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.
Many health and welfare plans will qualify for a limited annual reporting exemption, and those are not required to file a Form 5500 Schedule C, EBSA officials write.
“Where the plan is eligible for that limited exemption, the fact that there are revenue sharing payments among the plan’s service providers would not mean that such a plan would be required to complete a Schedule C,” officials write.
Officials have included a long section in the guidance about educational conference subsidies.
They describe a benefits service firm that provides educational conferences for employer plan personnel at no cost to the plan personnel. To run the conference, the firm pays for conference rooms, speakers, audio-visual equipment, and refreshments.
“Paying for or reimbursing plan personnel for travel, meals, and lodging expenses associated with the plan representative’s attendance at an educational conference generally constitutes reportable Schedule C compensation because it is provided due to the person’s position with the plan,” EBSA officials write about the conferences. “Waiver of any conference registration fee would also be reportable indirect compensation. The cost of the meals, travel, lodging, and waived conference registration fee must be included in the calculation of Schedule C reportable compensation for the recipients.”
But a plan would not have to include an “allocated share of the costs of the conference rooms and audio-visual equipment,” officials write.
A plan need not report educational conference expenses on Schedule C if a plan fiduciary other than the plan representative ensures that paying for the representative to attend the conference would be prudent; the payment complied with a written plan provision designed to prevent abuse; the conference had a reasonable relationship to the duties of the attending plan representative; and the expenses for attendance were reasonable and unlikely to compromise the representative’s ability to carry out his or her duties.
“The fiduciary’s determination must be in writing,” EBSA officials write.
“This guidance is for purposes of Schedule C reporting only,” officials warn. “Filers are strongly cautioned that gifts and gratuities of any amount paid to or received by plan fiduciaries may violate [the Employee Retirement Income Security Act] and give rise to civil liabilities and criminal penalties.”