The Employee Benefits Security Administration has published a new batch of advice aimed at insurers, benefit plan administrators and other organizations that are trying to comply with new reporting requirements.
EBSA, an arm of the U.S. Department of Labor, published the guidance to answer questions about the new 2009 Form 5500 Schedule C requirements.
Form 5500 is the main tax form that benefit plans subject to the Employee Retirement Income Security Act file with the Internal Revenue Service and the U.S. Department of Labor. ERISA plans with 100 or more participants use Form 5500 Schedule C to report service provider and trustee information, such as fees and commissions paid to service providers.
EBSA and the IRS are changing Form 5500 Schedule C because lawmakers and regulators want employers to get more detailed information about benefit plan costs, to help employers bargain for lower fees and make sure participants know what they ought to know about plan costs.
Under the new rules, plans are supposed to try to break down costs as well as they can, and vendors are supposed to give employers more detailed cost and compensation figures, including information about the “direct” and “indirect compensation” they get from a plan. If ABC Corp. sets up a retirement plan for Big Employer Inc. and includes a mutual fund from High Returns Fund Company, ABC might get direct compensation from the Big Employer Plan, and High Returns might get indirect compensation via ABC.
The indirect compensation reporting rules do apply to health plans, and they may or may not apply to the costs and expenses that an insurer incurs in connection with a “general account investment contract that promises a guaranteed rate of return,” EBSA officials write in the new batch of guidance.
The “contingent deferred sales charges” paid to the distributors of an investment fund held in a retirement plan might be treated as either direct or indirect compensation, the officials write.
“Market value adjustments or similar surrender or termination charges that are adjustments to the value of the investment in accordance with the contract would not be reportable compensation for Schedule C purposes where the market value adjustment or surrender charge reflects only the contractual difference in the value of the plan’s investment because it was not held for the stated duration of the contract,” the officials write.
EBSA officials also answer a question about an employer that “pays all direct expenses relating to the administration and funding of benefits of an unfunded, self-insured welfare plan, such as the third-party claims administration expenses under an employer-pay-all disability plan.”
The commenter who asked the question wants to know whether revenue-sharing payments among the plan’s service providers be have to be reported on Form 5500 Schedule C.