What Is a DFE on Form 5500? An Explanation
Unpack Direct Filing Entities (DFEs) and their structured approach to Form 5500 reporting for employee benefit plans.
Form 5500 is an annual information return filed with the U.S. Department of Labor (DOL), Internal Revenue Service (IRS), and Pension Benefit Guaranty Corporation (PBGC) for employee benefit plans. A Direct Filing Entity (DFE) is a specialized category within Form 5500 reporting, serving as a distinct mechanism for investment arrangements that hold assets on behalf of multiple employee benefit plans.
What is a Direct Filing Entity (DFE)?
A Direct Filing Entity (DFE) is a specific type of investment vehicle that voluntarily files its own Form 5500 to provide information on assets held for various employee benefit plans. A DFE centralizes reporting for certain pooled investment arrangements. This centralized reporting streamlines the compliance burden for individual plans that invest in these entities.
Common types of entities that qualify as DFEs include master trust investment accounts (MTIAs), common/collective trusts (CCTs), pooled separate accounts (PSAs), and 103-12 investment entities (103-12 IEs). A master trust holds assets of more than one plan sponsored by the same employer or by a group of related employers, with a regulated financial institution as trustee. CCTs and PSAs are investment vehicles managed by banks or insurance companies that pool assets from multiple unrelated plans.
These entities hold assets collectively for numerous plans, making it more efficient for the investment vehicle to report its aggregated financial information directly. While filing as a DFE is optional for CCTs, PSAs, and 103-12 IEs, it is a mandatory requirement for master trust investment accounts. The Employee Retirement Income Security Act (ERISA) and IRS regulations define and govern these arrangements.
DFE Reporting Structure on Form 5500
The DFE reporting structure integrates the investment vehicle’s financial information into the broader Form 5500 framework, creating a consolidated reporting advantage. A DFE files a single “master” Form 5500 that encompasses the aggregated financial data and participant information for all participating plans invested in the DFE. This master filing typically includes specific schedules, such as Schedule D (DFE/Participating Plan Information) and Schedule H (Financial Information) or Schedule I (Financial Information – Small Plan).
Schedule D provides details about the DFE itself and lists the identifying information for all plans that participate in the DFE. Schedule H or I reports the DFE’s financial position, including assets, liabilities, income, and expenses. This centralized reporting allows individual participating plans to file a simplified Form 5500 by referencing the DFE’s filing, rather than individually reporting their proportional share of the DFE’s underlying assets.
The DFE provides a comprehensive financial picture of the pooled assets. Participating plans benefit from reduced reporting burdens, as they can simply indicate their investment in the DFE on their own Form 5500, often by entering the DFE’s identification number and the value of their interest. This structure allows for efficient oversight by regulatory bodies while minimizing duplicative reporting for plan administrators.
Information Required for DFE Filings
Preparing a Direct Filing Entity (DFE) Form 5500 requires a comprehensive collection of specific information and documentation. The DFE must provide its unique identification numbers, such as its Employer Identification Number (EIN). Aggregated financial information for all participating plans, reflecting the total assets, liabilities, income, and expenses attributable to the DFE, must be compiled.
The DFE filing also necessitates reporting the total participant counts across all plans that invest in the DFE. Specific identifying details for each participating plan are required, including the plan’s name, EIN, and plan number.
Confirmation of any required audited financial statements for the DFE is important. Large plans and DFEs are generally required to attach Schedule H, which often necessitates an independent qualified public accountant’s (IQPA) report. The DFE’s plan administrator and other relevant fiduciaries must also be identified. Specific schedules, such as Schedule D, which lists participating plans, and Schedule H or I, which detail aggregated financial data, must be completed and attached to the Form 5500. Official forms and instructions are available on the Employee Benefits Security Administration (EBSA) website.
The DFE Form 5500 Submission Process
Once all necessary information has been gathered and the Form 5500 and its applicable schedules are completed, the submission process for a Direct Filing Entity (DFE) primarily occurs electronically. Form 5500 filings, including those for DFEs, are mandated through the EFAST2 (ERISA Filing Acceptance System) system. This electronic platform streamlines the filing procedure.
The general steps for electronic submission involve registering for EFAST2 credentials. Filers can prepare the Form 5500 either by using EFAST2’s web-based filing system (IFILE) or by utilizing EFAST2-approved third-party software that generates an XML file. The completed form is then electronically signed by the authorized individual.
Participating plans that invest in a DFE benefit from this centralized filing by referencing the DFE’s submission on their own Form 5500. This is accomplished by entering the DFE’s EIN and the DFE’s file number on their respective Form 5500 filings, reducing the detailed reporting they would otherwise need to provide for assets held within the DFE.