[Federal Register Volume 72, Number 221 (Friday, November 16, 2007)]
[Rules and Regulations]
[Pages 64710-64730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-21765]



[[Page 64709]]

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Part II





Department of Labor





Employee Benefits Security Administration



29 CFR Part 2520





Department of the Treasury





Internal Revenue Service





Pension Benefit Guaranty Corporation





Annual Reporting and Disclosure; Revision of Annual Information Return/
Reports; Final Rule and Notice

  Federal Register / Vol. 72, No. 221 / Friday, November 16, 2007 / 
Rules and Regulations  

[[Page 64710]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2520

RIN 1210-AB06


Annual Reporting and Disclosure

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Final rule.

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SUMMARY: This document contains amendments to Department of Labor 
regulations relating to annual reporting and disclosure requirements 
under Part 1 of Subtitle B of Title I of the Employee Retirement Income 
Security Act of 1974, as amended (ERISA). The amendments contained in 
this document are necessary to conform the annual reporting and 
disclosure regulations to revisions to the Form 5500Annual Return/
Report of Employee Benefit Plan, including a new Form 5500-SF (Short 
Form or Short Form 5500), filed for employee pension and welfare 
benefit plans under ERISA and the Internal Revenue Code of 1986, as 
amended (Code). The changes to the Form 5500 forms and implementing 
regulatory amendments are intended to facilitate the transition to an 
electronic filing system, reduce and streamline annual reporting 
burdens, especially for small businesses, and update the annual 
reporting forms to reflect current issues, agency priorities and new 
requirements under the Pension Protection Act of 2006. Some of the 
forms revisions apply on a transitional basis for the 2008 reporting 
year before all of the form revisions are fully implemented as part of 
the switch under the ERISA Filing Acceptance System (EFAST) to a wholly 
electronic filing system for the 2009 reporting year. The current 
effective date of the electronic filing requirement under 29 CFR 
2520.104a-2 also is being postponed in this document to apply to plan 
years beginning on or after January 1, 2009. The regulatory amendments 
will affect the financial and other information required to be reported 
and disclosed by employee benefit plans filing the Form 5500 Annual 
Return/Report of Employee Benefit Plan, including the Form 5500-SF, 
under Title I of ERISA.

DATES: This rule is effective January 15, 2008.

FOR FURTHER INFORMATION CONTACT: Elizabeth A. Goodman or Michael I. 
Baird, Office of Regulations and Interpretations, Employee Benefits 
Security Administration, U.S. Department of Labor, (202) 693-8523 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

A. Background

    Under Titles I and IV of the Employee Retirement Income Security 
Act of 1974, as amended (ERISA), and the Internal Revenue Code, as 
amended (Code), pension and other employee benefit plans generally are 
required to file annual returns/reports concerning, among other things, 
the financial condition and operations of the plan. Filing the Form 
5500, ``Annual Return/Report of Employee Benefit Plan,'' together with 
any required attachments and schedules (Form 5500 Annual Return/Report) 
through the ERISA Filing Acceptance System (EFAST) generally satisfies 
these annual reporting requirements. The Form 5500 Annual Return/Report 
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 Annual Return/Report is a 
compliance and research tool for the Department of Labor (Department), 
Internal Revenue Service (IRS), and the Pension Benefit Guaranty 
Corporation (PBGC) (collectively, the Agencies) 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.
    On July 21, 2006, the Agencies published a notice of proposed forms 
revisions (July 2006 Proposal) with changes to the Form 5500 Annual 
Return/Report for the 2008 reporting year. 71 FR 41615. The proposed 
form changes were intended to: facilitate the transition to a wholly 
electronic filing system for the 5500 Forms, including removal of IRS-
only schedules; reduce and streamline annual reporting burdens, 
especially for small businesses, with the establishment of a new Short 
Form 5500; and update the annual reporting forms to reflect current 
issues and agency priorities, including enhanced reporting of plan fees 
and expenses. The Department also published a final rule requiring 
electronic filing of the Form 5500 Annual Return/Report for plan years 
beginning January 1, 2008 (Electronic Filing Rule). 71 FR 41359 (July 
21, 2006). On December 11, 2006, the Agencies published a Notice of 
Supplemental Proposed Forms Revisions (Supplemental Notice). The 
Supplemental Notice was necessary to make changes to the Form 5500 
Annual Return/Report required by the Pension Protection Act of 2006, 
Pub. L. 109-280, 120 Stat. 780 (2006), enacted on August 17, 2006 
(PPA). 71 FR 71562.
    The Department received 38 comment letters on the July 2006 
Proposal from representatives of employers, plans, and plan service 
providers.\1\ It received seven comments on the Supplemental Notice. 
Copies of the comments are posted on the Department's Web site at 
http://www.dol.gov/ebsa/regs.
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    \1\ The Department also received a comment letter from the 
United States Department of Commerce, Economic and Statistics 
Administration, Bureau of Economic Analysis (BEA), indicating that 
the BEA relies on the information collected in the Form 5500 to 
prepare certain statistics.
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    The preamble to this Notice outlines the final amendments being 
adopted to the Department's annual reporting regulations to reflect the 
changes being adopted to the Form 5500 Annual Return/Report, the Form 
5500-SF ``Short Form Annual Return/Report of Small Employee Benefits 
Plan'' (Form 5500-SF or Short Form 5500), and the required attachments 
and schedules (collectively, the 5500 Forms) published simultaneously. 
A comprehensive discussion of the changes to the 5500 Forms and 
instructions is in a separate notice of adoption of final revisions to 
the annual report/return forms (Forms Revision Notice) that is being 
published in today's Federal Register. To avoid unnecessary 
duplication, that discussion is incorporated herein by reference and 
only a general summary of the form and instruction changes is included 
in this preamble as background for the required cost/benefit and 
regulatory impact analyses.

B. Discussion of the Revisions to 29 CFR Part 2520

    The public comments generally did not directly address the proposed 
regulations themselves. Rather, the comments were addressed to the 
scope and specifics of the proposed forms and instruction changes. As 
described more fully in the Form Revision Notice, the public comments 
generally approved of the Agencies' streamlining of the annual 
reporting requirements through the adoption of the new Form 5500-SF and 
eliminating the IRS-only schedules from the Form 5500 Annual Return/
Report. The comments also generally supported the objectives of 
updating the annual return/report filing requirements to reflect 
current issues and enhancing transparency and accountability, although 
some commenters expressed concerns about the benefits, feasibility, and 
cost of complying with some of the proposed changes, particularly the

[[Page 64711]]

proposed changes to fee and expense reporting and the extension of the 
normal annual reporting requirements to Code section 403(b) plans. Some 
commenters also suggested postponing implementation of the proposed 
changes to allow filers and service providers more time to implement 
administrative procedures and alter information systems in order to 
comply with the new annual reporting requirements. The comments 
included suggestions for various technical adjustments of the forms and 
instructions to clarify and explain the new annual reporting 
requirements.
    The following sections of this preamble describe the final 
regulations being adopted by the Department to implement the form and 
instruction changes, including a postponement of the current effective 
date of the Electronic Filing Rule to make it applicable one year 
later--for plan and reporting years beginning on or after January 1, 
2009.

1. Section 2520.103-1

    The Department's annual reporting regulations, including 29 CFR 
2520.103-1, generally are promulgated under the provisions of ERISA 
that authorize the creation of limited exemptions and simplified 
reporting and disclosure for welfare plans under ERISA section 
104(a)(3), simplified annual reports under ERISA section 104(a)(2)(A) 
for pension plans that cover fewer than 100 participants, and 
alternative methods of compliance for all pension plans under ERISA 
section 110(a). See also ERISA section 505. To accommodate the form and 
instruction changes set forth in the Forms Revision Notice, regulatory 
amendments to 29 CFR 2520.103-1 are being made to update the references 
in the regulation to the annual return/report as revised.
(a) Short Form 5500 (Eligible Small Plan Filers)
    A new two-page Form 5500-SF is being adopted to streamline the 
reporting requirements for certain small pension and welfare plans 
(generally, plans with fewer than 100 participants) that meet certain 
conditions regarding their investments being held or issued by 
regulated financial institutions and that have a readily determinable 
fair market value as described in the final regulation at section 
2520.103-1(c)(2)(ii)(C). The Form 5500-SF is also being adopted to 
provide a simplified report for plans with fewer than 25 participants 
as required by section 1103(b) of the PPA.\2\ A detailed description of 
the Form 5500-SF, and a facsimile of the form and instructions are in 
the Forms Revision Notice being published in today's Federal Register. 
Substantially all of the information required to be reported by 
employee benefit plans on the Short Form 5500 currently is included in 
the more comprehensive information required to be reported as part of 
the Form 5500 simplified report currently available to small plans. The 
addition of the Short Form 5500 does not eliminate the existing 
simplified report available for small plans but, rather, adds the Short 
Form 5500 as another simplified reporting option for eligible small 
plans.
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    \2\ The PPA's requirement to provide simplified reporting for 
plans with fewer than 25 participants is effective for plan years 
beginning after December 31, 2006. The Short Form 5500 will not be 
available for use, however, until the move to the fully electronic 
filing system for plan years beginning after December 31, 2008. For 
the interim two years, as discussed in more detail in the Forms 
Revision Notice, the Agencies are offering to plans with fewer than 
25 participants that would meet the eligibility requirements for the 
Short Form 5500 a simplified reporting option within the context of 
the existing annual report forms.
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    As more fully described in the Forms Revision Notice, the IRS has 
advised the Department that, although there are no mandatory electronic 
filing requirements for the 5500 Forms under the Code or the 
regulations issued thereunder, the electronic filing of the 5500 Forms, 
in accordance with the instructions and such other guidance as the 
Secretary of the Treasury may provide, will be treated as satisfying 
the annual filing and reporting requirements under Code sections 
6058(a) and 6059(a). In addition, to ease the burdens on plans that are 
not subject to Title I of ERISA that file the Form 5500-EZ to satisfy 
the annual reporting and filing obligations imposed by the Code, the 
IRS has advised that it will permit certain Form 5500-EZ filers to 
satisfy the requirement to file the Form 5500-EZ with the IRS by filing 
the Short Form 5500 electronically through the EFAST processing system. 
Eligible Form 5500-EZ filers thus will have electronic filing and paper 
filing options. The electronic filing option will allow eligible Form 
5500-EZ filers to complete and electronically file with EFAST selected 
information on the Short Form 5500. Those Form 5500-EZ filers will also 
be able to choose instead to file a Form 5500-EZ on paper with the 
IRS.\3\
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    \3\ Under the voluntary electronic filing option, Form 5500-EZ 
filers filing an amended return for a plan year will have to file 
the amended return electronically using the Form 5500-SF if they 
initially filed electronically for the plan year and will have to 
file with the IRS using the paper Form 5500-EZ if they filed for the 
plan year with the IRS on a paper Form 5500-EZ.
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(b) Removal of IRS-Only Schedules from the 5500 Forms Annual Return/
Report
    For plan years beginning after December 31, 2008, the 5500 Forms 
will no longer include any of the schedules that are required only for 
the IRS. This change was made to help effectuate the adoption of a 
wholly electronic filing requirement for the 5500 Forms. Accordingly, 
the Schedule E (ESOP Annual Information) and the Schedule SSA (Annual 
Registration Statement Identifying Separated Participants With Deferred 
Vested Benefits) will no longer be required to be filed as part of the 
5500 Forms.\4\ Three questions on employee stock ownership plan (ESOP) 
information formerly reported on the Schedule E will now be on the 
Schedule R (Retirement Plan Information). The IRS also has advised the 
Department that it intends that plan administrators, employers, and 
certain other entities that are subject to additional filing and 
reporting requirements under the Code will have to continue to satisfy 
any applicable requirements in accordance with IRS revenue procedures, 
regulations, publications, forms, and instructions.
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    \4\ Schedule P (Annual Return of Fiduciary of Employee Benefit 
Trust) was removed from Form 5500 filings beginning with the 2006 
plan year (2005 plan year for Form 5500-EZ) in anticipation of the 
move to electronic filing. See, Announcement 2007-63, 2007-30 I.R.B 
65. In addition, Schedule T (Qualified Pension Plan Coverage 
Information) was removed from Form 5500 filings beginning with the 
2005 plan year. The IRS notes that this change was not intended to 
effect the applicable required or optional nondiscrimination testing 
(including the testing options described in Revenue Procedure 93-
42), 1993-2 C.B. 540.
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(c) Schedule A (Insurance Information)
    Schedule A must be attached to the Form 5500 Annual Return/Report 
for an ERISA-covered plan if any pension or welfare benefits under the 
plan are provided by, or if the plan holds any investment contracts 
with, an insurance company, insurance service or other similar 
organization. As with the proposal, the Schedule A data elements are 
largely unchanged from the current form. The Department adopted in the 
final Schedule A the proposed line item to give administrators a 
specific space on the Schedule A to report a failure by an insurance 
carrier to provide necessary information. Certain other technical 
changes and clarifications were made to the Schedule A and its 
instructions to improve Schedule A as a vehicle for disclosure of 
insurance fees and commissions.

[[Page 64712]]

(d) Schedule SB (Single-Employer Defined Benefit Plan Actuarial 
Information) and Schedule MB (Multiemployer Defined Benefit Plan and 
Certain Money Purchase Plan Actuarial Information) (Formerly Schedule 
B)
    Actuarial schedules are required for defined benefit pension plans 
subject to the minimum funding standards (see Code section 412 and Part 
3 of Title I of ERISA). Schedules SB and MB will be required to be 
filed as a non-standard attachment for the 2008 plan year to meet the 
requirements of the PPA and, for the 2009 plan year and later, will be 
filed in the same manner as the other schedules under the electronic 
filing system.
    The Schedule SB must be filed for single-employer defined benefit 
pension plans (including multiple-employer defined benefit pension 
plans).\5\ The Schedule SB and accompanying attachments will capture 
identifying information about the plan and plan sponsor, the type of 
plan, and prior year plan size. It includes basic information about 
plan assets, number of participants, funding target information, and a 
statement by an enrolled actuary. It consists of basic actuarial 
worksheets designed to allow the Agencies to evaluate the plan's 
compliance with the funding requirements as amended by sections 101, 
102, 111, and 112 of the PPA, and to ensure that the reporting 
requirements under ERISA, as amended by section 503 of the PPA, are 
included on the schedule. The material is divided into sections 
consisting of ``Basic information,'' ``Beginning of year carryover and 
prefunding balances,'' ``Funding percentages,'' ``Contributions and 
liquidity shortfalls,'' ``Assumptions used to determine funding target 
and target normal cost,'' ``Miscellaneous items,'' ``Reconciliation of 
unpaid minimum required contributions for prior years,'' and ``Minimum 
required contribution for current year.'' Airlines that have frozen 
pension plans electing the alternate funding schedule and plans for 
which the effective date of the new PPA funding rules is delayed (PBGC 
settlement plans, certain defense contractors, certain rural electrical 
cooperatives, etc.) will not be required to fill out all of these 
sections. Instead, additional information related to the applicable 
funding rules for such plans will be provided as an attachment.
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    \5\ Unlike multiemployer plans within the meaning of ERISA 
sections 3(37) and 4001(a)(3) to which more than one employer is 
required to contribute, which must be maintained pursuant to one or 
more collective bargaining agreements between one or more employee 
organizations and more than one employer, and which must satisfy 
other requirements prescribed in regulations issued by the 
Department at 29 CFR 2510.3-37, multiple-employer plans are plans 
that cover the employees of two or more employers but are treated as 
single-employer plans for various purposes under ERISA.
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    Schedule MB must be filed for all multiemployer defined benefit 
plans and money purchase plans (including target benefit plans) that 
are currently amortizing waivers. Schedule MB is similar to the 
existing Schedule B. New items that have been added include: (1) 
Accrued liability determined using the unit credit cost method; (2) 
information about whether the plan is in endangered, seriously 
endangered, or critical status, and, if so, whether the plan is 
complying with the applicable requirements for its funding improvement 
or rehabilitation plan; and (3) information required by PPA section 
503.
(e) Schedule C (Service Provider Information)
    Schedule C generally must be attached to the Form 5500 Annual 
Return/Report filed by large plan filers to report persons who rendered 
services to the plan or in connection with transactions with the plan 
received, directly or indirectly, $5,000 or more in compensation during 
the plan year, and to report terminations of plan accountants or 
enrolled actuaries. Consistent with recommendations of the ERISA 
Advisory Council Working Groups and the Government Accountability 
Office (GAO), EBSA has concluded that more information should be 
disclosed on the Form 5500 Annual Return/Report regarding plan fees and 
expenses. See ERISA Advisory Council Report of the Working Group on 
Plan Fees and Reporting on Form 5500 (November 10, 2004) (available on 
the Internet at: http://www.dol.gov/ebsa/publications); Private 
Pensions: Government Actions Could Improve the Timeliness and Content 
of Form 5500 Pension Information, GAO-05-491 (available on the Internet 
at: http://www.gao.gov).
    Schedule C reporting continues to be limited to large plan filers 
and the $5,000 reporting threshold has been retained. As in the 
proposal, the Schedule C consists of three parts. Part I of the 
Schedule C requires, subject to an alternative reporting option 
described below, the identification of each person who received, 
directly or indirectly, $5,000 or more in total compensation (i.e., 
money or anything else of value) in connection with services rendered 
to the plan or their position with the plan during the plan year. To 
provide more informative disclosures about the types of fees being paid 
to or received by plan service providers, the final Schedule C requires 
direct compensation paid by the plan to be reported on a separate line 
item from indirect compensation received from sources other than the 
plan or plan sponsor. In addition, in light of the fact that particular 
service providers may receive indirect compensation of various types 
from various sources, the final forms revisions expand the codes 
currently required on the Schedule C to better identify the types of 
services provided and to also require codes for types of fees received 
by the service provider.
    As noted above, the final form revisions includes an alternative 
reporting option for service providers whose only compensation in 
relation to the plan is limited to ``eligible indirect compensation'' ( 
certain specified types of common investment related fees) provided 
that written disclosure(s) are furnished to the plan administrator, 
including in electronic form, that disclose the existence of the 
indirect compensation; the services provided for the indirect 
compensation or the purpose for payment of the indirect compensation; 
the amount (or estimate) of the compensation or a description of the 
formula used to calculate or determine the compensation; and the 
identity of the party or parties paying and receiving the compensation. 
Where a particular service provider received only ``eligible indirect 
compensation'' for which the required disclosures were provided, 
instead of providing information on the service provider, the Schedule 
C may report instead identifying information on the person or persons 
who provided the plan with the required written disclosures.
    With respect to service providers required to be listed on the 
Schedule C who received such eligible types of indirect compensation 
for which the written disclosures were not provided or any other 
indirect compensation, the Schedule C requires more detailed 
information on the indirect compensation, including, in the case of 
certain key service providers, information regarding the payor if the 
service provider received during the plan year indirect compensation 
from a single source of $1,000 or more.
    Although filers generally have the option of reporting a formula 
used to calculate indirect compensation received instead of an actual 
dollar amount or estimate, where a formula is used to describe indirect 
compensation received by one of the key service providers, the amount 
of indirect compensation is presumed to meet the reporting thresholds 
for purposes of the Schedule C reporting requirements.

[[Page 64713]]

    As noted above, the final Schedule C includes a new Part II for 
plan administrators to identify each service provider that failed or 
refused to provide the information necessary to complete Part I of the 
Schedule C.
    The third part of the Schedule C (Part III) is the current Part II 
of the Schedule C used for reporting termination information on plan 
accountants and enrolled actuaries.
(f) Schedule R (Retirement Plan Information)
    As noted above, in light of the removal of the Schedule E (ESOP 
Annual Information), selected questions from the Schedule E are being 
incorporated into the Schedule R in order to continue to collect 
certain information regarding ESOPs as part of the Form 5500 Annual 
Return/Report.
    As in the proposal, Schedule R has been modified to include 
additional questions required by section 503 of PPA and to collect 
information the PBGC needs to enable it to properly monitor the plans 
it insures. The new Part V collects PPA-required information on 
multiemployer defined benefit plans and additional information related 
to major contributing employers. Asset allocation questions for large 
defined benefit plans (1,000 or more participants) are included in Part 
VI. Such plans must provide a breakdown of plan assets by type of 
investment (stock, investment-grade debt, high-yield debt, real estate, 
and other). Information on the average duration of combined investment-
grade and high-yield debt is also required. For this purpose, duration 
may be determined using any generally accepted methodology. Although 
the ESOP-related questions will not be on the Schedule R until the 
shift to the wholly electronic filing system effective for the 2009 
plan year, the PPA-related questions and the asset allocation questions 
for the PBGC will be required as a non-standard attachment to the 
Schedule R for the 2008 plan year.
(g) Technical and Conforming Changes for Forms and Instructions
    Various other technical and conforming changes are being adopted as 
part of the final changes to the 5500 Forms. Several of the more 
significant changes include: (1) Revision of the instructions for the 
Form 5500 Annual Return/Report and development of instructions for the 
Short Form 5500 to reflect the new structure of the returns/reports and 
electronic filing requirements; (2) addition of questions regarding 
compliance with the Department's blackout notice regulation in 29 CFR 
2510.101-3; (3) addition of a compliance question on whether the plan 
failed to pay benefits when due under the plan; (4) expansion of the 
use of codes to report plan feature information on pension and welfare 
benefit plans; (5) elimination of the optional entry of the form 
preparer's name and employer identification number (EIN); (6) requiring 
small plans to report administrative expenses separately from other 
expenses on the Schedule I; (7) addition of a question on whether any 
minimum funding amount reported for a pension plan will be met by the 
funding deadline; and (8) adoption of a standard format for use in 
connection with an independent qualified public accountant (IQPA) 
rendering an opinion on the supplemental schedule information on Line 
4a of Schedule H and I relating to delinquent participant 
contributions.
(h) PPA-Required Simplified Reporting for Plans With Fewer Than 25 
Participants
    As noted in the Forms Revision Notice, section 1103(b) of the PPA 
requires a simplified report for plans with fewer than 25 participants 
to be available for 2007 plan year filings, i.e., filings for plan 
years beginning after December 31, 2006. To satisfy this requirement, 
the Agencies proposed giving plans covering fewer than 25 participants 
that would meet the conditions for being eligible to file the Short 
Form 5500--treating those conditions as if they applied for 2007 plan 
year filings--the option of filing an abbreviated version of the 
current Form 5500 Annual Return/Report for ``small plan'' filers. The 
abbreviated version, to a large extent, is an attempt to replicate, 
within the context of the existing Form 5500 Annual Return/Report 
structure, the information that would be required to be reported on the 
Short Form 5500 by allowing certain schedules to be excluded from the 
filing and requiring only certain line items to be completed on any 
required schedules. Although the Department received a comment 
suggesting that the Agencies satisfy the PPA requirement by instituting 
the Form 5500-SF for 2007 plan year filings, the Department concluded 
that approach would not be feasible or appropriate given the costs that 
would have been required to modify the current EFAST system so that it 
could process the Form 5500-SF. Rather, with the additional deferral in 
the implementation of the electronic filing requirement, the proposed 
simplified reporting option using the existing 5500 Forms for eligible 
plans with fewer than 25 participants will be available for both the 
2007 and 2008 plan year filings.
    Thus, for the 2007 and 2008 plan years, plans with fewer than 25 
participants that meet the eligibility requirements for the Short Form 
5500, treating those conditions as if they applied for 2007 and 2008 
plan year filings, will be permitted to satisfy the annual reporting 
requirement by filing on the appropriate year form and schedules: (1) 
The Form 5500; (2) a Schedule A for any insurance contracts for which a 
Schedule A is required under current rules, completing only lines A, B, 
C, D and the insurance fee and commission information in Part I; (3) 
Schedule B for the 2007 plan year, and, for the 2008 plan year, 
Schedule MB for multiemployer defined pension benefit plans and certain 
money purchase plans, and Schedule SB for single employer defined 
benefit pension plans; (4) Schedule I; (5) Schedule R, completing only 
lines A, B, C, D, and Part II; and (6) Schedule SSA. Additional 
detailed guidance regarding this simplified reporting option is 
included in the instructions to the 2007 Form 5500 and the instructions 
to the 2008 Form 5500.
    The Department understands that some eligible small plan filers may 
want to wait until the implementation of the Short Form 5500 for the 
2009 plan year in order to avoid having to make changes to their annual 
reporting systems and procedures for 2007 and 2008 plan year filings 
and then adjust them again to start filing the Short Form for the 2009 
plan year. The above simplified reporting alternative, accordingly, is 
available for plans that voluntarily take advantage of its 
availability. Plans with fewer than 25 participants can instead 
continue to file in accordance with the normal small plan rules for the 
2007 and 2008 plan year.
(i) PPA-Required Actuarial Schedules and Multiemployer Plan Reporting
    The remaining PPA-required changes in the 5500 Forms are the new 
actuarial information schedules (Schedules SB and MB), most of the 
questions on Part V of the Schedule R--Additional Information for 
Multiemployer Defined Benefit Pension Plans, line 18 of the Schedule R 
(certain liabilities to participants and beneficiaries under two or 
more pension plans), and line 7 of the Form 5500 (number of employers 
obligated to contribute to multiemployer defined benefit plans).\6\ To 
comply with

[[Page 64714]]

the PPA, these reporting changes for defined benefit and multiemployer 
pension plans are being implemented on a transitional basis under the 
current EFAST system for 2008 plan year annual reports. Plans required 
to file an actuarial schedule will check the Schedule B box on the 5500 
Forms to indicate that they are filing Schedule SB or MB (for plan 
years beginning with the 2008 plan year) as an attachment to their 
filing. Similarly, as to the new Part V and line 18 on the Schedule R, 
and the Form 5500 question for multiemployer plans on the total number 
of contributing employers, as well as the new financial questions 
needed by the PBGC, filers will be directed in the instructions to 
include answers to those questions as an attachment to the Schedule 
R.\7\
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    \6\ For 2008, only multiemployer defined benefit pension plans 
will be required to answer the new question 7 on the 2009 Form 5500 
(as a nonstandard attachment), as mandated by the PPA, but in 2009 
and following years, all multiemployer plans will be required to 
answer the question as part of the electronic filing of the Form 
5500, as proposed in the July 2006 Proposal.
    \7\ Because the 2007 forms will not include the new PPA required 
questions, a caution was added to the 2007 Form 5500 instructions to 
alert short plan year filers required to complete the Schedule SB, 
Schedule MB or the new Schedule R questions that they will have to 
wait until the 2008 Forms and instructions are publicly available 
for use for filing.
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2. Section 2520.104a-2 Electronic Filing of Annual Reports

    The proposed revisions to the Form 5500 Annual Return/Report, which 
include both those set forth in the Agencies' July 2006 Proposal and 
those in the Supplemental Notice to address changes required by the 
PPA, were part of the Agencies' move to a fully electronic filing and 
processing system to replace the existing largely paper-based EFAST 
system. As part of that initiative, the Department published the 
Electronic Filing Rule, establishing an electronic filing requirement 
for the Form 5500 Annual Return/Report and the Form 5500-SF for plan 
years beginning on or after January 1, 2008. 71 FR 41359. In adopting 
the final Electronic Filing Rule, the Department responded to public 
comments seeking a postponement in the move to a wholly electronic 
filing system by agreeing to a deferral of the electronic filing 
mandate for one year from the 2007 plan year to the 2008 plan year. The 
Department agreed to the deferral in order to ensure an orderly and 
cost-effective migration to an electronic filing system by both the 
Department and annual report filers. Under that deferral, the vast 
majority of filers would have had until at least July 2009 to make any 
necessary adjustments to accommodate the electronic filing of their 
annual report because annual reports generally are not required to be 
filed until the end of the 7th month following the end of the plan 
year. Deferring the implementation date also provided service 
providers, software developers, and the Department additional time to 
work through electronic processing issues.
    A significant percentage of the commenters on the form revision 
proposals, including several large industry groups representing plan 
sponsors and service providers, asked for a further postponement in the 
effective date of the forms changes, and as a consequence, the 
electronic filing requirement. The commenters emphasized that the PPA, 
including its new reporting and disclosure obligations, would require 
many plans and service providers to update existing information 
management and recordkeeping systems. They also pointed out the certain 
of the changes in the July 2006 proposal, especially the enhanced fee 
disclosure requirements in Schedule C and the increased reporting by 
Code section 403(b) plans (described below), would also require changes 
in the way plans collect and keep plan information. They argued that it 
would be particularly burdensome to require plans to transition to the 
new Form 5500 annual reporting obligations, including the move to the 
wholly electronic filing system, at the same time as they were working 
to comply with new PPA requirements. Also, complications with the 
procurement process and delays in completing the 2007 fiscal year 
appropriations impacted the timing of the EFAST2 contract award.
    The Department continues to believe it is important for plans, 
service providers, and the Agencies to have an orderly and cost-
effective migration to the EFAST2 electronic filing system. The 
Department, in conjunction with the other Agencies, has decided to 
defer for an additional one year the implementation of annual reporting 
forms changes not mandated by the PPA. In determining to publish this 
deferral in final form, the Department considered section 553 of the 
Administrative Procedure Act (APA), which requires that an agency 
provide for notice and comments prior to promulgating substantive rules 
does not apply when an agency, for good cause, unless it determines 
that such procedures are impractical, unnecessary or contrary to the 
public interest. 5 U.S.C. 553(b)(A) and (B). The Department has 
determined that in order to effectuate an orderly migration to the 
EFAST2 system, a deferral of the final rule for one additional year is 
warranted without further notice and comment.
    First, the deferral is necessitated by delays in the contracting 
process beyond the Department's control, including the timing of the 
fiscal year 2007 budget appropriations, which prevented a contract 
award in time to build the new system to process 2008 plan year filings 
as contemplated in the original rulemaking. The Agencies now have, 
however, received the budgetary authorization necessary to complete the 
procurement process, have received bids, and are actively pursuing the 
process. As noted in the Department's FY 2008 Detailed Budget 
Documentation, available on the Internet at http://www.dol.gov, the 
Department is on track for implementing EFAST2 system on January 1, 
2010, to process filings for the 2009 plan year.
    Second, when implemented, the elimination of paper filings in favor 
of electronic filing will result not only in significant improvements 
in the timeliness and accuracy of information available to workers, 
regulators and the public about employee benefit plans and result in 
operational improvements and cost savings, a direct goal of the 
President's E-government initiative, but it will also be used to 
fulfill information collection and disclosure requirements of the PPA, 
many of which apply for the 2008 plan year. Thus, additional delays 
would negatively impact orderly and cost-effective integration of the 
new PPA requirements and the new EFAST2 system, in light of the PPA's 
deadlines.
    Third, publishing the deferral of the effective date on an interim 
basis with an opportunity for comment not only could potentially 
interfere with the contracting and budget process, but also could also 
harm plans by leading them to delay preparing for the move to the new 
system, when it is not practical to implement the new system either 
earlier or later.
    Accordingly, under the final regulation, the electronic filing 
requirement and all of the forms changes, except for those mandated by 
the PPA discussed in this Notice and the Forms Revision Notice, will 
become effective for all annual report filings made under Part 1 of 
Title I of ERISA for plan years (reporting years for non-plan filings) 
beginning on or after January 1, 2009. To effectuate the deferral of 
the electronic filing requirement, this final rule includes an 
amendment to the Electronic Filing Rule published in the Federal 
Register on July 21, 2006. Specifically, this final rule amends the 
Department's regulation at 29 CFR 2520.104a-2 to

[[Page 64715]]

provide that the electronic filing requirement is applicable for plan 
years beginning on or after January 1, 2009.
    Under this final rule, the vast majority of filers will now have 
until at least July 2010 to complete any necessary adjustments to 
accommodate the non-PPA required changes to the form and those required 
for electronic filing of their annual report because annual reports 
generally are not required to be filed until the end of the 7th month 
following the end of the plan year.

3. Section 2520.104-44

    Section 2520.104-44 and the current Form 5500 Annual Return/Report 
instructions provide for limited reporting for pension plans that 
exclusively use a tax deferred annuity arrangement under Code section 
403(b)(1), custodial accounts for regulated investment company stock 
under Code section 403(b)(7), or a combination of both. The exemption 
in section 2520.104-4(b)(3) is being eliminated, with the result that 
Code section 403(b) pension plans subject to Title I will now be 
treated the same under the regulations as any other Title I pension 
plan for purposes of the annual reporting requirements under Title I of 
ERISA.

4. Section 2520.104-46

    In accordance with the Department's authority under section 
104(a)(2)(A) and 104(a)(3) of ERISA, the Department has adopted, at 29 
CFR 2520.104-41, simplified annual reporting requirements for pension 
and welfare benefit plans with fewer than 100 participants. In 
addition, the Department, at 29 CFR 2520.104-46, has prescribed for 
such small plans a waiver from the requirements of ERISA section 
103(a)(3)(A) to engage an IQPA and to include the opinion of the IQPA 
as part of the plan's annual report. The waiver of the IQPA 
requirements for pension plans was conditioned, among other 
requirements, on enhanced disclosure in the Summary Annual Report (SAR) 
provided to participants and beneficiaries. In that regard, the 
Department prepared a model notice that plans could use to satisfy the 
enhanced SAR disclosure conditions. That model notice has been 
available at the EBSA's Web site at http://www.dol.gov/ebsa. In order 
to provide plan administrators with additional access to the model 
notice and to facilitate compliance with the audit waiver eligibility 
conditions, the Department has added the model notice as an appendix to 
section 2520.104-46.\8\
---------------------------------------------------------------------------

    \8\ The PPA requires defined benefit plans to provide an Annual 
Funding Notice for plan years beginning after January 1, 2008. Under 
the PPA, plans that provide an Annual Funding Notice will no longer 
have to provide an SAR. The Department has a separate regulatory 
initiative regarding the PPA-required Annual Funding Notice. The 
Department anticipates that rulemaking will provide that the 
enhanced disclosure required to be eligible for the waiver of the 
requirement for an audit by an independent qualified public 
accountant be included in the Annual Funding Notice for small 
pension plans providing that notice instead of an SAR.
---------------------------------------------------------------------------

5. Section 2520.104b-10

    Section 104(b)(3) of ERISA provides in part that, each year, 
administrators must furnish to participants and beneficiaries receiving 
benefits under a plan SAR materials that fairly summarize the plan's 
annual report. Section 2520.104b-10 sets forth the requirements for the 
SAR used to satisfy that requirement and prescribes formats for such 
reports. The regulatory amendments described in this Notice do not 
include any change to the SAR content requirements. In order to 
facilitate compliance with the SAR requirement for Short Form 5500 
filers, however, the Department is updating its cross-reference guide 
to correspond the line items of the SAR to the relevant line items on 
the Form 5500 and Short Form 5500. The cross-reference guide, as 
before, would continue to be an appendix to section 2520.104b-10.

C. Findings on the Revised 5500 Forms as a Limited Exemption and 
Alternative Method of Compliance

    Section 104(a)(2)(A) of the Act authorizes the Secretary of Labor 
(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 Title I of ERISA, 
provides adequate disclosure to plan participants and beneficiaries, 
and provides adequate reporting 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 Annual Return/Report, 
including the filing by eligible plans of the Short Form 5500, in 
accordance with the instructions and related regulations, generally 
would constitute compliance with the simplified report, limited 
exemption and/or alternative method of compliance in 29 CFR 2520.103-1. 
The findings required under ERISA sections 104(a)(3) and 110 relating 
to the use of the revised 5500 Forms as alternative methods of 
compliance, simplified report, and/or limited exemption from the 
reporting and disclosure requirements of Part 1 of Subtitle B of Title 
I of ERISA are set forth below. In revising the 5500 Forms and making 
the amendments in this rulemaking, the Department has attempted to 
balance the needs of participants and 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. The Department 
makes the following findings under sections 104(a)(3) and 110 of the 
Act with regard to the use of the revised 5500 Forms as a simplified 
report, alternative method of compliance, and/or limited exemption 
pursuant to 29 CFR 2520.103-1(b).
    The use of the revised 5500 Forms 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 that would be required to be reported on or in connection 
with the revised 5500 Forms deviates, as before, in some respects, from 
that delineated in section 103 of the Act, the information needed for 
adequate disclosure and reporting under Title I is required to be 
included on or as part of the 5500 Forms.
    The use of the 5500 Forms will relieve plans subject to the annual 
reporting requirements from increased costs and unreasonable 
administrative burdens by providing a standardized format that 
facilitates reporting, eliminates duplicative reporting requirements, 
and simplifies the content of the annual report in general. The 5500 
Forms are intended to reduce further the administrative burdens and 
costs attributable to compliance with the annual reporting 
requirements.

[[Page 64716]]

    Taking into account the above, the Department has determined that 
application of the statutory annual reporting and disclosure 
requirements without the availability of the revised 5500 Forms and the 
new Schedules SB and MB, would be adverse to the interests of 
participants in the aggregate. The revised 5500 Forms provide for the 
reporting and disclosure of basic financial and other plan information 
described in section 103 of ERISA in a uniform, efficient, and 
understandable manner, thereby facilitating the disclosure of such 
information to plan participants and beneficiaries.
    Finally, the Department has determined under section 104(a)(3) of 
ERISA that a strict application of the statutory reporting 
requirements, without taking into account the revisions to the 5500 
Forms would be inappropriate in the context of welfare plans for the 
same reasons discussed above (i.e., the streamlined forms reduce filing 
burdens without impairing enforcement, research, and policy needs, 
while at the same time providing adequate disclosure to participants 
and beneficiaries).

D. Regulatory Impact Analysis

Executive Order 12866 Statement

    Under Executive Order 12866, the Department must determine whether 
a regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and review by the Office of 
Management and Budget (OMB). Section 3(f) of Executive Order 12866 
defines a ``significant regulatory action'' as an action that is likely 
to result in a rule's (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 is likely to have an annual 
effect on the economy of approximately $100 million. Therefore, this 
action is being treated as ``economically significant'' and subject to 
OMB review under section 3(f)(1) of Executive Order 12866. The 
Department accordingly has undertaken to assess the costs and benefits 
of this regulatory action in satisfaction of the applicable 
requirements of the Executive Order and provides herein a summary 
discussion of its assessment.
    The amendments contained in this final rule conform the annual 
reporting and disclosure regulations promulgated under Title I of ERISA 
to final revisions to the 5500 Forms and instructions being issued 
simultaneously with this final rule. Inasmuch as the amendments 
contained in this final rule implement the forms revisions contained in 
the Forms Revision Notice being published simultaneously with this 
final rule, the Department's assessment pursuant to the Executive Order 
combines the regulatory amendments and the form revisions, treating 
these changes as a coordinated regulatory action. The Department's 
assessment, described below, takes into account the public comments 
received in response to the July 2006 Proposal and the Supplemental 
Notice, which are discussed in detail in the preamble of the Forms 
Revision Notice. That discussion, to which reference is made throughout 
this assessment, is hereby incorporated into this assessment by 
reference.
    In accordance with OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), Table 1 below depicts 
an accounting statement showing the Department's assessment of the net 
annual cost reduction associated with the provisions of the final rule 
and forms revisions. Over the next ten years, the Department 
anticipates an average annual reduction in costs of $94 million when 
using a 3% discount rate as suggested by OMB Circular A-4.\9\ As 
described more fully below, the Department believes that the impact of 
these changes will affect individual employee benefit plans 
disparately, depending on their individual circumstances. While most 
employee benefit plans are likely to experience a decrease in costs, 
some plans may see an increase in costs due to these rules. Further 
information about the relative increase or decrease in costs likely for 
particular plan types is described below.
---------------------------------------------------------------------------

    \9\ A 7% units discount rate increases the estimate of the 
average annual reduction to $97 million. Both annualized estimates 
are based on aggregate cost savings of $25.6 million in 2007, $30.2 
million in 2008, and $97.4 million, starting in 2009 (all in 2009 
Dollars).

  Table 1.--Accounting Statement: Estimated Cost Reduction From the Current Reporting Requirements to the 2009
                                             Reporting Requirements
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                           Estimates                                  Units
                               ---------------------------------------------------------------------------------
           Category                                                          Discount
                                 Primary      Low        High       Year       rate         Period  covered
                                 estimate   estimate   estimate    dollar   (percent)
----------------------------------------------------------------------------------------------------------------
Benefits:
    Annualized Monetized......       94.3        0.0        0.0       2009          7  2007 and later.
    ($millions/year)..........       97.1        0.0        0.0       2009          3  2007 and later.
    Annualized Quantified.....        0.0        0.0        0.0  .........          7
    Qualitative...............        0.0        0.0        0.0  .........          3
Costs:
    Annualized Monetized......       14.8        0.0        0.0       2009          7  2007 and later.
    ($millions/year)..........       15.4        0.0        0.0       2009          3  2007 and later.
    Annualized Quantified.....        0.0        0.0        0.0  .........          7
    Qualitative...............        0.0        0.0        0.0  .........          3
----------------------------------------------------------------------------------------------------------------


[[Page 64717]]

Need for Regulatory Action

    As described in the preambles to the July 2006 Proposal and the 
Supplemental Notice, the Department is promulgating these amendments of 
the annual reporting regulations, the revision of the Form 5500 Annual 
Return/Report and its instructions, and the creation of the Short Form 
5500 and its instructions, with the goal of reducing the overall burden 
of the statutory reporting requirements and the forms without 
sacrificing the quality of the information collected. This action also 
furthers three specific Departmental initiatives, described earlier in 
this preamble: (1) Creating a fully electronic filing system for 
processing the annual reports filed by employee benefit plans; (2) 
responding to reports from the GAO and the ERISA Advisory Council 
suggesting the need for substantive changes in the information gathered 
through the 5500 Forms, specifically with respect to fees and expenses 
of employee benefit plans; and (3) effectuating new reporting and 
disclosure requirements contained in the PPA.
    The principal reforms contained in this final action include the 
adoption of the Short Form 5500, the revision of reporting requirements 
for Code section 403(b) plans, the creation of separate Schedules SB 
and MB to replace the Schedule B to report actuarial information, the 
elimination of IRS-only schedules, and the expansion of fee reporting 
in Schedule C. Because of the importance of these annual return/reports 
as a source of information for participants and beneficiaries, as an 
enforcement and research tool for the Department, and as 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 final regulatory action increases the amount 
and improves the quality of information that plans must disclose. 
Because of the voluntary nature of the employee benefit system, 
however, the Department, in shaping this regulatory action, has 
carefully balanced the need for increased and improved disclosure and 
plan administrators' and sponsors' interest in minimizing reporting 
costs.
    Specifically, the burden associated with completion of the Form 
5500 Annual Return/Report can be divided into two steps: reading the 
instructions and completing the individual line items. The current 
structure of the Form 5500 Annual Return/Report, even without the 
introduction of the Short Form 5500, in contrast to what filers would 
need to do to comply with the statute in the absence of the Form 5500 
Annual Return/Report, allows filers to answer only relevant line items 
and quickly find the instructions relevant to the line items that they 
are required to complete. In the absence of the Form 5500, filers would 
be required to read and evaluate the statutory requirements and make 
judgments, without carefully targeted instructions, as to how to comply 
with the statutory reporting requirements. The Short Form 5500 requires 
not only less line item information than the Form 5500 itself, but 
eliminates the need to read instructions that are not associated with 
small plan filers. In addition, the elimination of IRS-only schedules 
also streamlines reporting under the new system.
    The filing burden under these regulations thus is not only less 
than under the existing Form 5500 Annual Return/Report without 
revisions, but is less than that under the statute. Moreover, while 
requiring less information than does the statute, the information 
required, especially the new enhanced fee disclosure information, is 
carefully targeted to provide the Agencies, participants and 
beneficiaries, and others using the Form 5500 Annual Return/Report for 
research purposes, more informative data.
    Retaining the existing efficient format of the annual return/
report, with most of the information broken out into separate 
schedules, along with the introduction of the Short Form 5500 for small 
plans invested in assets with a readily determinable market value 
should reduce, relative to reporting in the absence of the Form 5500 
Annual Return/Report, as revised, the time required to read the 
instructions because filers will now be more able to skip over the 
instructions for schedules that do not apply to them. It is, however, 
expected that filers for whom major changes apply (i.e. Short Form 
eligible filers, Schedule SB, MB, and C filers, and Code section 403(b) 
plan administrators) will require additional time in the initial year 
of filing to thoroughly read the instructions and to familiarize 
themselves with the revised Form 5500 Annual Return/Report. It is 
assumed, however, that most filers will not require this additional 
time in subsequent years. Entry of the information required by the Form 
5500 Annual Return/Report, including the Short Form 5500, is made from 
financial and other records maintained 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.
    As a result, these final changes are anticipated to result in an 
aggregate reduction of reporting costs for filers as compared with the 
reporting costs before promulgation of these changes. As explained 
below, the Department's assessment results in a conclusion that the 
benefits to be derived from this regulatory action justify the costs 
that the action imposes on the public.

Regulatory Alternatives

    Executive Order 12866 directs federal agencies promulgating 
regulations to evaluate regulatory alternatives. The Department and the 
other Agencies have done so in the process of developing this final 
action.\10\ The preambles to the July 2006 Proposal and the 
Supplemental Notice describe the regulatory alternatives that were 
considered in making those proposals, including the possibilities of 
different eligibility criteria for the Short Form 5500; different 
approaches for satisfying the PPA requirements for additional actuarial 
and asset information reporting; and different types of reporting 
requirements for Code section 403(b) plans. In moving from the 
proposals to final action, the Department also considered alternatives 
set forth in public comments, weighing their costs and benefits against 
the initial proposed actions. The final decisions regarding the 
regulatory amendments and forms revisions are set forth and explained 
elsewhere in this document and in the Forms Revision Notice issued 
simultaneously with this document and are assessed further below. The 
following summarizes major alternatives considered but not adopted in 
finalizing these proposals.
---------------------------------------------------------------------------

    \10\ As explained elsewhere in this preamble and in the preamble 
to the Forms Revision Notice, the IRS and the PBGC act jointly with 
the Department in promulgating the 5500 Forms. The assessment under 
E.O. 12866 described in this preamble, therefore, makes reference to 
the three Agencies' decisions in finalizing the forms changes, as 
well as the Department's decisions in finalizing the amendments to 
the reporting regulations under Title I of ERISA.
---------------------------------------------------------------------------

    Eligibility for Short Form 5500 for certain plans with fewer than 
25 participants. In considering public comments in response to both the 
July 2006 Proposal and the Supplemental Notice, several alternatives to 
the proposal regarding eligibility to file the Short Form 5500 were 
considered but not adopted. Specifically, alternatives considered 
included: (1) relaxing the proposed eligibility requirement, applicable 
to all small plans (with fewer than 100 participants), that 100 percent 
of the plan's assets be invested in

[[Page 64718]]

secured, easy to value assets and (2) permitting all plans with fewer 
than 25 participants to file the Short Form 5500, regardless of whether 
the plan's investments were so invested.
    As described more fully in the preamble to the Forms Revision 
Notice, the benefits to be gained through the ability to exercise 
oversight of small plans that invest in other types of assets justifies 
not diminishing the current burden for plans with fewer than 25 
participants by having them continue to file the same information 
currently required on those assets. Permitting plans with employer 
securities or other assets that are difficult to value to file the 
limited information in the Short Form 5500 would be inconsistent with 
important policy objectives, which are underscored by the PPA's 
emphasis on increasing plan transparency, more accurately measuring 
plan assets, increasing participant control over the disposition of 
employer securities in defined contribution plans, and expanding the 
annual reporting requirements for multiemployer plans. Valuation of 
difficult-to-value assets, such as employer securities, may provide an 
opportunity for abuse or mismanagement that is not lessened by a plan's 
smaller size. The additional oversight possible through increased 
reporting responsibilities justifies the additional burden on such 
plans.
    In any event, as described in the Forms Revision Notice, the 
Department estimates that 95 percent of single-employer non-403(b) 
plans will qualify to file the Short Form 5500, about 75 percent of 
which will be plans with fewer than 25 participants. Expanding Short 
Form filing eligibility to the remaining plans with fewer than 25 
participants would only affect about 25,000 additional plans. Further, 
restricting Short Form 5500 eligibility based on the nature of a plan's 
asset investments will not deprive those non-eligible small plans of 
simplified annual filing methods. Those small plans will still be 
entitled to use the other simplified reporting available to them under 
the Form 5500 Annual Return/Report. Taking these other simplified 
options into account, we estimate that this option would only have 
saved filing plans approximately $4.8 million per year, starting in 
2009.\11\ We have concluded that this is a reasonable cost to meet the 
important policy goal of ensuring proper disclosure for small 
multiemployer plans and for plans with difficult-to-value assets.
---------------------------------------------------------------------------

    \11\ Due to the staggered implementation of the form changes, 
the savings in 2007 and 2008 are estimated to be about $250,000 
annually.
---------------------------------------------------------------------------

    Scope of Code section 403(b) plan reporting. The Department 
considered, but rejects, alternatives, suggested by commenters, to its 
proposal regarding expanded reporting requirements for Code section 
403(b) plans that would have retained the current limited reporting 
requirements for such plans or modified the proposal to permit such 
plans their current exemption from annual audit and accountant's 
opinion requirements. The Department rejects these alternatives because 
they would significantly reduce or eliminate the benefit that will flow 
from expanded reporting by Code section 403(b) plans, which the 
Department believes will result in significant improvements in the 
administration of Code section 403(b) plans covered by Title I of 
ERISA, reducing the rate of violations currently being found in 
investigations of Code section 403(b) plans and increasing benefit 
security for such plans' participants and beneficiaries.
    Scope of Schedule C reporting obligations. The Department 
considered and rejects several alternative approaches to the reporting 
of direct and indirect compensation on the Schedule C prior to 
developing the final decisions embodied in this action. Specifically, 
the Department considered and rejects alternatives that would have 
limited reporting of indirect compensation, including requiring 
reporting of only indirect compensation received by providers with 
direct service relationships with the plan; adding a ``de minimis'' 
exception for reporting cash compensation under a certain dollar 
amount; and reinstating the ``top 40'' provider limitation. The 
Department assessed the potential cost savings of these and other 
alternatives that would have reduced the amount and detail of 
information on indirect compensation required to be reported against 
the benefits to be gained through increased transparency regarding 
compensation paid to plan service providers by third parties. The 
Department believes that the increased transparency that will flow from 
the indirect compensation reporting required by this final rule will 
assist plan fiduciaries in assessing the value and appropriateness of 
their service provider relationships, making more efficient 
transactions possible and preventing abuses that might arise through 
receipt of indirect compensation. The Department's modification of its 
proposals on Schedule C disclosures, described in detail in the Forms 
Revision Notice, represents a compromise that balances the need for 
additional disclosure in this area against the cost to the regulated 
entities that additional disclosure would likely impose.

Benefits and Costs

    The Department believes that the benefits to be derived from this 
final regulatory action, including the final amendments to the 
reporting regulations and the final adoption of forms revisions, 
justify their costs. The Department further believes that these 
revisions to the existing reporting requirements will both reduce 
aggregate reporting costs and enhance protection of ERISA rights. The 
Department conducted a thorough assessment of the costs and benefits of 
these changes as originally proposed. The major proposed changes from 
the July 2006 Proposal that are promulgated in this final rule 
essentially as proposed include: (1) Adoption of the Short Form 5500; 
(2) removal of the IRS-only schedules; and (3) adoption of fuller 
reporting requirements for Code section 403(b) plans.
    Changes proposed in the Supplemental Notice that are being 
finalized herein without substantial change include: (1) adoption of 
separate Schedules MB and SB to replace Schedule B; and (2) adoption of 
the Short Form 5500 as one method of compliance to effectuate the PPA's 
directive to establish simplified reporting for plans with fewer than 
25 participants.
    The discussion below under Benefits and Costs presents the 
Department's assessment of this final action as a whole and provides 
discussion of the major aspects of the final action that contributed to 
the assessment. The discussion also makes note of some of the 
modifications to the proposed changes that are incorporated into the 
final action and describes the extent to which those modifications have 
affected the Department's assessment of this action's costs and 
benefits.
    Benefits. As previously described in the July 2006 Proposal and in 
the Supplemental Notice, the regulatory amendments and revised versions 
of the 5500 Forms announced today will provide a standardized, 
streamlined alternative means of compliance with applicable statutory 
reporting requirements and will also provide appropriate simplified 
annual reports and exemptions under section 104(a)(2) and (3) of ERISA. 
The revised Form 5500, the Short Form 5500, and their schedules will 
ease plan administrators' compliance with reporting requirements and 
greatly enhance the utility and accessibility of information reported 
to

[[Page 64719]]

the government, participants and beneficiaries, and others. Together 
with the Department's planned program for assisting filers in the 
preparation and electronic submission of filings, the revised 5500 
Forms will give plan administrators clear guidance and a supportive, 
routine mechanism for satisfying their reporting obligations. The 
revised 5500 Forms also are designed so that the Department can 
efficiently capture the information electronically and assemble it into 
an electronic database so that the information can be processed and 
analyzed in many beneficial ways. These include monitoring compliance 
with ERISA's reporting and other requirements; targeting and carrying 
out prompt and effective enforcement actions; informing participants 
and beneficiaries of the characteristics, operations, and financial 
status of their benefit plans; producing statistics on the employee 
benefit system, monitoring trends therein, and informing the public; 
and assembling information and conducting research that advances 
knowledge and fosters the formulation of sound public policies toward 
employee benefits.
    Removal of the IRS-only schedules. As explained in the Forms 
Revision Notice published simultaneously with this final rule, the 
elimination of the IRS-only schedules (Schedule E and Schedule SSA) 
beginning with returns/reports for the 2009 plan year facilitates the 
change to mandatory electronic filing, which is expected to yield 
substantial benefits. Title I information that was previously collected 
in the eliminated schedules will be collected in other parts of the 
5500 Forms. The Department understands that the IRS is currently 
considering whether to continue to collect some of the omitted IRS-only 
information via other Treasury or IRS vehicles. The impact of the 
removal of these schedules, therefore, is anticipated to reduce 
reporting costs, as estimated below, while preserving ERISA 
protections.
    Establishment of a Short Form 5500 for certain small plans. The 
Short Form 5500 will substantially reduce reporting costs (as estimated 
below) for eligible filers, while continuing the collection of 
sufficient information to preserve ERISA protections, and satisfying 
the enforcement, research, and regulatory needs of the Agencies, as 
well as the disclosure needs of participants and beneficiaries. The 
small single-employer plans targeted for eligibility (those that invest 
solely in secure assets that are held or issued by regulated financial 
institutions and have a fair market value that is easily determined) 
are less at risk of harm through abuse or mismanagement and can benefit 
through the reduced filing costs. The eligibility conditions for filing 
the Short Form 5500, including the requirements relating to security 
and valuation of the plan's investments, ensure both adequate 
disclosure to participants and beneficiaries in plans using the Short 
Form 5500 and adequate annual reporting to the Agencies. Small plans 
that are not eligible to file the Short Form 5500 remain eligible to 
file simplified reports under currently available methods of filing, 
such as filing Schedule I instead of Schedule H and eligibility for the 
waiver from filing the report of an independent qualified public 
accountant by virtue of enhanced bonding.
    Elimination of the special reporting rules for Code section 403(b) 
plans. As noted below, this revision is expected to increase reporting 
costs for affected plans. The Department believes, however, that these 
added costs are justified by the need to better protect the 
participants and beneficiaries of these plans. As discussed in the 
preamble to the Notice of Adoption of Forms Revisions, increased 
reporting by Code section 403(b) plans is anticipated to provide 
substantial benefits through better administration of those plans and 
increased oversight by the Agencies and the public. Amending the annual 
reporting requirements to place Code section 403(b) plans on par with 
other ERISA-covered pension plans will achieve these results. The 
Department anticipates that most small Code section 403(b) plans will 
be eligible to use the Short Form 5500, and thus will only have to meet 
that limited filing obligation. The result of this change is therefore 
only a modest increase in the annual reporting burden on small Code 
section 403(b) plan filers.
    Schedule C fee and compensation reporting. In developing the final 
Schedule C fee and compensation reporting requirements, the Department 
modified certain aspects of the proposal as it concerned additional 
reporting of indirect compensation and fees paid to plan service 
providers on Schedule C to reach a balance between the cost to plans 
and providers of gathering the required information and the need for 
increased transparency regarding such fees and their potential effect 
on plans. The final form, as did the proposal, keeps the existing 
$5,000 threshold for reporting direct and indirect compensation, but 
now has separate line items for reporting direct and indirect 
compensation to reduce the possibility of duplicative reporting. In 
addition, the final forms revision adds to the Schedule C an 
alternative disclosure option. Where the plan administrator has 
received required disclosures of eligible indirect compensation, the 
plan administrator now has the option of reporting the person providing 
the required disclosures as an alternative to having the amount of the 
eligible indirect compensation reported on the Schedule C itself. These 
modifications reduce reporting burden for indirect compensation, 
especially the potential burdens associated with indirect compensation 
that is difficult to track on a plan-by-plan basis (e.g., ``float'' and 
``soft dollars''). As discussed above, the Department has also 
clarified that health and welfare plans exempt under 29 CFR 2520.104-44 
are not required to file the Schedule C. The Department believes that 
the final forms revisions for Schedule C, which will improve disclosure 
of both direct and indirect compensation without overburdening the 
efficient delivery of necessary services to plans, will provide 
substantial benefits to plans and their participants and beneficiaries. 
Plan administrators, the Department, and the public will be better able 
to monitor the compensation arrangements of plan service providers, 
better able to understand the impact of fees on plan assets, and better 
able to evaluate the value of purchased services. In addition, it is 
expected that plan administrators should be better able to negotiate 
fair prices for necessary plan services.
    Creation of separate actuarial schedules for single-employer 
defined benefit plans and multiemployer defined benefit and certain 
money purchase plans (Schedules SB and MB) to reflect PPA changes in 
funding and annual reporting requirements. Certain changes to Schedule 
B were proposed in the July 2006 Proposal. After passage of the PPA, 
these proposals for Schedule B were revised in the Supplemental Notice 
to effectuate the additional reporting requirements of the PPA, with 
the Schedule B being divided into two separate schedules, one for 
multiemployer defined benefit plans and certain money purchase plans 
(the Schedule MB) and another for single-employer defined benefit plans 
(the Schedule SB). As noted below, the adoption of this change is 
expected to decrease reporting costs for single-employer plans and 
slightly increase reporting costs for multiemployer plans. The 
Department concludes, however, that the small cost increases for 
multiemployer plans are justified by the need to better monitor plan 
funding. This information is needed by

[[Page 64720]]

participants, beneficiaries, and the Agencies, particularly the PBGC, 
to improve their ability to assess the financial condition of the plan.
    Additional data elements reported on Schedule R. Consistent with 
the PPA, the new Schedule R will require increased reporting by 
multiemployer defined benefit pension plans regarding contributing 
employers, multiemployer plan mergers, withdrawing employers and their 
withdrawal liabilities, and participants for whom no employer makes 
contributions. Large single-employer and multiemployer defined benefit 
plans with 1,000 or more participants will also have to report on their 
plans' asset allocations, and the duration of debt portfolios. These 
latter data elements are requested by the PBGC and are not part of the 
PPA requirements. As noted below, these revisions will increase 
reporting costs for affected plans. The PPA requires multiemployer 
defined benefit plans to report this additional information, which is 
needed by participants, beneficiaries, and the Agencies, particularly 
the PBGC, to assess the financial risk posed to the plan by a financial 
collapse or withdrawal of one or more contributing employers.\12\ The 
need for and benefit of these PPA required disclosures are essential to 
making accurate assessments of the potential risks to which these plans 
are exposed.
---------------------------------------------------------------------------

    \12\ The addition of some of the new data elements was included 
in the July 2006 Proposal based on the apparent deterioration of the 
financial condition of multiemployer plans and the PBGC's belief in 
the need to monitor better companies that are major contributors to 
those plans.
---------------------------------------------------------------------------

    Electronic filing and Web site display of certain Form 5500 
information. The requirement to post information electronically will 
give participants and beneficiaries an additional method of monitoring 
the financial status of their pension plans. They will be able to 
access important information instantaneously and without any additional 
costs involved, as plans must be capable of electronic public 
disclosure beginning with the 2009 reporting year.
    Costs. Although the costs to plans of satisfying their annual 
reporting obligations will be lower under these regulations than they 
would be under regulations previously in force, they will still be 
substantial. As shown in Table 2 below, the aggregate cost of such 
reporting under the regulations and forms previously in force is 
estimated to be $425.34 million annually, shared across the 780,000 
filers subject to the filing requirement. The Department estimates that 
the regulations and forms revisions announced today will impose an 
annual cost burden on the 780,000 filers of only $327.98 million.\13\
---------------------------------------------------------------------------

    \13\ The cost and burden hour estimates for the baseline as well 
as for the new reporting requirements are much lower than the 
estimates reported in the July 2006 Proposal and the Supplemental 
Notice. In the estimates reported in this document, the Department 
is able to take advantage of updated data, some changes to the model 
and comments with respect to the burden estimates. More detail about 
the cost estimates can be found in the section ``Assumptions, 
Methodology, and Uncertainty.''

            Table 2.--Summary of Annual Costs: Requirements Previously in Effect vs. New Requirements
----------------------------------------------------------------------------------------------------------------
                                                       Total costs in dollars  (in    Total costs in hours  (in
                                                                millions)                     millions)
----------------------------------------------------------------------------------------------------------------
Reporting Requirements Prior to this Action.........                       $425.34                          5.32
Change in Costs due to this Action (as of 2009 Plan                         -97.36                         -1.24
 Year Filings)......................................
Reporting Requirements in effect for Plan Year 2009                         327.98                         4.08
 Filings............................................
----------------------------------------------------------------------------------------------------------------
Note: Number of affected plans: 780,000.

    Because this final action makes substantial changes to the 
requirements previously in effect, filers will experience some one-time 
transition costs. The Department examined similar transition cost 
issues in connection with the last major revision to the Form 5500 
Annual Return/Report, which was for plan years beginning in 1999. See 
65 FR 5026 (Feb. 2, 2000). Based on information provided by plan 
service providers and Form 5500 Annual Return/Report software 
developers at that time, the Department concluded that such costs are 
generally loaded into the prices paid by plans for affected services 
and products, spread both across plans and across the expected life of 
the service and product changes. The Department's estimates provided 
here are therefore intended to reflect such spreading and loading of 
these transition costs. That is, the gradual defrayal of the transition 
costs is included in the annual cost estimates here.
    The Department has analyzed the cost impact of the individual 
revisions. In doing so, the Department took account of the fact that 
various types of plans would be affected by more than one revision and 
that the sequence of multiple revisions would create an interaction in 
the cumulative burden on those plans. For example, both large and small 
Code section 403(b) plans are affected by the elimination of the 
limited reporting rules for section 403(b) plans, but small Code 
section 403(b) plans are also affected by the introduction of the Short 
Form 5500. The Department quantified the individual revisions as 
described below.
    Removal of the IRS-only schedules. Elimination of the IRS-only 
schedules beginning with filings for the 2009 plan year will reduce 
costs on the whole, even though some of the information previously 
collected in those schedules will continue to be collected by the 
Department elsewhere in the forms and schedules. The net effect of 
these changes will be to reduce the total burden for 198,000 affected 
filers by 530,000 hours. Applying an hourly labor rate of $86 for 
service providers and $59 for plan sponsors, the Department estimates 
that this revision will lower the aggregate annual reporting cost by an 
estimated $39.34 million.\14\
---------------------------------------------------------------------------

    \14\ The appropriateness of the labor rates used in the 
calculations, as well as on other assumptions, is discussed in the 
Technical Appendix.
---------------------------------------------------------------------------

    Establishment of a Short Form 5500 for certain small plans. An 
estimated 594,000 of the 629,000 total small plan filers will be 
eligible to use the Short Form 5500. Of these filers, 9,000 plans are 
estimated to be small Code section 403(b) plans that will also be 
subject to increased filing requirements. Their annual reporting burden 
is estimated to increase, as a result, by about $1.44 million. For the 
remainder of the Short Form 5500 eligible plans (585,000 plans), the 
annual reporting burden is reduced by $72.33 million. This leads to an 
estimated aggregate saving due to the Short Form 5500 of $70.90 million 
(877,000 hours) annually.
    Elimination of the special reporting rules for Code section 403(b) 
plans. While approximately 16,000 Code section 403(b) plans will be 
subject to increased reporting requirements, about 9,000 small Code 
section 403(b) plans

[[Page 64721]]

will be eligible to use the new Short Form 5500 and will also be 
eligible for waiver of the audit requirement. The impact of the changes 
on the small Code section 403(b) plans is quantified above. Seven 
thousand large Code section 403(b) plans will be required to file a 
Form 5500 Annual Return/Report similar to those filed by Code section 
401(k) plans and will be subject to the audit requirement. Annual 
reporting costs for large Code section 403(b) plans will increase by an 
estimated $7.7 million (100,000 hours).
    Establishment of Schedules SB and MB to replace Schedule B. 
Schedule B will be replaced by two separate schedules: A Schedule SB 
for single employer (including multiple-employer) defined benefit plans 
and a Schedule MB for multiemployer defined benefit plans and certain 
money purchase plans. Overall costs will be reduced by having two 
separate schedules, each of which is tailored more precisely to a 
separate targeted group of filers. The 42,000 filers of Schedule SB 
will therefore see a total annual burden reduction of almost 52,000 
hours. Applying an hourly labor rate of $86 for service providers and 
$59 for plan sponsors, the Department estimates that this will lower 
the annual reporting cost by an estimated $4.36 million for Schedule SB 
filers. The 2,300 Schedule MB filers will see a total burden increase 
of 600 hours because these filers will be required to complete new 
items. Applying an hourly labor rate of $86 for service providers and 
$59 for plan sponsors, the Department estimates that this will increase 
the annual reporting cost by an estimated $47,000. On the whole, 
replacing Schedule B with new Schedules SB and MB will decrease the 
aggregate total annual burden by 51,000 hours, or by an estimated $4.31 
million.
    Revision of Schedule C (Service Provider Information). Schedule C 
revisions are intended to clarify the reporting requirements and 
improve the information plan officials receive regarding amounts being 
received by plan service providers. The expanded reporting requirements 
are expected to increase the reporting burden for Schedule C filers by 
about $2.44 million. This increase is partly offset by a reduction in 
burden of $475,000, resulting from the Department's clarification that 
welfare plans that meet the conditions of 29 CFR 2520.104-44 are not 
required to file Schedule C. Jointly, these changes are anticipated to 
add annual reporting costs of $1.97 million (25,000 hours) for 48,000 
affected plans.
    Additional Data Elements on Schedule R. Changes to Schedule R, 
which include moving three questions on ESOPs from Schedule E to 
Schedule R, with an offset for deleting one question, are expected to 
add $828,000 in costs (11,000 hours) for 91,000 affected filers.\15\ On 
average, the reporting burden of affected plans is estimated to 
increase by less than 7 minutes per plan. While some of the affected 
plans may experience only minimal burden increases, others 
(particularly very large multiemployer defined benefit plans) will 
experience an estimated increase in burden of up to three hours.
---------------------------------------------------------------------------

    \15\ The introduction of the Short Form 5500 eliminated the 
requirement of filing the Schedule R for almost 300,000 small plans 
previously filing Schedule R (about 94 % of all small plans filing 
Schedule R). This reduction in burden was included in the decrease 
of reporting burden due to the introduction of the Short Form 5500. 
The moving of questions from Schedule E to Schedule R (ESOP 
questions) is counted as a reduction of burden in connection with 
the removal of the IRS-only schedules and as an increase in burden 
for Schedule R filers.
---------------------------------------------------------------------------

    Adoption of various technical revisions and other miscellaneous 
revisions to the Form 5500 Annual Return/Report to improve and clarify 
existing reporting requirements. Several additional questions regarding 
insurers that fail to supply information, plan failures to pay benefits 
due, schedules of delinquent participant contributions, blackout 
compliance, mutual fund dividends, fees paid to administrative service 
providers, and the number of contributing employers, as well as 
additional pension plan characteristic codes, were added to the Form 
5500 and Schedules A, H, and I. Together these changes are estimated to 
add $6.68 million (85,000 hours) to annual reporting costs and affect 
approximately 187,000 plans.
    Electronic Filing and Website Display of Form 5500 Information. 
These requirements are not anticipated to add any additional costs, as 
plans are already required to be capable of electronic filing and 
disclosure beginning with the 2009 reporting year under the electronic 
filing rule. See 71 FR 41359 (July 21, 2006). The costs and benefits of 
electronic filing have previously been assessed in connection with 
promulgation of that rule.
    Table 3 contains a summary of the changes in costs, expressed both 
in dollars and in hours, allocated to the changes outlined above and 
the number of employee benefit plans affected.

         Table 3.--Summary of Changes to the Reporting Requirements: Dollars, Hours, and Affected Plans
----------------------------------------------------------------------------------------------------------------
                                                          Change in costs
     Revisions effective for 2009 plan year filings       in dollars  (in    Change in costs       Number of
                                                             millions)           in hours        affected plans
----------------------------------------------------------------------------------------------------------------
Removal of IRS-Only Schedules..........................            -$39.34           -530,000            198,000
Short Form (small non-Code Sect. 403(b) Plans).........             -72.33           -895,000            585,000
Short Form (small Code Section 403(b) Plans)...........               1.44             18,000              9,000
Large Code section 403(b) Plans........................               7.70            100,000              7,000
Schedule MB............................................              0.047                600              2,000
Schedule SB............................................              -4.36            -52,000             42,000
Schedule C.............................................               1.97             25,000             48,000
Schedule R.............................................              0.828             11,000             91,000
Technical and Miscellaneous Revisions..................               6.68             85,000            187,000
                                                        --------------------------------------------------------
    Total..............................................             -97.36         -1,237,400           780,000
----------------------------------------------------------------------------------------------------------------
Note: Some displayed numbers do not sum up to the totals due to rounding.

    The final action does not otherwise alter reporting costs. Plans 
currently exempt from annual reporting requirements (such as certain 
small unfunded or fully insured welfare plans and certain simplified 
employee pensions) will remain exempt. Also, except for Code section 
403(b) plans, plans eligible for limited reporting

[[Page 64722]]

options (such as certain IRA-based pension plans) will continue to be 
eligible. The revised Form 5500 Annual Return/Report will retain the 
structure that is familiar to individual and corporate taxpayers--a 
simple main form with basic identifying information necessary, along 
with a checklist of the schedules being filed. The structure is 
designed to aid filers by allowing them to assemble and file a return 
customized to their plan.

Form 5500 Annual Return/Report Changes Effective for the 2007 and 2008 
Plan Year Filings

    The sections above describe reporting changes that will become 
effective for the 2009 plan year filings. As discussed in the preamble 
of the Forms Revision Notice, the Agencies are making some changes to 
the reporting requirements for the 2007 and 2008 plan year filings as 
mandated by the PPA, along with adding a few new Schedule R items for 
the 2008 plan year filings.\16\ Plans with fewer than 25 participants 
that would meet the conditions for being eligible to file the Short 
Form 5500 will have the option in their 2007 and 2008 plan year filing 
of filing an abbreviated version of the Form 5500 Annual Return/Report 
for ``small plan'' filers. In addition, defined benefit pension plans 
and certain money purchase plans will file, for the 2008 plan year, the 
new actuarial information schedules (Schedules SB and MB, as 
appropriate) instead of Schedule B. In addition, certain filers will be 
required to answer most of the new questions on Schedule R (Questions 
13 to 19 of the 2009 Schedule R).\17\
---------------------------------------------------------------------------

    \16\ As mandated by the PPA, the simplified filing option for 
small plans with fewer than 25 participants will become effective 
for 2007 plan year return/reports. No other changes to the Forms and 
Schedules are being made for that filing year, except for a few 
updates to the Schedule B instructions.
    \17\ Filers will be required to provide the answers to these new 
questions as an attachment.
---------------------------------------------------------------------------

    The Department has calculated the burden for the 2008 plan year 
return/reports as described generally above with respect to the 2009 
plan year filings, but appropriately modified for the difference in 
filing requirements. The Department estimates that the reduction in 
burden resulting from the simplified filing requirements for the 2007 
and 2008 plan year filings will be about half the burden reduction that 
will result from the introduction of the 2009 Short Form 5500, for two 
reasons. First, for the 2009 plan year filings, eligible filers will 
fill out only the Short Form 5500 and Schedules SB or MB, as 
applicable. While the simplified filing requirements for plan years 
2007 and 2008 generally will be similar data items as are on the Short 
Form 5500, the items to be completed are spread over several schedules, 
requiring filers to review all of the instructions to those 
schedules.\18\ Second, use of the simplified filing alternative for the 
2007 and 2008 plan years is optional. The Department has assumed that 
not all small plan filers will take advantage of this option, given 
that it will be available only for the 2007 and 2008 plan years.
---------------------------------------------------------------------------

    \18\ As described further in the instructions, those small plans 
required to file the Schedules SSA or E will still have to file the 
schedules as part of their Form 5500 Annual Return/Report filings in 
2007 and 2008.
---------------------------------------------------------------------------

    For the 2007 filing year no other form changes that impacted the 
burden analysis are being made. The Department estimates a burden 
reduction due to the simplified filings for plans with less than 25 
participants of about $38.00 million (471,000 hours). Assuming an 
additional 30 minute transition burden for reviewing the simplified 
filing requirements, the estimate for the burden reduction is reduced 
to $25.62 million (317,000 hours).
    Without taking any transition burdens into account, the Department 
has estimated that the revisions for the 2008 plan year will reduce the 
filing burden by about $41.54 million (511,000 hours). Assuming an 
additional 30 minute transition burden for reviewing the simplified 
filing requirements, 150 minutes for Schedule SB, 90 minutes for 
Schedule MB, and 60 minutes for Schedule R, the Department estimates 
that for the 2008 plan year the reporting burden will fall by $30.23 
million from the $425.34 million that is estimated under prior rules 
and forms, to an aggregate burden of $395.11 million.\19\
---------------------------------------------------------------------------

    \19\ Hours are estimated to fall from the 5.32 million estimated 
under prior rules and forms, to about 4.94 million hours, a 
reduction of about 374,000 hours.
---------------------------------------------------------------------------

Assumptions, Methodology, and Uncertainty

    The cost and burden associated with the annual reporting 
requirement for any given plan will depend upon the specific 
information that must be provided, given the plan's characteristics, 
practices, operations, and other factors. For example, a small, single-
employer defined contribution pension plan filing the new Short Form 
5500 should incur far lower costs than a large, multiemployer defined 
benefit pension plan that holds multiple insurance contracts, engages 
in numerous reportable transactions, and pays fees in excess of $5,000 
to a number of service providers. The Department separately considered 
the cost to different types of plans in arriving at its aggregate cost 
estimates. The Department's basis for these estimates is described 
below.
    Assumptions Underlying this Analysis. The Department's analysis 
assumes that all benefits and costs will be realized in the first year 
of the reporting cycle to which the changes apply and within each year 
thereafter. This assumption is premised on the requirement that each 
plan annually will complete a filing. The Department has used a 
``status quo'' baseline for this analysis, assuming that the world 
absent the regulations will resemble the present.\20\
---------------------------------------------------------------------------

    \20\ Further detail can be found in the Technical Appendix.
---------------------------------------------------------------------------

    Methodology. Mathematica Policy Research, Inc. (MPR), developed the 
underlying cost data, which has been used by the Agencies in estimating 
burden related to the Form 5500 Annual Return/Report during recent 
years. See 65 FR 21068, 21077-78 (Apr. 19, 2000); Borden, William S., 
``Estimates of the Burden for Filing Form 5500: The Change in Burden 
from the 1997 to the 1999 Forms,'' Mathematica Policy Research, 
submitted to U.S. Dept. of Labor May 25, 1999.\21\ The cost information 
was derived from surveys of filers and their service providers, as 
modified due to comments, which were used to measure the unit cost 
burden of providing various types of information. Aggregate estimates 
were produced by interacting these unit cost measures with historical 
counts of Form 5500 Annual Return/Report filers who provided the 
respective types of information.\22\
---------------------------------------------------------------------------

    \21\ The Mathematica report can be accessed at the Department's 
Web site at http://www.dol.gov/ebsa.
    \22\ The Department did not attempt to project the number of 
filers into the future.
---------------------------------------------------------------------------

    Actuarial Research Corporation (ARC) assembled a new model for 
estimating burden, based on the Form 5500 Burden Model that MPR most 
recently used for estimating burdens in October 2004. ARC assembled a 
simplified model, drawing on implied burdens associated with subsets of 
filer groups represented in the MPR model. The ARC model is described 
in broad terms below. Further details about the model are explained in 
the Technical Appendix which can be accessed at the Department's Web 
site at http://www.dol.gov/ebsa.
    To estimate aggregate burdens, types of plans with similar 
reporting requirements were grouped together in various groups and 
subgroups. As shown in Table 4, calculations of aggregate cost were 
prepared for each of

[[Page 64723]]

the various subgroups both under requirements in effect prior to this 
action and under the forms as revised. Table 4 also shows the number of 
plans within each subgroup affected by the revisions. The Total line in 
Table 4 shows that the aggregate cost under prior and new regulations, 
respectively, add up to $425.34 million and $327.98 million. The 
universe of filers was divided into three basic plan types: defined 
benefit pension plans, defined contribution pension plans, and welfare 
plans. Each of these major plan types was further subdivided into 
multiemployer and single-employer plans. Defined contribution Code 
section 403(b) plans were treated separately from other defined 
contribution plans. Since the filing requirements differ substantially 
for small and large plans, the plan types were also divided by plan 
size. For large plans (100 or more participants), the defined benefit 
plans were further divided between very large (1,000 or more 
participants) and other large plans (at least 100 participants, but 
fewer than 1,000 participants). Small plans were divided similarly, 
except that they were divided into Short Form 5500 eligible and Short 
Form 5500 ineligible plans, as applicable. For each of these sets of 
respondents, burden hours per respondent were estimated for the Form 
5500 Annual Return/Report itself and for up to seven schedules.

                 Table 4.--Number of Affected Filers and Costs Under Prior and New Requirements
 
----------------------------------------------------------------------------------------------------------------
                                                                                  Aggregate cost  Aggregate cost
                                                                      Number        under prior      under new
                          Type of plan                               affected      requirements    requirements
                                                                                   (in millions)   (in millions)
----------------------------------------------------------------------------------------------------------------
5500 Large Plans (>=100 participants)...........................         152,000         $177.16         $175.99
    DB, ME, 100-1,000 participants..............................             600            1.40            1.33
    DB, ME, > 1,000 participants................................             900            1.99            2.13
    DB, SE, 100-1,000 participants..............................           7,000           15.38           13.10
    DB, SE, > 1,000 participants................................           3,400            7.08            7.21
    DC, ME, non-403(b)..........................................           1,700            2.56            2.45
    DC, ME, Code section 403(b).................................              80          0.0035            0.10
    DC, SE, non-403(b)..........................................          57,000           75.09           65.14
    DC, SE, Code section 403(b).................................           7,200            0.30            8.38
    Welfare, ME.................................................           4,100            5.64            5.94
    Welfare, SE.................................................          69,000           67.71           70.21
5500 Small Short Form Eligible..................................         594,000          234.25          139.03
    DB, SE......................................................          34,000           35.71           24.33
    DC, SE, non-403(b)..........................................         544,000          195.65          111.64
    DC, SE, Code section 403(b).................................           8,800            0.37            1.81
    Welfare, SE.................................................           6,000            2.52            1.25
5500 Small Short Form Ineligible................................          35,000           13.92           12.96
    DB, ME......................................................             200            0.16            0.18
    DB, SE......................................................           1,800            1.91            1.76
    DC, ME, non-403(b)..........................................           3,200            1.09            1.02
    DC, ME, Code section 403(b).................................             100          0.0042          0.0045
    DC, SE, non-403(b)..........................................          29,000           10.45            9.68
    Welfare/ME..................................................             400            0.17            0.18
    Welfare/SE..................................................             300            0.13            0.14
        Total...................................................         780,000          425.34         327.98
----------------------------------------------------------------------------------------------------------------
Note: Some displayed numbers do not sum up to the totals due to rounding.
DB--defined benefit plans.
DC--defined contribution plans.
SE--single-employer plans.
ME--multiemployer plans.
Large plans--100 participants or more.
Small plans--fewer than 100 participants.

    We also separately estimated the costs for the form and for each 
schedule. When items on a Form 5500 Annual Return/Report schedule are 
required by more than one Agency, the estimated burden associated with 
that schedule is allocated among the Agencies. This allocation is based 
on whether only a single item on a schedule is required by more than 
one agency or whether several or all of the items are required by more 
than one agency. The burden associated with reading the instructions 
for each item also is tallied and allocated accordingly.
    The reporting burden for each type of plan is estimated in light of 
the circumstances that are known to apply or that are generally 
expected to apply to such plans, including plan size, funding method, 
usual investment structures, and the specific items and schedules such 
plans ordinarily complete. For example, the annual report for a large 
fully insured welfare plan typically would consist of only a few 
questions on the Form 5500, Schedule A (Insurance Information), and 
Schedule G, where applicable. The requirement that this plan provide 
very limited information on the Form 5500 Annual Return/Report is 
reflected in the estimates of reporting burden time. By contrast, a 
large defined benefit pension plan that is intended to be tax-qualified 
and that uses a trust fund and invests in insurance contracts would be 
required to submit an annual report completing almost all the line 
items of the Form 5500, plus Schedule A (Insurance Information), 
Schedule B (Actuarial Information), Schedule C (Service Provider 
Information), Schedule D (DFE/Participating Plan Information), possibly 
the Schedule G (Financial Transaction Schedules), Schedule H (Financial 
Information), and Schedule R

[[Page 64724]]

(Retirement Plan Information), and would be required to submit an 
IQPA's report and opinion. In this way, the Agencies intend 
meaningfully to estimate the relative burdens placed on different 
categories of filers.
    Burden estimates were adjusted for the proposed revisions to each 
schedule, including items added or deleted in each schedule and items 
moved from one schedule to another. The burden for the new Short Form 
5500 was derived summing the burden estimates for the comparable line 
items contained in the current Form 5500 Annual Return/Report.
    The Department has not attributed a recordkeeping burden to the 
5500 Forms in this analysis or in the Paperwork Reduction Act analysis 
because it believes that plan administrators' practice of keeping 
financial records necessary to complete the 5500 Forms arises from 
usual and customary management practices that would be used by any 
financial entity and does not result from ERISA or Code annual 
reporting and filing requirements.
    The aggregate baseline burden, as calculated by the ARC model, is 
the sum of the burden per form and schedule as filed prior to this 
action multiplied by the estimated aggregate number of forms and 
schedules filed.\23\ The model then estimated the burden impact of 
changes in the number of filings (particularly those associated with 
the introduction of the Short Form 5500 for most small filers) and of 
changes made to the form and the various schedules. The model uses data 
from the Form 5500 Annual Return/Report for plan year 2003, which is 
the most recent year for which complete data is available.
---------------------------------------------------------------------------

    \23\ To the extent that plans may currently file schedules that 
are not required, such filings were disregarded in calculating the 
baseline reporting burden and the final burden.
---------------------------------------------------------------------------

    The model estimated that the proposed revisions will lead to 
aggregate costs of $327.98 million, which represents a cost reduction 
of $97.36 million from the baseline. While overall costs will be 
reduced, some large plans may experience cost increases, while small 
plans will likely experience cost reductions. The total burden 
estimates, as well as the burden broken out by type of plan, can be 
found in Table 4, above.
    Uncertainty within Estimates. Because the Department has access to 
the historical Form 5500 Annual Return/Report filing information, the 
Department has good data for the number of filers that file the various 
schedules and the types of plans those filers represent. However, there 
is some uncertainty regarding the expected number of filers in the 
future and the unit cost estimates. The Department believes that it 
does not have sufficient information that would allow making good 
projections of the number of pension plans in the future. Also, the 
Department has no direct measure for the unit costs and uses a proxy 
adapted from the existing MPR model, which was developed in the late 
1990s. In addition, some uncertainty is inherent in any revision to the 
existing form, and the level of uncertainty increases with the novelty 
of the revision in question. For example, there is a lesser degree of 
uncertainty regarding the impact of revisions that delete existing 
items or move existing items from one schedule to another, while there 
is greater uncertainty regarding wholly new items of information, such 
as those involving indirect compensation.
    Most of the key assumptions of the model like the wage rates, hour 
burden estimates, and the number of filers are entering the model in a 
direct and transparent way. If, for example, the wage rate increases by 
10%, the reduction in costs also increases by 10%.\24\ Therefore, the 
Department did not perform additional sensitivity tests. The Department 
could not quantify uncertainty because formal estimates of errors are 
not available. However, the Department believes that the actual burden 
could very well be 10% higher or lower than the estimates, based on the 
Department's experience in this program and past trends in filings.
---------------------------------------------------------------------------

    \24\ If the hourly labor costs for service providers increases 
from $86 to $95 and for plan sponsors from $59 to $65 (10% 
increase), then the reduction in costs increases from about $97 
million to $107 million (10% increase).
---------------------------------------------------------------------------

Peer Review

    In December 2004, OMB issued a Final Information Quality Bulletin 
for Peer Review, 70 FR 2664 (January 14, 2005) (Peer Review Bulletin), 
establishing that important scientific information shall be peer 
reviewed before it is disseminated by the Federal government. The Peer 
Review Bulletin applies to original data and formal analytic models 
used by agencies in regulatory impact analyses. The Department 
determined that the data and methods employed in its regulatory 
analysis constituted ``influential scientific information'' as defined 
in the Peer Review Bulletin. Accordingly, a peer review was conducted 
under Section II of the Bulletin. The peer review report concluded that 
the methodology and data generally were sound and produced plausible 
estimates, which supported the Department's conclusion that the 
proposed form changes should reduce the aggregate burden relative to 
the previous forms. The analysis here for the final regulations and 
forms revisions uses the same methodology as did the proposal, and the 
Department, accordingly, is relying on the Peer Review prepared for the 
Proposal. The Peer Review Report can be accessed at the Department's 
Web site at http://www.dol.gov/ebsa.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. In accordance with section 603 of the RFA, the EBSA presented 
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. After reviewing and considering the public comments submitted 
in response to the proposal and the changes that are incorporated into 
the final regulation, the Department has prepared a final regulatory 
flexibility analysis, which is presented in this document as part of 
the broader economic analysis. The objectives of these amended 
regulations and the associated forms revisions are to streamline 
reporting and reduce aggregate reporting costs, particularly for small 
plans, while preserving and enhancing protection of ERISA rights. These 
purposes are detailed above in this preamble and in the Forms Revision 
Notice published simultaneously with these regulations.
    For purposes of analysis under the RFA, EBSA continues to consider 
a small entity to be an employee benefit plan with fewer than 100 
participants. The basis of this definition is found in section 
104(a)(2) of ERISA, which permits the Secretary to prescribe simplified 
annual reports for pension plans that cover fewer than 100 
participants. Under ERISA section 104(a)(3), the Secretary may also 
provide for exemptions or for simplified reporting and disclosure for 
welfare benefit plans. Pursuant to the authority of ERISA section 
104(a), the Department has previously issued at 29 CFR 2520.104-20, 
2520.104-21, 2520.104-41, 2520.104-46, and 2520.104b-10 certain 
simplified reporting provisions and limited exemptions from reporting

[[Page 64725]]

and disclosure requirements for small plans, including unfunded or 
insured welfare plans, that cover fewer than 100 participants and 
satisfy certain other requirements.
    Further, while some large employers may have small plans, in 
general small employers maintain most small plans. Thus, EBSA believes 
that assessing the impact of these requirements on small plans is an 
appropriate substitute for evaluating the effect on small entities. The 
definition of small entity considered appropriate for this purpose 
differs, however, from a definition of small business that is based on 
size standards promulgated by the Small Business Administration (SBA) 
(13 CFR 121.201) pursuant to the Small Business Act (15 U.S.C. 631 et 
seq.). Prior to the proposal, EBSA consulted with the SBA Office of 
Advocacy concerning use of this participant count standard for RFA 
purposes, see 13 CFR 121.902(b)(4), and EBSA received no comments 
suggesting use of a different size standard. The following subsections 
address specific requirements of the RFA.
    Need for the rule and its objectives. The Department is amending 
the regulations relating to the annual reporting and disclosure 
requirements of section 103 of ERISA and revising the 5500 Forms that 
are included in the Forms Revision Notice being published 
simultaneously with these regulations. The Department continually 
strives to tailor reporting requirements to minimize reporting costs, 
while ensuring that the information necessary to secure ERISA rights is 
adequately available. The optimal design for reporting requirements to 
satisfy these objectives changes over time. Benefit plan designs and 
practices evolve over time in response to market trends, including 
trends in labor markets, financial markets, health care and insurance 
markets, and markets for various services used by plans. Partly as a 
result, the nature and mix of compliance issues and risks to ERISA 
rights change over time. Changes to ERISA, the Code, and to associated 
regulations also change the parameters of ERISA rights and the methods 
needed to protect those rights; in particular, this amendment and the 
forms revisions are necessary, in part, to implement provisions of the 
PPA. In addition, the technologies available to manage and transmit 
information continually advance. It is incumbent on the Department to 
revise its reporting requirements from time to time to keep pace with 
such changes. The Department is adopting these regulations and 
associated forms revisions to readjust its reporting requirements to 
take into account certain recent changes in markets, the law (including 
the PPA), and technology, many of which are referred to above in this 
preamble and/or in the Forms Revision Notice published simultaneously 
with these regulations.
    Agency assessment of significant issues raised by public comments 
and changes to rule in response to such comments. Commenters were 
mostly supportive of the adoption of a Short Form 5500. Some commenters 
objected to excluding certain small plans from eligibility for filing 
the Short Form 5500, that is, those small plans holding employer 
securities and other difficult-to-value assets. As discussed elsewhere 
in this preamble, excluding this small subset of small plans is 
justified by the nature of these assets, and it would be inappropriate 
for the Agencies to compromise important Congressional and regulatory 
policies, leaving participants covered by these small plans with 
insufficient protection of their retirement savings. The Agencies have 
taken other steps to reduce the burden on the excluded small plans as 
much as possible, however, including continuing to allow these plans to 
qualify for other simplified reporting options. In addition, because 
the Short Form 5500 will not be available until the 2009 plan year, the 
Agencies are planning to issue separate guidance for plans with fewer 
than 25 participants that would permit filing of an abbreviated version 
of the Form 5500 for the 2007 and 2008 plan years.
    While expanding reporting obligations for Code section 403(b) 
plans, the Agencies have attempted to minimize the burden on small Code 
section 403(b) plans by not excluding small Code section 403(b) plans 
from any simplified reporting option for which such plans are otherwise 
eligible. In other words, small Code section 403(b) plans will be 
eligible to avail themselves of simplified reporting options to the 
same extent as any other similarly situated plan.
    As discussed elsewhere in this preamble, the Agencies are rejecting 
commenters' suggestion to subject small plans to Schedule C disclosure 
requirements that do not currently apply to small plans. The Agencies 
conclude that the comment record in support of the suggestion was 
insufficient to outweigh the added burden that would be placed on small 
plans.
    The Agencies also are making clarifying changes to instructions for 
the Short Form 5500, in response to comments, to provide a clearer 
description of the plans exempt from filing, including small welfare 
plans, but is refraining from adding similar clarifications to the 
instructions for individual schedules in order to avoid adding 
unnecessary review burden for filers.
    Description and estimate of number of small entities to which rule 
will apply. This final action does not alter the number of small plans 
required to comply with the annual reporting requirements, although it 
implements a new Short Form 5500, which is designed specifically to 
further streamline the limited reporting requirements presently 
applicable to small plans. The Department estimates that almost six 
million small, private-sector employee pension and welfare benefit 
plans are covered under Title I of ERISA. A large majority of these, 
however, are fully insured or unfunded welfare benefit plans, which 
currently are exempt from annual reporting requirements and will 
continue to be exempt under this final action. Approximately 629,000 
small plans, including small pension plans and small funded welfare 
plans, currently are required to file annual reports and will continue 
to be so required under this action. Of these, an estimated 594,000 
will be eligible to use the new Short Form 5500. Use of the Short Form 
5500 is expected to reduce these plans' reporting costs, while 
preserving or enhancing the protection of their participants' ERISA 
rights.
    Among small plans, perhaps the most affected by this action will be 
the approximately 9,000 small Code section 403(b) plans. As explained 
above, such plans are currently subject only to limited annual 
reporting requirements. This action will increase these plans' 
reporting costs, although the cost to these plans will be comparable to 
that currently borne by similar small plans that are not operated under 
Code section 403(b). As discussed above, the Department believes the 
added cost to Code section 403(b) plans is justified by the need to 
strengthen protections under ERISA for those plans' affected 
participants and beneficiaries. The numbers and types of small plans 
affected by these regulations and the magnitude and nature of the 
regulations' effects are further elaborated below.
    Description of projected reporting, recordkeeping, and other 
compliance requirements of the rule, including an estimate of the 
classes of small entities that will be subject to the requirements and 
the types of professional skills necessary for preparation of the 
report or record. The reporting requirements applicable to small plans 
are detailed above and in the associated Forms

[[Page 64726]]

Revision Notice. For a large majority of the 629,000 small plans 
subject to annual reporting requirements, or an estimated 563,000 
plans, submission of the Short Form 5500 alone will fully satisfy their 
annual reporting requirements. All of these plans are eligible for the 
waiver of audit requirements, and none are defined benefit pension 
plans. For such plans, therefore, satisfaction of the applicable annual 
reporting requirements is not expected to require the services of an 
IQPA or auditor, but will require the use of a mix of clerical and 
professional administrative skills. For an additional 30,000 small 
defined benefit pension plans and about 500 money purchase plans that 
will be eligible to use the streamlined Short Form 5500, satisfaction 
of the reporting requirements will require additional services of an 
actuary and submission of the Schedule SB or Schedule MB, as 
applicable. The remaining 35,000 small plans will not be eligible to 
use the Short Form 5500 and will continue to be required to file the 
Form 5500 Annual Return/Report. Of these, fewer than 2,000 are defined 
benefit plans that must use an actuary and file Schedule MB or Schedule 
SB. All will require a mix of clerical and professional administrative 
skills to satisfy their reporting requirements.
    Satisfaction of annual reporting requirements under these 
regulations is not expected to require any additional recordkeeping 
that would not otherwise be part of normal business practices.
    Table 5 below compares the Department's estimates of small plans' 
reporting costs under the requirements in effect prior to this action 
with those under the new requirements for various classes of affected 
plans. As shown, costs under the new requirements will be lower on 
aggregate and for most classes of plans. These estimates take account 
of the quantity and mix of clerical and professional skills required to 
satisfy the reporting requirements for various classes of plans.

                      Table 5.--Small Plan Reporting Costs Under Prior and New Requirements
----------------------------------------------------------------------------------------------------------------
                                                                                  Aggregate cost  Aggregate cost
                                                                                    under prior      under new
              Class of small plan                       Number  affected           requirements    requirements
                                                                                   (in millions)   (in millions)
----------------------------------------------------------------------------------------------------------------
Defined Benefit Pension, Short Form eligible..  34,000..........................          $35.71          $24.33
Defined Benefit Pension, Short Form ineligible  2,000...........................            2.07            1.93
Code Section 403(b)...........................  9,000...........................            0.38            1.81
Other Defined Contribution, Short Form          544,000.........................          195.65          111.64
 eligible.
Other Defined Contribution Pension, Short Form  32,000..........................           11.54           10.70
 ineligible.
Funded Welfare................................  7,000...........................            2.83            1.58
Other Welfare.................................  None of approximately 6 million.  ..............  ..............
    Total for All Affected Small Plans........  629,000.........................          248.17          151.99
----------------------------------------------------------------------------------------------------------------
Note: Some displayed numbers do not sum up to the totals due to rounding.

    The Department notes that the estimated reporting costs amount to 
about $240 on average for each of the 629,000 small plans subject to 
annual reporting requirements, or just $27 if averaged across all of 
the approximately 5.7 million small plans covered by Title I of ERISA. 
This compares with roughly $1,200 on average for each of the 152,000 
affected large filers.
    The Department is unaware of any relevant federal rules for small 
plans that duplicate, overlap, or conflict with these regulations.
    Description of steps the agency has taken to minimize impact on 
small entities. In developing and finalizing these regulations and the 
associated forms revisions, the Department considered a number of 
alternative provisions directed at small plans, many of which are 
discussed elsewhere in this preamble and in the Forms Revision Notice. 
For example, as discussed in the Forms Revision Notice, the ERISA 
Advisory Council suggested that the Department consider exempting 
welfare plans from reporting requirements, or, alternatively, 
subjecting all welfare plans to new, separately designed reporting 
requirements. The Department opted instead to retain both the 
requirement that small funded welfare plans submit annual reports and 
the exception from annual reporting requirements for other small 
welfare plans. Annual reporting by the relatively small number of small 
funded welfare plans is necessary, in the Department's view, to protect 
ERISA rights in connection with the assets that such plans hold. A 
requirement that the remaining approximately six million small welfare 
plans report annually is not justified insofar as these plans have no 
assets that need protection and insofar as the vast majority of the 
plans are fully insured and therefore separately protected by state 
oversight of the insurance contracts they hold and the insurers that 
issue them. The Department also considered both narrower and broader 
eligibility criteria for use of the Short Form 5500, settling on 
criteria that limit eligibility to plans holding relatively safe and 
protected assets, which nonetheless includes a large majority of small 
plans. The Department also considered the inclusion of more or fewer of 
the items of information formerly collected from small plans in the 
Form 5500 Annual Return/Report, retaining only those items it believes 
to be necessary and adequate to the protection of small plan 
participants' ERISA rights.

Paperwork Reduction Act Statement

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (PRA) (44 U.S.C. 3506(c)(2)), the July 2006 Proposal solicited 
comments on the information collections included in the proposed 
amendments to the Department's regulations relating to annual reporting 
and disclosure requirements under Part 1 of Subtitle B of Title I of 
ERISA and in the proposed revision of the Form 5500 Annual Return/
Report pursuant to Part 1 of Subtitle B of Title I and Title IV of 
ERISA and the Internal Revenue Code. The Department also submitted an 
information collection request (ICR) to OMB in accordance with 44 
U.S.C. 3507(d), contemporaneously with publication of the July 2006 
Proposal, for OMB's review of the Department's information collections 
previously approved under OMB Control No. 1210-0110.\25\ Public comment 
on the

[[Page 64727]]

information collections contained in the Supplemental Notice was also 
solicited in connection with the publication of that Notice in 
December, 2006.
---------------------------------------------------------------------------

    \25\ On August 29, 2006, OMB issued a notice indicating that it 
would continue its approval of the information collections approved 
under Control No. 1210-0110 as currently in effect, but would not 
approve the Department's request for approval of revisions to the 
ICR until after consideration of public comment on the July Proposal 
and promulgation of a final rule, describing any changes.
---------------------------------------------------------------------------

    In connection with publication of this final rule, the Department 
has submitted an information collection request (ICR) to OMB for its 
review of the changes in burden estimates for the information 
collections currently approved under OMB Control No. 1210-0110 that are 
the result of this final regulatory action and the Forms Revision 
Notice published simultaneously with this rule. In order to avoid 
unnecessary duplication of public comments, the PRA information 
published in the associated Forms Revision Notice is incorporated 
herein by this reference in its entirety. The public is advised that an 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid OMB control number. The Department intends to publish a notice 
announcing OMB's decision upon review of the Department's ICR.
    A copy of the ICR can be obtained by contacting the Office of 
Policy and Research, Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-5718, 200 Constitution Avenue, NW., 
Washington, DC 20210, Telephone: (202) 693-8410; Fax: (202) 219-4745 or 
at http://www.RegInfo.gov. These are not toll-free numbers.

Congressional Review Act

    The final rules being issued here are subject to the Congressional 
Review Act provisions of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (5 U.S.C. 801 et seq.) and will be transmitted to 
the Congress and the Comptroller General for review.

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, these rules do not include 
any Federal mandate that may result in expenditures by state, local, or 
tribal governments in the aggregate of more than $100 million, adjusted 
for inflation, or increased expenditures by the private sector of more 
than $100 million, adjusted for inflation.

Federalism Statement

    Executive Order 13132 (August 4, 1999) outlines fundamental 
principles of federalism and requires adherence to specific criteria by 
federal agencies in the process of their formulation and implementation 
of policies that have substantial direct effects on the States, the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government. These rules do not have federalism implications because 
they would have no substantial direct effect on the States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government. Section 514 of ERISA provides, with certain exceptions 
specifically enumerated, that the provisions of Titles I and IV of 
ERISA supersede any and all laws of the States as they relate to any 
employee benefit plan covered under ERISA. The requirements implemented 
in these rules do not alter the fundamental provisions of the statute 
with respect to employee benefit plans, and as such would have no 
implications for the States or the relationship or distribution of 
power between the national government and the States.

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.

0
In view of the foregoing, the Department amends 29 CFR part 2520 as set 
forth below:

PART 2520--RULES AND REGULATIONS FOR REPORTING AND DISCLOSURE

0
1. The authority citation for part 2520 is revised to read as follows:

    Authority: 29 U.S.C. 1021-1025, 1027, 1029-31, 1059, 1134, and 
1135; and Secretary of Labor's Order 1-2003, 68 FR 5374 (Feb. 3, 
2003). Sec. 2520.101-2 also issued under 29 U.S.C. 1132, 1181-1183, 
1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.102-3, 
2520.104b-1, and 2520.104b-3 also issued under 29 U.S.C. 1003, 1181-
1183, 1181 note, 1185, 1185a-b, 1191, and 1191a-c. Secs. 2520.104b-1 
and 2520.107 also issued under 26 U.S.C. 401 note, 111 Stat. 788.

0
2. In Sec.  2520.103-1, revise paragraphs (a)(2), (b)(1) and (c) to 
read as follows:


Sec.  2520.103-1  Contents of the annual report.

    (a) * * *
    (2) Under the authority of subsections 104(a)(2), 104(a)(3) and 110 
of the Act, and section 1103(b) of the Pension Protection Act of 2006, 
a simplified report, limited exemption or alternative method of 
compliance is prescribed for employee welfare and pension benefit 
plans, as applicable. A plan filing a simplified report or electing the 
limited exemption or alternative method of compliance shall file an 
annual report containing the information prescribed in paragraph (b) or 
paragraph (c) of this section, as applicable, and shall furnish a 
summary annual report as prescribed in Sec.  2520.104b-10.
    (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 SB (Single-Employer 
Defined Benefit Plan Actuarial Information), Schedule MB (Multiemployer 
Defined Benefit Plan and Certain Money Purchase Plan Actuarial 
Information), Schedule C (Service Provider Information), Schedule D 
(DFE/Participating Plan Information), Schedule G (Financial Transaction 
Schedules), Schedule H (Financial Information), Schedule R (Retirement 
Plan Information), and other financial schedules described in Sec. 
2520.103-10. See the instructions for this form.
* * * * *
    (c) Contents of the annual report for plans with fewer than 100 
participants. (1) Except as provided in paragraph (c)(2) of this 
section and in paragraph (d) of this section, and in Sec. Sec.  
2520.104-43 and 2520.104a-6, the annual report of an employee benefit 
plan that 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 SB (Single 
Employer Defined Benefit Plan Actuarial Information), Schedule MB 
(Multiemployer Defined Benefit Plan and Certain Money Purchase Plan 
Actuarial Information), Schedule D (DFE/Participating Plan 
Information), Schedule I (Financial Information--Small Plan), and 
Schedule R (Retirement Plan Information). See the instructions for this 
form.
    (2)(i) The annual report of an employee benefit plan that covers 
fewer than 100 participants at the beginning of the plan year and that 
meets the conditions in paragraph (c)(2)(ii) of this section with 
respect to a plan year may, as an alternative to the requirements of 
paragraph (c)(1) of this section, meet its

[[Page 64728]]

annual reporting requirements by filing the Form 5500-SF ``Short Form 
Annual Return/Report of Small Employee Benefit Plan'' and any 
statements or schedules required to be attached to the form, including 
Schedule SB (Single Employer Defined Benefit Plan Actuarial 
Information) and Schedule MB (Multiemployer Defined Benefit Plan and 
Certain Money Purchase Plan Actuarial Information), completed in 
accordance with the instructions for the form. See the instructions for 
this form.
    (ii) A plan meets the conditions in this paragraph (c)(2)(ii) with 
respect to the year if the plan:
    (A) Does not hold any employer securities at any time during the 
year;
    (B) Satisfies the audit waiver conditions in Sec. Sec.  2520.104-
46(b)(1)(i)(A)(1), (b)(1)(i)(B) and (b)(1)(i)(C);
    (C) Had at all times during the plan year 100 percent of the plan's 
assets held for investment purposes invested in assets that have a 
readily determinable fair market value. For purposes of this section, 
the following shall be treated as assets that have a readily 
determinable fair market value: Shares issued by an investment company 
registered under the Investment Company Act of 1940; investment and 
annuity contracts issued by any insurance company, qualified to do 
business under the laws of a State, that provides valuation information 
at least annually to the plan administrator; bank investment contracts 
issued by a bank or similar financial institution, as defined in Sec.  
2550.408b-4(c) of this chapter, that provides valuation information at 
least annually to the plan administrator; securities (except employer 
securities) traded on a public exchange; government securities issued 
by the United States or by a State; cash or cash equivalents held by a 
bank or similar financial institution, as defined in Sec.  2550.408b-
4(c) of this chapter, by an insurance company, qualified to do business 
under the law of a State, by an organization registered as a broker-
dealer under the Securities Exchange Act of 1934, or by any other 
organization authorized to act as a trustee for individual retirement 
accounts under section 408 of the Internal Revenue Code; and any loan 
meeting the requirements of section 408(b)(1) of the Act and the 
regulations issued thereunder; and
    (D) Is not a multiemployer plan.
* * * * *

0
3. Amend Sec.  2520.104-44 by revising (b)(1)(iii) and (b)(2), and 
removing (b)(3) to read as follows:


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

* * * * *
    (b) * * *
    (1) * * *
    (iii) Partly in the manner specified in paragraph (b)(1)(i) of this 
section and partly in the manner specified in paragraph (b)(1)(ii) of 
this section; and
    (2) A pension benefit plan the benefits of which are provided 
exclusively through allocated insurance contracts or policies which are 
issued by, and pursuant to the specific terms of such contracts or 
policies benefit payments are fully guaranteed by an insurance company 
or similar organization which is qualified to do business in any State, 
and the premiums for which are paid directly by the employer or 
employee organization from its general assets or partly from its 
general assets and partly from contributions by its employees or 
members: Provided, That contributions by participants are forwarded by 
the employer or employee organization to the insurance company or 
organization within three months of receipt and, in the case of a plan 
that provides for the return of refunds to contributing participants, 
such refunds are returned to them within three months of receipt by the 
employer or employee organization.
* * * * *

0
4. In Sec.  2520.104-46, add a new paragraph (e) and a new appendix to 
the section to read as follows:


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

* * * * *
    (e) Model notice. The appendix to this section contains model 
language for inclusion in the summary annual report to assist plan 
administrators in complying with the requirements of paragraph 
(b)(1)(i)(B) of this section to avail themselves of the waiver of 
examination and report of the independent qualified public accountant 
for employee benefit plans with fewer than 100 participants. Use of the 
model language is not mandatory. In order to use the model language in 
the plan's summary annual report, administrators must, in addition to 
any other information required to be in the summary annual report, 
select among alternative language and add relevant information where 
appropriate in the model language. Items of information that are not 
applicable to a particular plan may be deleted. Use of the model 
language, appropriately modified and supplemented, will be deemed to 
satisfy the notice content requirements of paragraph (b)(1)(i)(B) of 
this section.

Appendix to Sec.  2520.104-46--Model Summary Annual Report Notice (Plan 
Administrators Will Need to Modify the Model to Omit Information That 
Is Not Applicable to the Plan)

    The U.S. Department of Labor's regulations require that an 
independent qualified public accountant audit the plan's financial 
statements unless certain conditions are met for the audit 
requirement to be waived. This plan met the audit waiver conditions 
for the plan year beginning (insert year) and therefore has not had 
an audit performed. Instead, the following information is provided 
to assist you in verifying that the assets reported on the (Form 
5500 or Form 5500-SF--select as applicable) were actually held by 
the plan.
    At the end of the (insert year) plan year, the plan had (include 
separate entries for each regulated financial institution holding or 
issuing qualifying plan assets):
    [Set forth amounts and names of institutions as applicable where 
indicated], [(insert $ amount) in assets held by (insert name of 
bank)], [(insert $ amount) in securities held by (insert name of 
registered broker-dealer)], [(insert $ amount) in shares issued by 
(insert name of registered investment company)], [(insert $ amount) 
in investment or annuity contract issued by (insert name of 
insurance company)].
    The plan receives year-end statements from these regulated 
financial institutions that confirm the above information. [Insert 
as applicable--The remainder of the plan's assets were (1) 
qualifying employer securities, (2) loans to participants, (3) held 
in individual participant accounts with investments directed by 
participants and beneficiaries and with account statements from 
regulated financial institutions furnished to the participant or 
beneficiary at least annually, or (4) other assets covered by a 
fidelity bond at least equal to the value of the assets and issued 
by an approved surety company.]
    Plan participants and beneficiaries have a right, on request and 
free of charge, to get copies of the financial institution year-end 
statements and evidence of the fidelity bond. If you want to examine 
or get copies of the financial institution year-end statements or 
evidence of the fidelity bond, please contact [insert mailing 
address and any other available way to request copies such as e-mail 
and phone number].
    If you are unable to obtain or examine copies of the regulated 
financial institution statements or evidence of the fidelity bond, 
you may contact the regional office of the U.S. Department of 
Labor's Employee Benefits Security Administration (EBSA) for 
assistance by calling toll-free 1.866.444.EBSA (3272). A listing of 
EBSA regional offices can be found at http://www.dol.gov/ebsa.
    General information regarding the audit waiver conditions 
applicable to the plan can be found on the U.S. Department of Labor 
Web site at http://www.dol.gov/ebsa under the heading ``Frequently 
Asked Questions.''


[[Page 64729]]



0
5. Amend Sec.  2520.104a-2(a) to read as follows:


Sec.  2520.104a-2  Electronic filing of annual reports.

    (a) Any annual report (including any accompanying statements or 
schedules) filed with the Secretary under part 1 of title I of the Act 
for any plan year (reporting year, in the case of common or collective 
trusts, pooled separate accounts, and similar non-plan entities) 
beginning on or after January 1, 2009, shall be filed electronically in 
accordance with the instructions applicable to such report, and such 
other guidance as the Secretary may provide.
* * * * *

0
6. Revise the Appendix to Sec.  2520.104b-10 to read as follows:


Sec.  2520.104b-10  Summary Annual Report.

* * * * *

 Appendix to Sec.   2520.104b-10.--The Summary Annual Report (SAR) Under ERISA: A Cross-Reference to the Annual
                                                     Report
----------------------------------------------------------------------------------------------------------------
                                         Form 5500 large plan     Form 5500 small plan   Form 5500-SF filer line
               SAR item                    filer line items         filer line items              items
----------------------------------------------------------------------------------------------------------------
A. PENSION PLAN:
    1. Funding arrangement...........  Form 5500-9a...........  Same...................  Not applicable.
    2. Total plan expenses...........  Sch. H-2j..............  Sch. I-2j..............  Line 8h.
    3. Administrative expenses.......  Sch. H-2i(5)...........  Sch. I-2h..............  Line 8f.
    4. Benefits paid.................  Sch. H-2e(4)...........  Sch. I-2e..............  Line 8d.
    5. Other expenses................  Sch. H-Subtract the sum  Sch. I-2i..............  Line 8g.
                                        of 2e(4) & 2i(5) from
                                        2j.
    6. Total participants............  Form 5500-6f...........  Same...................  Line 5b.
    7. Value of plan assets (net):...  Sch. H-1l [Col. (b)]...  Sch. I-1c [Col. (b)]...  Line 7c [Col. (b)].
        a. End of plan year..........
        b. Beginning of plan year....  Sch. H-1l [Col. (a)]...  Sch. I-1c [Col. (a)]...  Line 7c [Col. (a)].
    8. Change in net assets..........  Sch. H-Subtract 1l       Sch. I-Subtract 1c       Line 7c-Subtract Col.
                                        [Col. (a)] from 1l       [Col. (a) from Col.      (a) from Col. (b).
                                        [Col. (b)].              (b)].
    9. Total income..................  Sch. H-2d..............  Sch. I-2d..............  Line 8c.
        a. Employer contributions....  Sch. H-2a(1)(A) & 2a(2)  Sch. I-2a(1) & 2b if     Line 8a(1) if
                                        if applicable.           applicable.              applicable.
        b. Employee contributions....  Sch. H-2a(1)(B) & 2a(2)  Sch. I-2a(2) & 2b if     Line 8a(2) & 8a(3) if
                                        if applicable.           applicable.              applicable.
        c. Gains (losses) from sale    Sch. H-2b(4)(C)........  Not applicable.........  Not applicable.
         of assets.
        d. Earnings from investments.  Sch. H-Subtract the sum  Sch. I-2c..............  Line 8b.
                                        of 2a(3), 2b(4)(C) and
                                        2c from 2d.
    10. Total insurance premiums.....  Total of all Schs. A-6b  Total of all Schs. A-6b  Not applicable.
    11. Unpaid minimum required        Sch. SB-39.............  Same...................  Same.
     contribution (S-E plans) or
     Funding deficiency (ME plans):.
        a. S-E Defined benefit plans.
        b. ME Defined benefit plans..  Sch. MB-10.............  Same...................  Not applicable.
        c. Defined contribution plans  Sch. R-6c, if more than  Same...................  Line 12d.
                                        zero.
B. WELFARE PLAN
    1. Name of insurance carrier.....  All Schs. A-1(a).......  Same...................  Not applicable.
    2. Total (experience rated and     All Schs. A-Sum of       Same...................  Not applicable.
     non-experienced rated) insurance   9a(1) and 10a.
     premiums.
    3. Experience rated premiums.....  All Schs. A-9a(1)......  Same...................  Not applicable.
    4. Experience rated claims.......  All Schs. A-9b(4)......  Same...................  Not applicable.
    5. Value of plan assets (net):...  Sch. H-1l [Col. (b)]...  Sch. I-1c [Col. (b)]...  Line 7c [Col. (b)].
        a. End of plan year..........
        b. Beginning of plan year....  Sch. H-1l [Col. (a)]...  Sch. I-1c [Col. (a)]...  Line 7c [Col. (a)].
    6. Change in net assets..........  Sch. H-Subtract 1l       Sch. I-Subtract 1c       Line 7c-Subtract [Col.
                                        [Col. (a)] from 1l       [Col. (a)] from 1c       (a)] from 7c [Col.
                                        [Col. (b)].              [Col. (b)].              (b)].
    7. Total income..................  Sch. H-2d..............  Sch. I-2d..............  Line 8c
        a. Employer contributions....  Sch. H-2a(1)(A) & 2a(2)  Sch. I-2a(1) & 2b if     Line 8a(1) if
                                        if applicable.           applicable.              applicable.
        b. Employee contributions....  Sch. H-2a(1)(B) & 2a(2)  Sch. I-2a(2) & 2b if     Line 8a(2) if
                                        if applicable.           applicable.              applicable.
        c. Gains (losses) from sale    Sch. H-2b(4)(C)........  Not applicable.........  Not applicable.
         of assets.
        d. Earnings from investments.  Sch. H-Subtract the sum  Sch. I-2c..............  Line 8b.
                                        of 2a(3), 2b(4)(C) and
                                        2c from 2d.
    8. Total plan expenses...........  Sch. H-2j..............  Sch. I-2j..............  Line 8h.
    9. Administrative expenses.......  Sch. H-2i(5)...........  Sch. I-2h..............  Line 8f.
    10. Benefits paid................  Sch. H-2e(4)...........  Sch. I-2e..............  Line 8d.
    11. Other expenses...............  Sch. H-Subtract the sum  Sch. I-2i..............  Line 8g.
                                        of 2e(4) & 2i(5) from
                                        2j.
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[[Page 64730]]

    Signed at Washington, DC, this 30th day of October, 2007.
Bradford P. Campbell,
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. E7-21765 Filed 11-15-07; 8:45 am]
BILLING CODE 4510-29-P