Stable Value Industry May Want to Weigh in on Proposed Changes to Form 5500

By Randy Myers


The Department of Labor (DOL) is soliciting public comment on changes it has proposed to Form 5500, the annual report that must be filed by retirement plans subject to the Employee Retirement Income Security Act. Theresa Brunsman, Senior Counsel for Invesco Ltd., suggests that members of the stable value community may wish to take the DOL up on its offer.

Speaking at the 2016 SVIA Fall Forum, Brunsman explained that the main goal of the proposed changes is to get more information from plan sponsors and other direct filing entities that are required to file the form each year, such as master trust investment accounts that hold assets for several different plans. The DOL is counting on the proposed changes to help it better analyze the data in Form 5500 filings, and to better understand where and how retirement plans are investing. Unfortunately, Brunsman said, the changes would make Form 5500 reporting more complicated and more expensive, without necessarily providing any great benefit to the DOL from either a data-mining or plan-disclosure perspective.

Among the more significant proposals is a requirement that plans create an individual Schedule C for each of their service providers, rather than one for all service providers. Plans also would be required to provide more detail about soft dollars and float, which are currently reported as eligible indirect compensation, as well as other factors that Brunsman said would be hard to quantify.

Brunsman said proposed changes to Schedule H of Form 5500 would impact pooled stable value funds. “If you’re a direct filer or collective trust, for example, you are going to have to divide your asset reporting in ways you haven’t had to before,” she said. “Some of the changes about how you report bonds are quite large, and, I think, difficult to implement. For example, you have to report investment-grade and high-yield bonds separately in the corporate bond sector, and you have to base the distinction on the bond ratings in effect at the beginning of the plan year, (which) isn’t how most managers keep track of bond ratings.”

The DOL also has proposed that retirement plans break out hard-to-value assets, Brunsman said, without providing much detail about what would qualify for that designation. “It’s something to have a look at,” she advised her audience, “because it is meant to be anything that’s not listed on a national exchange or over-the-counter market, or for which quoted market prices are not available. Some stable value assets might fall under that category and have to be considered hard-to-value assets, which would not be a good result.”

Elsewhere, Brunsman said, the DOL has proposed that mortgage-backed securities be reported in the real estate category rather than the debt category, where structured bonds are usually classified. It also has made ample provisions for breaking out insurance products, including stable value wrap contracts, but not bank-issued wrap contracts.

“It’s going to be up to industry groups and institutions to offer comment to help the DOL provide better guidance and instructions for the form before it brings the final version out,” Brunsman said. The objective of commenters, she added, should be to make sure that “everyone in the stable value industry, as well as any other asset class, can feel confident they know how to categorize their securities, their derivatives, and anything else, into a bucket that makes sense, and will help plan sponsors and the department.”

Nick Gage, Senior Director and Head of Stable Value Separate Account Strategy for Galliard Capital Management, noted that the SVIA’s Government Relations Committee had a “productive dialogue” with the DOL in June, prior to the announcement of the proposed changes, and that the department seemed open to providing further clarification on some of its proposed changes. But he seconded Brunsman’s observation that members of the stable value community may wish to further weigh in on the proposed changes. The changes are scheduled to take effect in 2019.