Human Capital & Careers

DoL Rule Mandates E-filing

By 2009, companies offering pension, 401(k), and health-benefit plans must be technology savvy.
Marie LeoneJuly 26, 2006

A new Department of Labor regulation requires companies to file their benefits annual reports electronically, starting in 2009. The new rule, announced last Thursday, affects annul reports dated January 1, 2008, or after. The protracted start will give plan and service providers, “time to adapt to the new electronic system,” noted a DoL statement.

Better known as Form 5500, the report is a requirement of the Employee Retirement Income Security Act of 1974 (ERISA), and is filed annually with the DoL, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation. Form 5500 is the primary source of public information about the operation (including broker and advisory fees), funding, assets, and investments of employee pension, 401(k), and health-benefit plans.

While the new regulation streamlines collection and dissemination of benefits data, the transition from paper to electronic filing may cause some problems — albeit minor — for smaller plan sponsors.

“This new state-of-the-art system will increase the accuracy of information used by the public and the government,” commented Ann Combs, Assistant Secretary of Labor, in a statement announcing the new rule. One likely outcome of improved speed and accuracy is better tracking of delinquent filers, suggests Kevin O’Hara, director of compliance at specialty insurance broker Corporate Synergies Group.

O’Hara reckons that besting the current turnaround time for giving the public and government access to Form 5500 data will lead to an increased number of error corrections, as well as enforcement actions, for any filers that misrepresent financial data. A DoL spokesperson confirmed that “better” enforcement was one of the areas that the e-filing program could improve. Currently, it takes about a year for DoL to process and disseminate the data, estimates O’Hara.

O’Hara doesn’t think larger companies will have problems ramping up internal systems to meet the e-filing deadline, although some small companies — those with 100 plan participants or less — balked at the electronic filing idea when it was initially proposed last year.

The new regulation is consistent with the government’s recent show of enthusiasm for electronic filing. The IRS is promoting voluntary income tax filing for individuals and corporations, while the PBGC already mandates electronic filing of pension data.

The e-filing process should save time and cost in the long run. However, some compliance problems loom, especially for smaller companies, notes Reem Janho, government filings practice leader at CCA Strategies. For example, each plan sponsor must obtain an Electronic Filer Identification Number (EFIN) from DoL before filing electronically. The EFIN is an identification code and a password, and setup and testing of the software and encryption running the system may be a problem for companies that are not electronically savvy, contends Janho. Indeed, smaller companies may have to start from scratch to install systems and train staff — or hire third-parties to prepare filings on their behalf, she adds.

Other transition hurdles focus on accuracy. For instance, when filing paper reports, attaching additional documents to Form 5500 schedules was acceptable. However, in many cases, the e-filing rule requires plans sponsors to input data gathered from various sources on to the schedule itself, explains Janho. Witness Schedule SSA (Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits). In that case, companies must develop a process to coordinate, input, and ensure the accuracy of data culled from internal systems, outside actuaries, and third-party record-keepers.

Also, says Janho, there are significant privacy concerns related to sending sensitive data — such as Social Security — numbers via the Internet. Such security concerns are not likely to lessen in the year 2009.