Adding 
to the certification a brief statement that the entity is not filing as 
a DFE should not impose any measurable burden in addition to that 
resulting from the current requirements. In this regard, the Department 
anticipates that the requirement to certify information sufficient to 
enable the participating plans' to report beginning and end of year 
values for their interests in the underlying assets of such CCTs or 
PSAs should not be a burden inasmuch as plans participating in CCTs and 
PSAs already are required to report the current value of their units of 
participation in CCTs and PSAs as of the beginning and end of the plan 
year. The proposed rulemaking would also explicitly require an 
information collection item in Secs. 2520.103-1(f), 2520.103-2(c), 
2520.103-9(d) and 2520.103-12(f) for entities filing electronically by 
requiring that such entities maintain an original copy of the filing 
with all required signatures as part of the entity's records. The 
Department believes that no additional burden associated with such 
record maintenance will arise inasmuch as plans and direct filers 
routinely maintain copies of all such filings to satisfy other 
statutory obligations.

[[Page 68384]]

Finally, the proposed amendments to Sec. 2520.104b-10 may add a burden 
that is associated with the elimination of the Form 5500-R filing. 
Specifically, such plans will be required to provide SARs on an annual 
basis and may not use the alternative method of compliance currently 
provided in Sec. 2520.104b-10(b).
    Type of Review: Revision of a currently approved collection.
    Agency: Pension and Welfare Benefits Administration.
    OMB Number: Currently approved under OMB No.1210-0016; A new number 
will be assigned to the revised Form 5500 and schedules which will be 
published on the form and schedules used by DOL, IRS and PBGC.
    Title: Form 5500 Series.
    Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions.
    Form Number: DOL/IRS/PBGC Form 5500 and Schedules.
    Total Respondents: 801,934.
    Total Responses: 801,934.
    Frequency of Response: Annually.
    Estimated Time per Response, Estimated Burden Hours, Total Annual 
Burden: PWBA and IRS burden estimates are based on different estimation 
methodologies resulting in total burden estimate ranges from 1.71 
million burden hours (using the PWBA methodology) to 8.46 million 
burden hours (using the IRS methodology) for preparing the Form 5500 
Series report and sending it to the government. See the Notice of 
Proposed Forms Revisions published in the Federal Register on September 
3, 1997 (62 FR 46556) for detailed information on the burden estimates.

Small Business Regulatory Enforcement Fairness Act

    This notice of proposed rulemaking, when finalized, will be subject 
to the provisions of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (5 U.S.C. 801 et. seq.) and will be transmitted to Congress 
and the Comptroller General for review.

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, this notice of proposed 
rulemaking, if finalized, would not include any Federal mandate that 
may result in expenditures by State, local or tribal governments, and 
would not impose an annual burden exceeding $100 million on the private 
sector.

Statutory Authority

    This regulation is proposed pursuant to the authority in sections 
101, 103, 104, 109, 110, 111, 504 and 505 of ERISA and under Secretary 
of Labor's Order No. 1-87, 52 FR 13139, April 21, 1987.

List of Subjects in 29 CFR Part 2520

    Accountants, Disclosure requirements, Employee benefit plans, 
Employee Retirement Income Security Act, Pension plans, Pension and 
welfare plans, Reporting and recordkeeping requirements, and Welfare 
benefit plans.

    For the reasons set out in the preamble, Part 2520 of Chapter XXV 
of Title 29 of the Code of Federal Regulations is proposed to be 
amended as follows:

PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE

    1. The authority citation for Part 2520 continues to read as 
follows:

    Authority: Secs. 101, 102, 103, 104, 105, 109, 110, 111(b)(2), 
111(c), and 505, Pub. L. 93-406, 88 Stat. 840-52 and 894 (29 U.S.C. 
1021-1025, 1029-31, and 1135); Secretary of Labor's Order No. 27-74, 
13-76, 1-87, and Labor Management Services Administration Order 2-6.
    Sections 2520.102-3, 2520.104b-1 and 2520.104b-3 also are issued 
under sec. 101(a), (c) and (g)(4) of Pub. L. 104-191, 110 Stat. 1936, 
1939, 1951 and 1955 and, sec. 603 of Pub. L. 104-204, 110 Stat. 2935 
(29 U.S.C. 1185 and 1191c).

    2. Section 2520.103-1 is amended by revising paragraphs (b) 
introductory text, (b)(1), the first sentence of (b)(2)(i), paragraphs, 
(b)(4), (c), (d) and the first sentence of paragraph (e) as follows:


Sec. 2520.103-1  Contents of the annual report.

* * * * *
    (b) Contents of the annual report for plans with 100 or more 
participants electing the limited exemption or alternative method of 
compliance. Except as provided in paragraph (d) of this section and in 
Secs. 2520.103-2 and 2520.104-44, the annual report of an employee 
benefit plan covering 100 or more participants at the beginning of the 
plan year which elects the limited exemption or alternative method of 
compliance described in paragraph (a)(2) of this section shall include:
    (1) A Form 5500 ``Annual Return/Report of Employee Benefit Plan'' 
and any statements or schedules required to be attached to the form, 
completed in accordance with the instructions for the form, including 
Schedule A (Insurance Information), Schedule B (Actuarial Information), 
Schedule C (Service Provider Information), Schedule D (Direct Filing 
Entity/Participating Plan Information), Schedule G (Financial 
Transactions Schedule), Schedule H (Financial Information), Schedule R 
(Retirement Plan Information), and the other financial schedules 
described in Sec. 2520.103-10. See the instructions for this form.
    (2) * * *
    (i) A statement of assets and liabilities at current value 
presented in comparative form for the beginning and end of the year. * 
* *
* * * * *
    (4) In the case of a plan, some or all of the assets of which are 
held in a pooled separate account maintained by an insurance company, 
or a common or collective trust maintained by a bank or similar 
institution, a copy of the annual statement of assets and liabilities 
of such account or trust for the fiscal year of the account or trust 
which ends with or within the plan year for which the annual report is 
made as required to be furnished to the administrator by such account 
or trust under Sec. 2520.103-5(c). Although the statement of assets and 
liabilities referred to in Sec. 2520.103-5(c) shall be considered part 
of the plan's annual report, such statement of assets and liabilities 
need not be filed with the plan's annual report. See Secs. 2520.103-3 
and 2520.103-4 for the reporting requirements for plans some or all of 
the assets of which are held in a pooled separate account maintained by 
an insurance company, or a common or collective trust maintained by a 
bank or similar institution.
* * * * *
    (c) Contents of the annual report for plans with fewer than 100 
participants. Except as provided in paragraph (d) of this section and 
in Secs. 2520.104-43 and 2520.104a-6, the annual report of an employee 
benefit plan which covers fewer than 100 participants at the beginning 
of the plan year shall include a Form 5500 ``Annual Return/Report of 
Employee Benefit Plan'' and any statements or schedules required to be 
attached to the form, completed in accordance with the instructions for 
the form, including Schedule A (Insurance Information), Schedule B 
(Actuarial Information), Schedule D (Direct Filing Entity/Participating 
Plan Information), Schedule I (Financial Information--Small Plan), and 
Schedule R (Retirement Plan Information).
    (d) Special rule. If a plan has between 80 and 120 participants 
(inclusive) as of the beginning of the plan year, the plan 
administrator may elect to file the same category of annual report 
(i.e., the annual report for plans with 100 or more participants under 
paragraph (b) of this section or the annual report for

[[Page 68385]]

plans with fewer than 100 participants under paragraph (c) of this 
section) that it filed for the previous plan year.
    (e) Plans which participate in a master trust. The plan 
administrator of a plan which participates in a master trust shall file 
an annual report on Form 5500 in accordance with the instructions for 
the form relating to master trusts. * * *
    3. Section 2520.103-1 is further amended by adding a new paragraph 
(f) as follows:


Sec. 2520.103-1  [Amended]

* * * * *
    (f) Electronic filing. The Form 5500 ``Annual Return/Report of 
Employee Benefit Plan'' may be filed electronically or through other 
media in accordance with the instructions accompanying the form, 
provided the plan administrator maintains an original copy, with all 
required signatures, as part of the plan's records.
    4. Section 2520.103-2 is amended by revising paragraph (b)(1), the 
first sentence of (b)(2)(i) and paragraph (b)(4) as follows:


Sec. 2520.103-2  Contents of the annual report for a group insurance 
arrangement.

* * * * *
    (b) * * *
    (1) A Form 5500 ``Annual Return/Report of Employee Benefit Plan'' 
and any statements or schedules required to be attached to the form, 
completed in accordance with the instructions for the form, including 
Schedule A (Insurance Information), Schedule C (Service Provider 
Information), Schedule D (Direct Filing Entity/Participating Plan 
Information), Schedule G (Financial Transactions Schedule), Schedule H 
(Financial Information), and the other financial schedules described in 
Sec. 2520.103-10.
    (2) * * *
    (i) A statement of all trust assets and liabilities at current 
value presented in comparative form for the beginning and end of the 
year. * * *
* * * * *
    (b)(4) In the case of a Form 5500 annual report filed under this 
section for a group insurance arrangement some or all of the assets of 
which are held in a pooled separate account maintained by an insurance 
carrier, or a common or collective trust maintained by a bank, trust 
company or similar institution, a copy of the annual statement of 
assets and liabilities of such account or trust for the fiscal year of 
the account or trust which ends with or within the plan year for which 
the annual report is made as required to be furnished by such account 
or trust under Sec. 2520.103-5(c). Although the statement of assets and 
liabilities referred to in Sec. 2520.103-5(c) shall be considered part 
of the group insurance arrangement's annual report, such statement of 
assets and liabilities need not be filed with its annual report. See 
Secs. 2520.103-3 and 2520.103-4 for the reporting requirements for 
plans some or all of the assets of which are held in a pooled separate 
account maintained by an insurance company, or a common or collective 
trust maintained by a bank or similar institution, and see 
Sec. 2520.104-43(b)(2) for when the terms ``group insurance 
arrangement'' and ``trust'' shall be, respectively, used in place of 
the terms ``plan'' and ``plan administrator.''
* * * * *
    5. Section 2520.103-2 is further amended by adding a new paragraph 
(c) as follows:


Sec. 2520.103-2  [Amended]

* * * * *
    (c) Electronic filing. The Form 5500 ``Annual Return/Report of 
Employee Benefit Plan'' may be filed electronically or through other 
media in accordance with the instructions accompanying the form, 
provided the trust maintains an original copy, with all required 
signatures, as part of the trust's records.
    6. Section 2520.103-3 is amended by revising paragraphs (a) and (c) 
as follows:


Sec. 2520.103-3  Exemption from certain annual reporting requirements 
for assets held in a common or collective trust.

    (a) General. Under the authority of sections 103(b)(3)(G), 
103(b)(4), 104(a)(2)(B), 104(a)(3), and 110 of the Act, a plan whose 
assets are held in whole or in part in a common or collective trust 
maintained by a bank, trust company, or similar institution which meets 
the requirements of paragraph (b) of this section shall include as part 
of the annual report to be filed under Secs. 2520.104a-5 or 2520.104a-6 
the information described in paragraph (c) of this section. Such plan 
is not required to include in its annual report information concerning 
the individual transactions of the common or collective trust. This 
exemption has no application to assets not held in such trusts.
* * * * *
    (c) Contents. (1) A plan which meets the requirements of paragraph 
(b) of this section, and which invests in a common or collective trust 
that files a Form 5500 report in accordance with Sec. 2520.103-9, shall 
include in its annual report: information required by the instructions 
to Schedule H (Financial Information) about the current value of and 
net investment gain or loss relating to the units of participation in 
the common or collective trust held by the plan; identifying 
information about the common or collective trust including its name, 
employer identification number, and any other information required by 
the instructions to the Schedule D (Direct Filing Entity/Participating 
Plan Information); and such other information as is required in the 
separate statements and schedules of the annual report about the value 
of the plan's units of participation in the common or collective trust 
and transactions involving the acquisition and disposition by the plan 
of units of participation in the common or collective trust.
    (2) A plan which meets the requirements of paragraph (b) of this 
section, and which invests in a common or collective trust that does 
not file a Form 5500 report in accordance with Sec. 2520.103-9, shall 
include in its annual report: information required by the instructions 
to Schedule H (Financial Information) about the current value of the 
plan's allocable portion of the underlying assets and liabilities of 
the common or collective trust and the net investment gain or loss 
relating to the units of participation in the common or collective 
trust held by the plan; identifying information about the common or 
collective trust including its name, employer identification number, 
and any other information required by the instructions to the Schedule 
D (Direct Filing Entity/Participating Plan Information); and such other 
information as is required in the separate statements and schedules of 
the annual report about the value of the plan's units of participation 
in the common or collective trust and transactions involving the 
acquisition and disposition by the plan of units of participation in 
the common or collective trust.
    7. Section 2520.103-4 is amended by revising paragraphs (a) and (c) 
as follows:


Sec. 2520.103-4  Exemption from certain annual reporting requirements 
for assets held in an insurance company pooled separate account.

    (a) General. Under the authority of sections 103(b)(3)(G), 
103(b)(4), 104(a)(2)(B), 104(a)(3), and 110 of the Act, a plan whose 
assets are held in whole or in part in a pooled separate account of an 
insurance carrier which meets the requirements of paragraph (b) of this 
section shall include as part of the annual report to be filed under 
Sec. 2520.104a-5 or Sec. 2520.104a-6 the information described in 
paragraph (c)

[[Page 68386]]

of this section. Such plan is not required to include in its annual 
report information concerning the individual transactions of the pooled 
separate account. This exemption has no application to assets not held 
in such a pooled separate account.
* * * * *
    (c) Contents. (1) A plan which meets the requirements of paragraph 
(b) of this section, and which invests in a pooled separate account 
that files a Form 5500 report in accordance with Sec. 2520.103-9, shall 
include in its annual report: information required by the instructions 
to Schedule H (Financial Information) about the current value of, and 
net investment gain or loss relating to, the units of participation in 
the pooled separate account held by the plan; identifying information 
about the pooled separate account including its name, employer 
identification number, and any other information required by the 
instructions to the Schedule D (Direct Filing Entity/Participating Plan 
Information); and such other information as is required in the separate 
statements and schedules of the annual report about the value of the 
plan's units of participation in the pooled separate accounts and 
transactions involving the acquisition and disposition by the plan of 
units of participation in the pooled separate account.
    (2) A plan which meets the requirements of paragraph (b) of this 
section, and which invests in a pooled separate account that does not 
file a Form 5500 report in accordance with Sec. 2520.103-9, shall 
include in its annual report: information required by the instructions 
to Schedule H (Financial Information) about the current value of the 
plan's allocable portion of the underlying assets and liabilities of 
the pooled separate account and the net investment gain or loss 
relating to the units of participation in the pooled separate account 
held by the plan; identifying information about the pooled separate 
account including its name, employer identification number, and any 
other information required by the instructions to the Schedule D 
(Direct Filing Entity/Participating Plan Information); and such other 
information as is required in the separate statements and schedules of 
the annual report about the value of the plan's units of participation 
in the pooled separate account and transactions involving the 
acquisition and disposition by the plan of units of participation in 
the pooled separate account.
    8. Section 2520.103-5 is amended by redesignating paragraph 
(c)(1)(iii) as paragraph (c)(1)(iv), redesignating paragraph 
(c)(2)(iii) as (c)(2)(iv), redesignating paragraph (c)(2)(ii) as 
paragraph (c)(2)(iii), revising paragraphs (c)(1)(ii) and (c)(2)(i) and 
adding new paragraphs (c)(1)(iii), and (c)(2)(ii) as follows:


Sec. 2520.103-5  Transmittal and certification of information to plan 
administrator for annual reporting purposes.

* * * * *
    (c) * * *
    (1) * * *
    (ii) Holds assets of a plan in a pooled separate account and files 
the Form 5500 report pursuant to Sec. 2520.103-9 for a plan year--
    (A) A copy of the annual statement of assets and liabilities of the 
separate account for the fiscal year of such account ending with or 
within the plan year for which the participating plan's annual report 
is made,
    (B) A statement of the value of the plan's units of participation 
in the separate account,
    (C) The EIN of the separate account, entity number required for 
purposes of completing the Form 5500, and any other identifying number 
assigned by the insurance carrier to the separate account,
    (D) A statement that a filing pursuant to Sec. 2520.103-9(c) will 
be made for the separate account (for its fiscal year ending with or 
within the participating plan's plan year) on or before the date upon 
which such plan's annual report is required to be filed in accordance 
with Secs. 2520.104a-5 or 2520.104a-6, and
    (E) Upon request of the plan administrator, any other information 
that can be obtained from the ordinary business records of the 
insurance carrier and that is needed by the plan administrator to 
comply with the requirements of section 104(a)(1)(A) of the Act and 
Sec. 2520.104a-5 or Sec. 2520.104a-6.
    (iii) Holds assets of a plan in a pooled separate account and does 
not file the Form 5500 report pursuant to Sec. 2520.103-9, for a plan 
year--
    (A) A copy of the annual statement of assets and liabilities of the 
separate account for the fiscal year of such account that ends with or 
within the plan year for which the annual report is made,
    (B) A statement of the value of the plan's units of participation 
in the separate account,
    (C) The EIN of the separate account and any other identifying 
number assigned by the insurance carrier to the separate account,
    (D) A statement that a filing pursuant to Sec. 2520.103-9(c) will 
not be made for the separate account for its fiscal year ending with or 
within the participating plan's plan year, and
    (E) Upon request of the plan administrator, any other information 
that can be obtained from the ordinary business records of the 
insurance carrier and that is needed by the plan administrator to 
comply with the requirements of section 104(a)(1)(A) of the Act and 
Sec. 2520.104a-5 or Sec. 2520.104a-6.
* * * * *
    (2) * * *
    (i) In a common or collective trust that files the Form 5500 report 
pursuant to Sec. 2520.103-9, for a plan year--
    (A) A copy of the annual statement of assets and liabilities of the 
common or collective trust for the fiscal year of such trust ending 
with or within the plan year for which the participating plan's annual 
report is made,
    (B) A statement of the value of the plan's units of participation 
in the common or collective trust,
    (C) The EIN of the common or collective trust, entity number 
assigned for purposes of completing the Form 5500, any other 
identifying number assigned by the bank, trust company, or other 
institution to the common or collective trust,
    (D) A statement that a filing pursuant to Sec. 2520.103-9(c) will 
be made for the common or collective trust (for its fiscal year ending 
with or within the participating plan's plan year) on or before the 
date upon which the annual report for such plan is required to be filed 
in accordance with Secs. 2520.104a-5 or 2520.104a-6, and
    (E) Upon request of the plan administrator, any other information 
that can be obtained from the ordinary business records of the bank, 
trust company or similar institution and that is needed by the plan 
administrator to comply with the requirements of section 104(a)(1)(A) 
of the Act and Secs. 2520.104a-5 or 2520.104a-6.
    (ii) In a common or collective trust that does not file the Form 
5500 ``Annual Return/Report of Employee Benefit Plan'', pursuant to 
Sec. 2520.103-9, for a plan year--
    (A) A copy of the annual statement of assets and liabilities of the 
common or collective trust for the fiscal year of such account that 
ends with or within the plan year for which the annual report is made,
    (B) A statement of the value of the plan's units of participation 
in the common or collective trust,
    (C) The EIN of the common or collective trust, and any other

[[Page 68387]]

identifying number assigned by bank, trust company or similar 
institution to the common or collective trust,
    (D) A statement that a filing pursuant to Sec. 2520.103-9(c) will 
not be made for the common or collective trust for its fiscal year 
ending with or within the participating plan's plan year, and
    (E) Upon request of the plan administrator, any other information 
that can be obtained from the ordinary business records of the bank, 
trust company or similar institution and that is needed by the plan 
administrator to comply with the requirements of section 104(a)(1)(A) 
of the Act and Secs. 2520.104a-5 or 2520.104a-6.
* * * * *
    9. Section 2520.103-6 is amended by revising paragraphs (a) and 
(b)(1)(ii), and adding paragraph (f) as follows:


Sec. 2520.103-6  Definition of reportable transaction for Annual 
Return/Report.

    (a) General. For purposes of preparing the schedule of reportable 
transactions described in Sec. 2520.103-10(b)(6), and subject to the 
exceptions provided in Secs. 2520.103-3, 2520.103-4 and 2520.103-12, 
with respect to individual transactions by a common or collective 
trust, pooled separate account, or a 103-12 investment entity, a 
reportable transaction includes any transaction or series of 
transactions described in paragraph (c) of this section.
    (b) * * *
    (1) * * *
    (ii) With respect to schedules of reportable transactions for the 
initial plan year of a plan, the term ``current value'' shall mean the 
current value, as defined in section 3(26) of the Act, of plan assets 
at the end of a plan's initial plan year.
* * * * *
    (f) Special rule for certain participant-directed transactions. 
Participant or beneficiary directed transactions under an individual 
account plan shall not be taken into account under paragraph (c)(1) of 
this section for purposes of preparing the schedule of reportable 
transactions described in this section. For purposes of this section 
only, a transaction will be considered directed by a participant or 
beneficiary only to the extent that such individual, in fact, 
affirmatively authorized the investment of the asset allocated to his 
or her account.
    10. Section 2520.103-9 is revised as follows:


Sec. 2520.103-9  Direct filing for bank or insurance carrier trusts and 
accounts.

    (a) General. Under the authority of sections 103(b)(4), 104(a)(3), 
110 and 505 of the Act, an employee benefit plan, some or all of the 
assets of which are held in a common or collective trust or a pooled 
separate account described in section 103(b)(3)(G) of the Act and 
Secs. 2520.103-3 and 2520.103-4, is relieved from including in its 
annual report information about the current value of the plan's 
allocable portion of assets and liabilities of the common or collective 
trust or pooled separate account and information concerning the 
individual transactions of the common or collective trust or pooled 
separate account, provided that the plan meets the requirements of 
paragraph (b) of this section, and, provided further, that the bank or 
insurance carrier which holds the plan's assets meets the requirements 
of paragraph (c) of this section.
    (b) Application. A plan whose assets are held in a common or 
collective trust or a pooled separate account described in section 
103(b)(3)(G) of the Act and Secs. 2520.103-3 and 2520.103-4, provided 
the plan administrator, on or before the end of the plan year, provides 
the bank or insurance carrier which maintains the common or collective 
trust or pooled separate account with the plan number, and name and EIN 
of the plan sponsor as it will be indicated on the plan's annual 
report.
    (c) Separate filing by common or collective trusts and pooled 
separate accounts. The bank or insurance carrier which maintains the 
common or collective trust or pooled separate account in which assets 
of the plan are held shall file, in accordance with the instructions 
for the form, a completed Form 5500 ``Annual Return/Report of Employee 
Benefit Plan'' and any statements or schedules required to be attached 
to the form for the common or collective trust or pooled separate 
account, including Schedule D (Direct Filing Entity/Participating Plan 
Information) and Schedule H (Financial Information). See the 
instructions for this form. The information reported shall be for the 
fiscal year of such trust or account ending with or within the plan 
year for which the annual report of the plan is made.
    (d) Method of filing. The Form 5500 ``Annual Return/Report of 
Employee Benefit Plan'' may be filed electronically or through other 
media in accordance with the instructions accompanying the form, 
provided the common or collective trust or pooled separate account 
maintains an original copy, with all required signatures, as part of 
its records.
    11. Section 2520.103-10 is revised to read as follows:


Sec. 2520.103-10  Annual report financial schedules.

    (a) General. The administrator of a plan filing an annual report 
pursuant to Sec. 2520.103-1(a)(2) or the report for a group insurance 
arrangement pursuant to Sec. 2520.103-2 shall, as provided in the 
instructions to the Form 5500 ``Annual Return/Report of Employee 
Benefit Plan,'' include as part of the annual report the separate 
financial schedules described in paragraph (b) of this section.
    (b) Schedules. (1) Assets held for investment.  (i) A schedule of 
all assets held for investment purposes at the end of the plan year 
(see Sec. 2520.103-11) with assets aggregated and identified by:
    (A) Identity of issue, borrower, issuer or similar party;
    (B) Description of investment including maturity date, rate of 
interest, collateral, par or maturity value;
    (C) Cost; and
    (D) Current value, and, in the case of a loan, the payment schedule 
(e.g., fully amortized, partly amortized with a final lump sum 
payment).
    (ii) In the case of assets or investment interests of two or more 
plans maintained in one trust, all entries on the schedule of assets 
held for investment purposes that relate to the trust shall be 
completed by including the plan's allocable portion of the trust.
    (2) Assets acquired and disposed within the plan year. (i) A 
schedule of all assets acquired and disposed of within the plan year 
(see Sec. 2520.103-11) with assets aggregated and identified by:
    (A) Identity of issue, borrower, issuer or similar party;
    (B) Descriptions of investment including maturity date, rate of 
interest, collateral, par or maturity value;
    (C) Cost of acquisitions; and
    (D) Proceeds of dispositions.
    (ii) In the case of assets or investment interests of two or more 
plans are maintained in one trust, all entries on the schedule of 
assets held for investment purposes that relate to the trust shall be 
completed by including the plan's allocable portion of the trust.
    (3) Party in interest transactions. A schedule of each transaction 
involving a person known to be a party in interest except do not 
include:
    (i) A transaction to which a statutory exemption under part 4 of 
title I applies;
    (ii) A transaction to which an administrative exemption under 
section 408(a) of the Act applies; or
    (iii) A transaction to which the exemptions of section 4975(c) or 
4975(d) of the Internal Revenue Code (Title 26 of the United States 
Code), applies.
    (4) Obligations in default. A schedule of all loans or fixed income 
obligations

[[Page 68388]]

which were in default as of the end of the plan year or were classified 
during the year as uncollectible.
    (5) Leases in default. A schedule of all leases which were in 
default or were classified during the year as uncollectible.
    (6) Reportable transactions. A schedule of all reportable 
transactions as defined in Sec. 2520.103-6.
    (c) Format requirements for certain schedules. (1) There is no 
specific format requirement for the schedules described in paragraphs 
(b)(1), (b)(2) or (b)(6) of this section provided such schedules are 
filed with the required information using the same size paper as the 
Form 5500.
    (2) Except as provided in paragraph (c)(1) of this section, such 
paragraph shall not apply to the Form 5500 and the statements and 
schedules required to be filed with such form.
    12. Section 2520.103-11 is amended by revising paragraph (a) and 
adding paragraphs (d) as follows:


Sec. 2520.103-11  Assets held for investment purposes.

    (a) General. For purposes of preparing the schedule of assets held 
for investment purposes described in Sec. 2520.103-10(b)(1) and (2), 
assets held for investment purposes include those assets described in 
paragraph (b) of this section.
* * * * *
    (d) Special rule for certain participant-directed transactions. 
Cost information may be omitted from the schedule of assets held for 
investment, for assets described in paragraphs (b)(1)(i) and (b)(1)(ii) 
of this section, only with respect to participant or beneficiary 
directed transactions under an individual account plan. For purposes of 
this section only, a transaction will be considered directed by a 
participant or beneficiary only to the extent that such individual, in 
fact, affirmatively authorized the investment of the asset allocated to 
his or her account.
    13. Section 2520.103-12 is amended by revising the last sentence of 
paragraph (a), revising paragraph (b), and also adding a new paragraph 
(f) as follows:


Sec. 2520.103-12  Limited exemption and alternative method of 
compliance for annual reporting of investments in certain entities.

    (a) * * * The information described in paragraph (b), however, 
shall be considered as part of the annual report for purposes of the 
requirements of section 104(a)(1) of the Act and Secs. 2520.104a-5 and 
2520.104a-6.
    (b) The entity described in paragraph (c) of this section shall 
file, in accordance with the instructions for the form:
    (1) A Form 5500 ``Annual Return/Report of Employee Benefit Plan'' 
and any statements or schedules required to be attached to the form for 
such entity, completed in accordance with the instructions for the 
form, including Schedule A (Insurance information), Schedule C (Service 
Provider Information), Schedule D (Direct Filing Entity/Participating 
Plan Information), Schedule G (Financial Transactions Schedule), 
Schedule H (Financial Information), and the financial schedules 
described in Sec. 2520.103-10(b)(1) and (b)(2). See the instructions 
for this form. The information reported shall be for the fiscal year of 
such entity ending with or within the plan year for which the annual 
report of the plan is made.
    (2) A report of an independent qualified public accountant, 
regarding the financial statements and schedules described in paragraph 
(b)(1) of this section which meets the requirements of Sec. 2520.103-
1(b).
    (c) * * *
* * * * *
    (f) Method of filing. The Form 5500 ``Annual Return/Report of 
Employee Benefit Plan'' may be filed electronically or through other 
media in accordance with the instructions accompanying the form 
provided the entity described in paragraph (c) of this section 
maintains an original copy, with all required signatures, as part of 
its records.
    14. Section 2520.104-21 is amended by revising paragraphs (b)(3) 
and (d) as follows.


Sec. 2520.104-21  Limited exemption for certain group insurance 
arrangements.

* * * * *
    (b) * * *
    (2) * * *
    (3) Uses a trust (or other entity such as a trade association) as 
the holder of the insurance contracts and uses a trust as the conduit 
for payment of premiums to the insurance company.
* * * * *
    (d) Examples. (1) A welfare plan has 25 participants at the 
beginning of the plan year. It is part of a group insurance arrangement 
of a trade association and provides benefits to employees of two or 
more unaffiliated employers, but not in connection with a multiemployer 
plan as defined in the Act. Plan benefits are fully insured pursuant to 
insurance contracts purchased with premium payments derived half from 
employee contributions (which the employer forwards within three months 
of receipt) and half from the general assets of each participating 
employer. Refunds to the plan are paid to participating employees 
within three months of receipt as provided in the plan and as described 
to each participant upon entering the plan. A trust acts as a conduit 
for payments, receiving premium payments from participating employers 
and paying the insurance company. The plan appoints the trade 
association as its plan administrator. The association, as plan 
administrator, provides summary plan descriptions to participants and 
beneficiaries, enlisting the help of participating employers in 
carrying out this distribution, and also holds the insurance contracts. 
The plan administrator also makes copies of certain plan documents 
available to the plan's principal office and such other places as 
necessary to give participants reasonable access to them. The plan 
administrator files with the Secretary an annual report covering 
activities of the plan, as required by the Act and such regulations as 
the Secretary may issue. The exemption provided by this section applies 
because the conditions of paragraph (b) have been satisfied.
    (2) Assume the same facts as paragraph (d)(1) of this section 
except that the premium payments for the insurance company are paid 
from the trust through an independent insurance brokerage firm. The 
trade association is the holder of the insurance contract. The plan 
appoints an officer of the participating employer as the plan 
administrator. The officer, as plan administrator, performs the same 
reporting and disclosure functions as the administrator in paragraph 
(d)(1) of this section, enlisting the help of the association in 
providing summary plan descriptions and necessary information. The 
exemption provided by this section applies.
    (3) The facts are the same as paragraph (d)(1), except the welfare 
plan has 125 participants at the beginning of the plan year. The 
exemption provided by this section does not apply because the plan had 
100 or more participants at the beginning of the plan year. See, 
however, Sec. 2520.104-43.
    (4) The facts are the same as paragraph (d)(2), except the welfare 
plan has 125 participants. The exemption provided by this section does 
not apply because the plan had 100 or more participants at the 
beginning of the plan year. See, however, Sec. 2520.104-43.
    15. Section 2520.104-41 is amended by revising paragraphs (b) and 
(c) as follows:


Sec. 2520.104-41  Simplified annual reporting requirements for plans 
with fewer than 100 participants.

* * * * *

[[Page 68389]]

    (b) Application. The administrator of an employee pension or 
welfare benefit plan which covers fewer than 100 participants at the 
beginning of the plan year and the administrator of an employee pension 
or welfare benefit plan described in Sec. 2520.103-1(d) may file the 
simplified annual report described in paragraph (c) of this section in 
lieu of the annual report required to be filed pursuant to section 
104(a)(1)(A) of the Act and Sec. 2520.104a-5.
    (c) Contents. The administrator of an employee pension or welfare 
benefit plan described in paragraph (b) of this section shall file, in 
accordance with the instructions for the form, a completed Form 5500 
``Annual Return/Report of Employee Benefit Plan'' and any statements or 
schedules required to be attached to the form, including Schedule A 
(Insurance information), Schedule B (Actuarial Information), Schedule D 
(Direct Filing Entity/Participating Plan Information), Schedule I 
(Financial Information--Small Plan), and Schedule R (Retirement Plan 
Information). See the instructions for this form.
    16. Section 2520.104-43 is amended by revising paragraphs 
(b)(1)(ii) and (b)(2) as follows:


Sec. 2520.104-43  Exemption from annual reporting requirement for 
certain group insurance arrangements.

* * * * *
    (b) * * *
    (1) * * *
    (ii) an annual report containing the items set forth in 
Sec. 2520.103-2 has been filed with the Secretary of Labor in 
accordance with Secs. 2520.104a-6 by the trust or other entity which is 
the holder of the group insurance contracts by which plan benefits are 
provided.
    (2) For purposes of this section, the terms ``group insurance 
arrangement'' and ``trust'' shall be used in place of the terms 
``plan'' or ``plan administrator,'' as applicable, in Secs. 2520.103-3, 
2520.103-4, 2520.103-6, 2520.103-8, 2520.103-9 and 2520.103-10.
* * * * *
    17. Section 2520.104-44 is amended by revising the second sentence 
of paragraph (a)(2), removing the word ``and'' at the end of paragraph 
(b)(1)(iii), substituting a semi-colon for the period at the end of 
paragraph (b)(2), adding paragraph (b)(3), and revising paragraph 
(c)(1) as follows:


Sec. 2520.104-44  Limited exemption and alternative method of 
compliance for annual reporting by unfunded plans and by certain 
insured plans.

    (a) * * *
    (2) * * * An employee pension benefit plan which meets the 
requirements of paragraph (b)(2) or (b)(3) of this section is not 
required to comply with the annual reporting requirements described in 
paragraph (c) of this section.
    (b) * * *
    (3) A pension plan using a tax deferred annuity arrangement under 
section 403(b)(1) of the Internal Revenue Code (Title 26 of the United 
States Code) and/or a custodial account for regulated investment 
company stock established under Code section 403(b)(7) as the sole 
funding vehicle for providing pension benefits.
    (c) * * *
    (1) Completing certain items of the annual report as prescribed by 
the instructions to the Form 5500 ``Annual Return/Report of Employee 
Benefit Plan'' and accompanying schedules;
* * * * *
    18. Section 2520.104-46 is amended by revising paragraph (d)(1) as 
follows:


Sec. 2520.104-46  Waiver of examination and report of an independent 
qualified public accountant for employee benefit plans with fewer than 
100 participants.

* * * * *
    (d) Limitations. (1) The waiver described in this section does not 
affect the obligation of the plan described in paragraph (b)(1) or 
(b)(2) of this section to file the Form 5500 ``Annual Return/Report of 
Employee Benefit Plan'' and all applicable financial schedules and 
statements as prescribed by the instructions to the form. See 
Sec. 2520.104-41.
* * * * *
    19. Section 2520.104b-10 is amended as follows.
    a. In the first sentence of paragraph (a), the phrase ``paragraphs 
(b) and (g)'' is revised to read ``paragraph (g)''.
    b. Remove and reserve paragraph (b).
    20. Paragraph (c) introductory text and the first sentence of 
paragraph (f) of section 2520.104b-10 are revised as follows:


Sec. 2520.104b-10  Summary Annual Report.

* * * * *
    (c) When to furnish. Except as otherwise provided in this paragraph 
(c), the summary annual report required by paragraph (a) of this 
section shall be furnished within nine months after the close of the 
plan year.
* * * * *
    (f) Furnishing of additional documents to participants and 
beneficiaries. A plan administrator shall promptly comply with any 
request by a participant or beneficiary for additional documents made 
in accordance with the procedures or rights described in paragraph (d) 
of this section.
* * * * *
    21. Section 2520.104b-10 is further amended as follows.
    a. The following sentence from paragraph (d)(3) under the heading 
``Basic Financial Statement'' is removed:

[For plans filing form 5500K, omit separate entries for employer 
contributions and employee contributions and insert instead 
``contributions by the employer and employees of ($ )''].
    b. In paragraph (d)(3), the list under the heading ``Your Rights to 
Additional Information'' (after the introductory text but before the 
language ``To obtain a copy of the full annual report * * *'') is 
revised to read as follows:
* * * * *
    1. an accountant's report;
    2. financial information and information on payments to service 
providers;
    3. assets held for investment;
    4. fiduciary information, including non-exempt transactions between 
the plan and parties-in-interest (that is, persons who have certain 
relationships with the plan);
    5. loans or other obligations in default or classified as 
uncollectible;
    6. leases in default;
    7. transactions in excess of 5 percent of the plan assets;
    8. insurance information including sales commissions paid by 
insurance carriers;
    9. information regarding any common or collective trusts, pooled 
separate accounts, master trusts or 103-12 investment entities in which 
the plan participates, and
    10. actuarial information regarding the funding of the plan.
* * * * *
    c. In paragraph (d)(4), the list under the heading ``Your Rights to 
Additional Information'' (after the introductory text but before the 
language ``To obtain a copy of the full annual report * * *'') is 
revised as follows:
* * * * *
    1. an accountant's report;
    2. financial information and information on payments to service 
providers;
    3. assets held for investment;
    4. fiduciary information, including non-exempt transactions between 
the plan and parties-in-interest (that is, persons who have certain 
relationships with the plan);
    5. loans or other obligations in default or classified as 
uncollectible;
    6. leases in default;
    7. transactions in excess of 5 percent of the plan assets;

[[Page 68390]]

    8. insurance information including sales commissions paid by 
insurance carriers; and
    9. information regarding any common or collective trusts, pooled 
separate accounts, master trusts or 103-12 investment entities in which 
the plan participates.
* * * * *
    d. The last sentence of both paragraphs (d)(3) and (d)(4) under the 
heading ``Your Rights to Additional Information'' are revised as 
follows:
    ``Requests to the Department should be addressed to: Public 
Disclosure Room, Room N5638, Pension and Welfare Benefits 
Administration, U.S. Department of Labor, 200 Constitution Avenue, 
N.W., Washington, D.C. 20210.''
    e. The last sentence of the undesignated paragraph following 
paragraph (e)(2) is removed.

    Signed at Washington, DC, this 4th day of December, 1998.
Meredith Miller,
Deputy Assistant Secretary for Policy Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 98-32659 Filed 12-9-98; 8:45 am]
BILLING CODE 4510-29-P