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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The Employee Benefits Security Administration (EBSA) has released 40 frequently asked questions (FAQs) to provide guidance on the revised Schedule C/Form 5500 reporting requirements regarding direct and indirect compensation and fees paid to plan service providers. Schedule C has been modified so that, effective beginning with the 2009 plan year, service providers required to be listed will separately report direct compensation paid by the plan and indirect compensation received from sources other than the plan or the plan sponsor, such as compensation charged against investment assets.
Schedule C now includes an alternative reporting option for “eligible indirect compensation.” To constitute “eligible indirect compensation,” the compensation has to be of a certain type and the plan must have received certain disclosures. The eligible compensation types are compensation not paid directly by the plan or plan sponsor but received by plan service providers from omnibus level fees charged to investment funds in which the plan invests where the charges are reflected in the value of the investment or return on investment of the participating plan or its participants and for: distribution, investment management, recordkeeping or shareholder services; commissions and finder’s fees paid to persons providing direct or indirect services to the participating plans; float revenue; securities brokerage commissions and other transaction-based fees (whether or not they are capitalized as investment costs); and “soft dollar” revenue.
The FAQs cover various issues surrounding “eligible indirect compensation,” such as whether the alternative reporting option may be used to report compensation paid or received in separately managed investment accounts of a single plan (question 3); whether it is necessary to complete any information on Schedule C regarding a service provider, other than identifying the person providing the disclosures, where the only compensation received by the service provider is “eligible indirect compensation” and all of the disclosures necessary to satisfy the alternative reporting option have been provided (question 15); whether the spread earned by a broker on principal transactions involving the plan is “eligible indirect compensation” (question 23); and whether the service provider receiving the eligible indirect compensation must be the person providing the disclosures necessary for the alternative reporting option (question 18).
Question 30 of the FAQs makes clear that electronic disclosures can be used to satisfy the “written disclosure” requirement for the alternative reporting option. However, there must be some record that affirmatively indicates that the “written materials” were received by the plan administrator, and those records must be retained in accordance with ERISA’s recordkeeping requirements.
The FAQs also consider reporting requirements where a person providing services to the plan in a general business relationship that includes both ERISA and non-ERISA business is provided a meal or other entertainment. In this case, question 35 indicates that if the person’s eligibility for receipt of the gift (such as meals, travel, or entertainment) is based, in whole or in part, on the value (e.g., assets under management, contract amounts, premiums) of contracts, policies or transactions (or classes thereof) placed with ERISA plans, the gift constitutes reportable indirect compensation for Schedule C purposes. Where the eligibility for, or amount of, the gift is based on a book of business, including ERISA plan business, a pro rata share of the value of the gift should be treated as indirect compensation for the ERISA plans involved.
In order to furnish their employee benefit plan clients information necessary to comply with the new Schedule C annual reporting requirements, certain service providers may have to modify their current recordkeeping and information management systems. The Department of Labor recognizes that it may be difficult for some service providers to make those adjustments sufficiently in advance so that their systems will be fully operational when employee benefit plan clients start to make requests for, or otherwise need, Schedule C related data for filing their 2009 plan year Form 5500.
Therefore, question 40 of the FAQs provides that, with respect to those employee benefit plans which are dependent on service providers for information necessary to complete the Schedule C, the plan administrator will not be required for the 2009 plan year reports to list a service provider on line 4 of the Schedule C as failing to provide information necessary to complete the Schedule C if the plan administrator receives from the service provider a statement that (i) the service provider made a good faith effort to make any necessary recordkeeping and information system changes in a timely fashion, and (ii) despite such efforts, the service provider was unable to complete the changes for the 2009 plan year.
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