DOL Proposes Mandatory Electronic Filing of Form 5500
Rev. 11/10/05, E-mail Alert 2005-22

As part of its continuing effort to update and streamline the annual reporting process, the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) has published a proposed regulation that would require plans to file the Form 5500 Series report electronically beginning with plan filings due in 2008, i.e. for plan years beginning on or after January 1, 2007.

Adopting an electronic filing system is consistent with recommendations made by the Government Accountability Office and the ERISA (Employee Retirement Income Security Act) Advisory Council. The proposed regulation would apply to all employee benefit plans required to file Form 5500 reports with the Labor Department. In conjunction with this regulatory initiative, EBSA also will update its current forms processing system – known as EFAST – to ensure that plans and service providers have secure internet-based methods for transmitting filings.

The following is a summary of key points of the proposed regulations:

NEW ENHANCED FILING SYSTEM

• The electronic filing impediments identified by users of the EFAST processing system involving electronic signatures, attachments, and attestations furnished by third parties (e.g., accountants, actuaries, etc.) will be addressed.
  
• The new electronic filing system will incorporate the Internet as the sole medium for transmission of all filings.
  
• The system will incorporate business rules for immediate validity and accuracy checks that will reduce both the error and rejection rate of filings and eliminate much of the costly post-filing paper correspondence and related potential penalties.
  
• The Internet-based transmission process will supercede all of the other currently available methods of transmitting machine-print versions of the Form 5500, including the use of computer diskette, CD-ROM, magnetic tape, and modem.
  
• The DOL does not anticipate charging any filing fees in connection with the new system.
  

FORM 5500 PREPARATION SOFTWARE IS TO BE ACCOMMODATED.

• Filers will continue to rely on a variety of privately developed software products and services to facilitate plan administration, including the preparation and filing of the annual return/report.
  
• DOL anticipates that third-party software will remain the primary means of producing Form 5500s, with the sole difference being that Form 5500 will be filed electronically on an exclusive basis.
  
• Software file specifications will be non-proprietary so that users of different software may freely share information across different platforms. The DOL specifically invited public comment on how best to configure the new electronic filing architecture to provide the necessary flexibility to accommodate information sharing.
  

SYSTEM FLEXIBILITY

• The system would be a dedicated, secure Internet website through which plan administrators (or other return/report preparers) will be able to input data and to complete and submit Form 5500 filings on an individual plan-by-plan basis.
  
• The website would be designed to provide the filer with the capability of entering and saving data for an individual filing through multiple sessions, authorizing input from multiple parties (service providers, accountants, actuaries, etc.), uploading attachments, saving return/reports to a repository, and retrieving, updating, and editing stored filings, as well as creating and submitting amended filing data to EBSA.
  

REVIEW AND REVISION OF FORM 5500
As part of the redesign of EFAST, in coordination with the IRS and the PBGC, EBSA is conducting a thorough content review of Form 5500. This review will be conducted as a three-agency regulatory initiative and will provide notice and comment opportunities for the public. The DOL ‘s focus is on changes that would facilitate electronic filing. The revised forms are expected to be released for public comment this autumn.

COSTS AND BENEFITS
The DOL studied the costs to plans for electronic filing. It made a formal finding they would consist mainly of a one-time, transition or start-up costs.
According to EBSA, the benefits of electronic filing include:

• ongoing savings on material and mailing costs;
  
• automated checks for errors and omissions upon electronic transmission, together with automated error checks and integrated instructions, will ease compliance with reporting requirements. This should alleviate the need for subsequent amendments to submitted filings, as well as help to avoid reporting penalties that might otherwise be assessed for deficient filings. Historically, filers that use a software-based system generally have fewer filing errors according to EBSA;
  
• estimated savings totaling $10 million annually, and realized each succeeding year beginning in 2008. EBSA contends that over time the ongoing savings attributable to this proposed regulation are expected to outweigh its one-time transition costs. Aggregate savings are estimated to exceed aggregate costs by $23 million over the first five years (discounting future savings at a rate of 7 percent);
  
• additional benefits will accrue to the government and the public in the forms of substantially reduced processing costs and more timely availability of accurate filing data for use in enforcement and for other purposes of benefit to plans and participants.
  

Filing Cost Savings
Electronic transmission is expected to eliminate certain costs otherwise attendant to paper filing, including materials and postage. The DOL estimates that, by changing to electronic filing, 829,000 plans will benefit from approximately $900,000 in cost-savings annually, assuming savings of $0.0167 per sheet of paper and $0.57 for postage per filing.
In addition, electronic filing may result in cost savings related to their greater accuracy. For example, EBSA mailed 160,000 letters to filers requesting corrections or additions to 5500 filings for the 2002 plan year. This process delays final submission and requires plans to incur additional costs to address these deficiencies. A shift to an electronic filing system may greatly eliminate EBSA's need to correspond with plan administrators regarding deficient filings, and the aggregate annual cost savings to affected filers could be as high as $10 million.

Small Plans
The DOL believes this regulation may have a significant impact on a substantial number of small plans. As with all other plans regardless of their size, the costs and benefits for small plans will depend on the plans' circumstances. Most will likely incur moderate transition costs and subsequently realize moderate ongoing savings. Some, however, may experience larger impacts, including both larger transition costs and/or ongoing net cost increases rather than ongoing net savings. For example, some small plans may lack experience with or easy access to the Internet. Such plans may incur larger than typical transition costs to gain access to the Internet (or to enlist a service provider with access) and may find it more time consuming, and therefore more costly, to prepare their filing on a government website (or to interact with a service provider) than to prepare their filing using a government printed form that is completed "by hand'' and filed on paper through the mails. The DOL expects that only a minority of plans might be so affected, but that minority might nonetheless represent a substantial number.