Friday, October 23, 2009

EBSA issues additional guidance on 2009 Form 5500 Schedule C

The DOL announced the issuance of additional guidance on Schedule C reporting for 2009 Form 5500:

Washington – The U.S. Department of Labor's Employee Benefits Security Administration (EBSA) today released additional guidance to help plan administrators and service providers comply with the expanded requirements for reporting service provider fee and compensation information on the Form 5500 Annual Returns/Reports. The expanded requirements apply for plan years beginning on or after January 1, 2009.

The new guidance is provided in the form of 25 frequently asked questions (FAQs) on the new Schedule C requirements. Some of the issues covered in the new FAQs include reporting of:

  • Gifts, entertainment and other non-monetary compensation
  • Compensation to hedge fund investment managers
  • "Look-through" investment funds
  • Mutual fund redemption fees
  • ERISA fee recapture accounts

Today's FAQs also provide clarification regarding the 2009 plan year transition relief for service providers by explaining that the transition relief also covers plan administrators and Form 5500 preparers who rely on those service providers for information needed to complete the Schedule C. The details about the transition relief were explained in an earlier set of FAQs released in July 2008.

The new FAQs are available on EBSA's Web site at Questions for the FAQs were developed based on feedback from the employee benefit community. The new FAQs supplement previous guidance FAQs on the Form 5500 Schedule C published in July 2008.

Supplemental FAQs About The 2009 Schedule C

  1. What is the purpose of this FAQ guidance?
  2. Are promotional gifts of little intrinsic value such as a coffee mug, calendar, greeting cards, plaques, certificates, trophies or similar items intended solely for the purpose of presentation and displaying a company logo, reportable Schedule C indirect compensation to the recipient?
  3. Are all free business meals and entertainment received by persons who have business relationships with ERISA plans indirect compensation to the recipient for purposes of Schedule C?
  4. An entity that provides services to employee benefit plans conducts educational conferences designed to educate and explain employee benefit issues and products at no cost to employee pension or welfare plan personnel (e.g., plan sponsor's human resources staff and finance personnel). In holding the conference, the entity provides conference rooms, speakers, audio-visual equipment, and refreshments during conference breaks, meals, travel, and lodging. Do all of those expenses have to be reported as non-monetary compensation?
  5. In the context of a plan's investment in a "look-through" investment fund is Schedule C reporting required for fees received by persons at the lower tier funds?
  6. For purposes of reporting indirect compensation on Schedule C, must a limited partnership hedge fund that is not holding plan assets pursuant to the "less than 25% benefit plan investor exception" under section 3(42) of ERISA be treated as an investment fund?
  7. Can mutual fund 12b-1 fees, sub-transfer agent fees, and shareholder servicing fees received by a retirement plan record keeper be classified as eligible indirect compensation for purposes of the Schedule C alternative reporting option, regardless of whether such fees were received from a mutual fund agent or directly from a mutual fund?
  8. Revenue sharing payments often travel through the hands of several different service providers before getting to their ultimate intended recipient in a "chain" of plan service providers. Does only the ultimate recipient of the compensation need to be identified as having received the compensation?
  9. Are costs and expenses incurred by an insurance company in connection with a general account investment contract that promises a guaranteed rate of return reportable compensation for purposes of the Schedule C?
  10. The July 2008 guidance in FAQ 40 provides limited transition relief where a service provider makes reasonable, good faith efforts to develop systems to track information regarding its reportable indirect compensation in a timely fashion but, despite such efforts, is unable to collect the necessary information for the 2009 plan year reports. Will the Department reject the Form 5500 or impose penalties if the Schedule C does not include information that was not provided to the plan administrator or the plan's Form 5500 preparer by a service provider that gives the plan administrator the statement described in Q40?
  11. Are "contingent deferred sales charges," market value adjustments for annuity contracts, or surrender/termination charges reportable compensation and if so, are they to be reported as direct or indirect compensation?
  12. Some mutual funds have imposed short-term trading fees as a result of SEC Rule 22c-2. These are commonly known in the industry as "redemption fees." Other investment products (collective trust funds, separate accounts, etc.) may impose similar fees to curb short-term trading. Such fees are generally assessed when a participant transfers out of an investment fund within a certain timeframe (often 30-60 days) after investment in the fund. The fees flow back into the fund, trust, or account through a reporting and remittance process developed between the record keeper or intermediary and the fund or investment company. Should these fees be reported as redemption fees using code 57 on Schedule C as direct compensation to the fund company?
  13. Record keepers may receive revenue sharing payments from fund companies in the form of shareholder servicing fees. In some cases, the plan and the record keeper may agree to an "ERISA fee recapture account" where the revenue sharing exceeds a fee level negotiated between the record keeper and the plan sponsor. How are the following two common approaches treated for Schedule C purposes?
  14. any recordkeeping service arrangements apply some portion of a shareholder servicing fee charged by an investment fund in which its client plans invest toward the payment of the record keeper's fees. In cases where such revenue sharing payments from the investment fund do not cover the full amount of the record keeper fee, an additional direct payment is made by the plan to the record keeper to cover the total recordkeeping fee. Under such circumstances, can part of the recordkeeping fee be reported as indirect compensation and part direct compensation for purposes of Schedule C reporting?
  15. If plan service providers or plan administrators make a good faith attempt to classify their services and the fees they receive using the codes in the Schedule C instructions, will the Department reject Form 5500s in 2009 due to inadvertent misclassifications?
  16. Provider A has an "alliance" with Provider B. Provider B has developed a program to assist participants in fund selection. Provider A pays Provider B a flat fee of $20,000 to have access to the Provider B program, regardless of whether any of Provider A's plan clients use it. Plan Z pays a direct fee to Provider A of $5,000 that allows Plan Z participants to access Provider B's service. Provider A shares $1,000 with Provider B.
  17. By what date must the disclosure materials necessary to satisfy the "written disclosures" requirement for treating indirect compensation as eligible indirect compensation be presented to the plan administrator?
  18. If it is difficult to ascertain the Employer Identification Number (EIN) for some service providers that are part of a group of affiliated companies, would it be sufficient to provide the EIN of a "parent" company?
  19. May reporting of fees and expenses for plans with assets invested in a Master Trust Investment Account (MTIA) be reported on the Form 5500 filing for the MTIA rather than the Form 5500 filing for each plan involved?
  20. If a trade confirm is sent to the plan or to the participant with each participant directed trade made through a 401(k) plan brokerage window, does that meet the requirements of the eligible indirect compensation rule that requires disclosure to the plan administrator?
  21. If a broker identifies, for each plan with respect to which it receives 12b-1 fees, shareholder service fees, subtransfer agency fees charged against an investment fund and reflected in the value of the plan's investment, the name of each fund and range of payments it receives: (e.g. "from all these funds we get between 25 and 45 basis points and/or up to 15 dollars per position") will that satisfy the disclosure requirements for the eligible indirect compensation alternative reporting option?
  22. If an investment advisor has a standard disclosure on soft dollar compensation that meets the requirements of the securities laws, but would not meet the requirements of the alternative reporting option for eligible indirect compensation because it does not provide estimates or descriptions of eligibility criteria or the names of the brokers paying the soft dollar compensation, do additional disclosures need to be provided?
  23. Are group health plans and other welfare benefit plans that are required to file a Schedule C subject to the indirect compensation reporting requirements?
  24. In the health plan context, and specifically with regard to health care claims, what fees will be considered as charged on a per transaction basis?
  25. Assume that a plan sponsor 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. No plan assets are used to pay any direct expenses, nor are plan assets used to reimburse the plan sponsor for the payment of direct expenses. Would revenue sharing payments among the plan's service providers be required to be reported on a Schedule C?

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