Form 5500: Key DOL Rule Changes and Compliance Updates

Developed by the U.S. Department of Labor (DOL), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC), the Form 5500 Series is an annual informational filing required for most ERISA plans, and used as a compliance, research, and disclosure tool by these regulatory agencies. Form 5500 is updated annually to account for statutory and regulatory changes affecting pension and retirement plan disclosures. 

During 2023, the updates to the 2023 Form 5500 series included the following significant reporting changes: 

1. Defined Contribution Group (DCG) reporting arrangements – allows certain groups of defined contribution retirement plans to file a consolidated annual return/report and the new schedule DCG to be completed for each individual defined contribution pension plan.
2. Scheduled Multiple-Employer Plans (MEPs) were added and included Pooled Employer Plan (PEP) specific questions.
3. Participant Count Methodology revision for defined contribution plans in determining whether the plan is a small plan or large plan. The methodology changed to the number of participants with account balances and no longer includes those who are eligible but not participating.
4. Schedule H (Financial Information) Administrative Expenses Transparency Improvements.
5. Schedule R (Retirement Plan Information) Expansion. 

In this writing, we focused on changes to existing schedule H and schedule R commonly used by most of the plans. 

Schedule H Administrative Expenses Transparency Improvements 

Schedule H is required for pension and welfare benefit plans filing as “large plans” as well as for all direct filing entities. Schedule H is updated to include new categories in the “Administrative Expenses” category of the Income and Expenses section. This section now provides a comprehensive breakdown of the plan’s administrative costs, including recordkeeping expenses, actuarial fees, valuation fees, legal fees, and other related costs. By enhancing transparency, this change allows plan sponsors and participants to better understand how administrative expenses impact the plan’s overall financial performance. This change will further enable the DOL to keep a closer eye on plan expenses paid for various services. 

Schedule R Expansion 

Schedule R is required for a pension benefit plan that is a defined benefit plan or is otherwise subject to Code section 412 or ERISA section 302. This schedule has been expanded to add several new tax compliance questions, in Part VII, related to nondiscrimination testing, ADP testing, and pre-approved plan IRS determination letters. 

Line 21a: Does the plan satisfy the coverage and nondiscrimination tests of Code sections 410(b) and 401(a)(4) by combining this plan with any other plans under the permissive aggregation rules? 

IRS Code Section 410(b) ensures that a sufficient number of non-highly compensated employees (NHCEs) are covered by the plan, and Section 401(a)(4) ensures that benefits are provided on a nondiscriminatory basis between highly compensated employees (HCEs) and NHCEs. If there are multiple retirement plans maintained by the same employer or related employers treated as a single employer due to controlled group or affiliated service group status and permissive aggregation rules are applied, the answer here should be “Yes,” otherwise the answer should be “No.” Through this amendment, the IRS aims to identify plans that may require closer scrutiny. The IRS may focus on these plans to ensure fairness and prevent discrimination in benefit provision. 

Line 21b: If this is a Code section 401(k) plan, check all boxes that apply to indicate how the plan is intended to satisfy the nondiscrimination requirements for employee deferrals and employer matching contributions (as applicable) under Code sections 401(k)(3) and 401(m)(2). 

IRS Code Section 401(k)(3) pertains to the actual deferral percentage (ADP) test for elective contributions in a 401(k) plan, and Section 401(m)(2) relates to the actual contribution percentage (ACP) test, which applies to matching contributions and employer contributions. These tests ensure that contributions by highly compensated employees (HCEs) do not disproportionately favor them. A 401(k) plan that is a safe harbor 401(k) plan should select “esign-based safe harbor method.” If the plan does not satisfy the safe harbor method, it generally must satisfy the regular ADP and ACP tests. Plans that are tested must select appropriate options such as “Prior Year” or the “Current Year” in accordance with the year of testing. If the plan is not required to test for nondiscrimination, check “N/A.” 

Line 22: If the plan sponsor is an adopter of a pre-approved plan that received a favorable IRS Opinion Letter, enter the date of the Opinion Letter and the Opinion Letter serial number. 

Many retirement plans rely on third-party administrators or service providers to streamline plan management. These providers often furnish plan sponsors with an adoption agreement and a basic plan document that has received approval from the IRS. Plan sponsors must ensure their plan complies with the mandatory restatement requirements. The plan sponsor who is adopting a pre-approved plan should enter the date of the most recent IRS Opinion Letter and the Opinion Letter serial number listed on the opinion letter. 

In addition, line 19(a), requiring the reporting of asset allocations for defined benefit plans that have 1,000 or more participants, has been revised to include additional asset classes. Further line 19b, the average duration timeline for Investment-Grade Debt and Hedging Assets has been revised. 

It is crucial for plan sponsors to stay informed about changes to Form 5500 reporting requirements. Consulting with service providers and thoroughly reviewing the impact on their specific plan is essential. Filing inaccurate information in Form 5500 might result in various examinations being conducted by the regulatory agencies and levy of hefty penalties.

Mock-ups of the forms and Form 5500 instructions will be available at reginfo.gov; more information on Form 5500 is also available at dol.gov. 

Check out EisnerAmper’s Employee Benefit Insights or Employee Benefit Plan Audits (ERISA Qualified Plans), and reach out to us for questions.