Trade Groups Fuss over Fee Disclosure Proposal

September 22, 2006 ( - Several industry groups have complained bitterly to the US Department of Labor (DoL) over the proposed changes to Form 5500, particularly its more detailed fee disclosure requirements.

The DoL’s Employee Benefits Security Administration published the details of the proposed Form 5500 alterations this summer. The proposal includes removal of the existing limit on the number of entities plans must include on Schedule C as plan providers who received directly or indirectly $5,000 in compensation for plan services or position with the plan. The list is currently limited to the top 40 plan providers by compensation.

Generally, the proposed revisions would establish a new Form 5500-SF (short form), remove the IRS-only components from the Form 5500, eliminate the limited reporting for Code §403(b) plans and add new questions regarding Title I compliance, and pension plan funding.

In its comment letter written by Senior Counsel Lisa Bleier, The American Bankers Association complained that simply ramping up the amount of data being demanded about plan operations would not necessarily fulfill regulators’ policy agenda. “Finally, changing the Form 5500 in the manner proposed will not, we believe, achieve the public policy goal of better disclosure,” Bleier wrote. “Increased disclosure is not meaningful disclosure. “

Bleier also called for a delay in the proposed changes’ effective date of January 1, 2008. “Bank systems have never collected the type of information proposed to be included in the Form 5500,” she wrote. “Such systems cannot collect this type of information without systemwide redesign and reprogramming.”

The ERISA Industry Committee (ERIC) likewise blasted the tougher fee disclosure in comments from President Mark Ugoretz. "The elimination of the "top forty" limit on service provider information will create a substantial administrative burden for employers and will result in increased plan administration costs," Ugoretz asserted.

If regulators were adverse to continuing to restrict the disclosure requirement to the to top 40 providers, Ugoretz said they should set another "reasonable" alternative. - perhaps, he suggested, a new limit of the top 80.

"The current proposed revision of the "top forty" requirement will not help employers to make sound decisions about plan service providers," Ugoretz complained. "However, implementing a reasonable, practical limit on service provider information would result in transparency while containing plan costs and fees."

Ugoretz also complained about new proposed questions about the asset allocation of certain pooled funds held by defined benefit plans with 1,000 or more participants. Even though regulators apparently felt the information would have already been gathered for a company's Securities and Exchange Commission (SEC) 10-K filing, Ugoretz pointed out that the data in the SEC filing is as of the company's measurement date as set by the Financial Accounting Standards Board (FASB), which he said may be different than a plan year or plan's valuation date.  

Finally, in a comment statement prepared by the Reporting & Disclosure Subcommittee of the Government Affairs Committee of The American Society of Pension Professionals & Actuaries (ASPPA) , the organization suggested the definition of "enumerated service provider" for listing in Schedule C should be revised to eliminate service providers such as contract administrators, custodians, trustees, recordkeepers and appraisers. Additionally, the group said the fees disclosed should be limited to fees paid by the plan (rather than disclosure of fees shared by service providers that do not affect plan costs) and to reduce costs of compliance, plans and service providers should have maximum flexibility to use estimates or proxies for disclosure.

"This disclosure will not provide useful information to plan sponsors in selecting or monitoring a service provider's fees," the group said in its statement. "Furthermore, and perhaps more importantly, other service providers will be required to disclose such a large volume of information that it could obfuscate information that might be useful to a plan sponsor."

Other comments in the ASPPA statement included:

  • The DoL should incorporate more information on forms and schedules rather than on attachments "to ensure uniform reporting by plan administrators."
  • Section 403(b) plan sponsors need clarification about whether their plans are subject to ERISA Title I and should get more time to comply with the proposed rules in general.
  • The issue of deemed distribution of loans calls for questions in the "Compliance Questions" section of Form 5500-SF to clarify and/or simplify.
  • The filing requirements of 5500-SF should be clarified.
  • The information proposed for Schedule B, line 12, should become part of a Pension Benefit Guaranty Corporation (PBGC) filing.