Tax Article - Form 5500 Filing Requirements - Welfare Benefit Plans (Insurance Plans)
Employers sponsoring welfare benefit plans ("insurance plans" i.e. health etc.) may be failing to comply with IRS Form 5500 filing requirements. Failure to file penalties is generally assessed on a per day basis and can grow quite large quite rapidly.
Only unfunded, fully insured or combination unfunded/insured welfare plans with fewer than 100 participants at the beginning of the plan year are exempt from the requirement to file a Form 5500. The combination of several special rules, definitions and exclusions make compliance with this statement difficult.
Welfare and Fringe Benefit Plan Filing Summary
The words "funded" and "unfunded" are used in the filing summary outlined below. These terms are defined as follows:
A funded plan in one in which benefits are either (or a combination of both) of the following:
-Contracts of policies issued by an insurance company (or similar organization) qualifying to do business in any state. The insurance premiums must be paid directly to the insurance company by the employer or employee organization from its general assets, or partly from its general assets and partly from contributions by its employees or members (under the condition that the contributions by plan participants are forwarded by the employer or the employee organization within three months of receipt). Additionally, funds to which contributing participants are entitled must be returned to them within three months of receipt by the employer or employee organization, and contributing participants must be informed when they enter the plan about the provisions of the plan regarding the allocation of refunds.
-Self-funding. A self-funding plan is one with money set aside in a trust or separately maintained fund (including an IRC Sec. 501 (c)(9) trust) that is used to hold or transfer plan assets or disburse plan benefits during the plan year.
Find out how our expertise in non-profit accounting can add value to your organization. Email us or call us at 1 (888) 875-9770.
An unfunded plan is one in which plan benefits are paid as needed directly and exclusively from the general assets of the employer or the employee organization that sponsors the plan. A plan is not unfunded if it used a trust or separately maintained fund to hold or transfer plan assets or disburse plan benefits during the plan year, or if it received employee (or former employee) contributions during the plan year (because such contributions are required to be held in trust). Note, however, that this trust requirement has been suspended for cafeteria plans and for other contributory welfare plans if they apply participant contributions to premium payments within three months of receipt (ERISA Technical Release 92-01). Some unfunded plans such as sick pay, vacation pay and holiday pay are regarded as "payroll practices" and, as such, have no Form 5500 filing requirements.
Plan (IRC Sec. 125 plan)
choose between cash and nontaxable benefits. The plan typically has
flexible spending accounts and/or a full menu of benefits choices
(medical, dental, etc.). Participants may use pretax dollars to pay
for some benefits (e.g., medical and dental premiums). Plans that
provide benefits under ERISA (e.g., medical benefits) are welfare
benefit plans. All cafeteria plans are fringe benefit plans.
Notice 2002-24 suspended the filing requirements for all fringe
benefit plans under IRC Sec. 6039D. However, if the plan provides
ERISA benefits, it is a welfare benefit plan and must file Form 5500
unless it meets a DOL filing exclusion.
plan (POP) or Premium conversion plan
(group-term life insurance, dental, disability income, vision care,
accidental death and dismemberment, and/or health care) are provided
from employer and/or pretax employee contributions. Employees choose
between pretax premium payments or taxable salary. This employee
option makes this plan a cafeteria plan under IRC Sec. 125. See Item
providing medical, surgical, hospital care, accident, disability,
or death benefits
plans are welfare benefit plans and fringe benefit plans. If part or
all of the insurance premiums are paid for by participants with pretax
dollars, then the plan is a cafeteria plan and is discussed in Item
file Form 5500 unless the plan meets one of the DOL filing exclusions.
assistance program (EAP)
employees in furthering their education. Educational assistance
includes tuition, fees, books, supplies, and equipment. It does not
include meals, lodging, or transportation.
not required to file Form 5500 since IRS Notice 2002-24 suspended the
filing requirements for this plan.
care assistance plan (DCAP)
care for employees' dependents. Benefits may be employer maintained
day care centers, cash reimbursement, or dependent care centers.
Form 5500 filing required (DOL Reg.2520.104-25; IRS Notice 90-24).
pay for employees who are absent from work due to illness. Unfunded
plans are not welfare benefit plans (DOL Reg. 2510.3-1(b)(2)) or
fringe benefit plans under IRC Sec. 6039D. Funded plans are welfare
Form 5500 filing requirements for unfunded plans. However, funded plans must file Form 5500. (The small plan exception does not usually
apply to a funded sick pay plan because the funding mechanism is not
and holiday pay
pay for employees who are on vacation or absent from work because of a
holiday. Unfunded plans are not welfare benefit plans (DOL Reg.
2510.3-1(b)(3)(i)) or fringe benefit plans under IRC Sec. 6039D.
Funded plans are welfare benefit plans (Mackey
v. Lanier Collection Agency and Services, Inc.)
Form 5500 filing requirement for unfunded plans. However, funded plans must file Form 5500. (The small plan exception does not usually
apply to a funded vacation pay plan because the funding mechanism is
not usually insurance.)
payments to terminate employees. May provide payments for voluntary or
involuntary separations. These plans are not fringe benefit plans.
They are, however, welfare benefit plans. Whether or not funded.
||Funded and unfunded plans must file Form 5500 unless one of the DOL filing
assistance plan (EAP)
provides benefits, which may include referrals, counseling, or
treatment for various items, such as drug abuse, alcohol abuse,
marital problems, depression, etc.
that provide counseling and treatment of health and medical problems,
such as drug and alcohol abuse, anxiety, and depression, are welfare
benefit plans and must file Form 5500 unless one of the DOL filing
exclusions. Plans that simply make
referrals from a published list of community resources are not welfare
benefit plans and do not have a Form 5500 filing requirement (DOL
Opinion Ltr. 91-26A).
assistance programs (AAP)
payment for qualified adoption expenses for the adoption of a child by
the employee. Such plans are fringe benefit plans. They are not
welfare benefit plans.
Notice 2002-24 suspended the filing requirements for all fringe
benefit plans under IRC Sec. 6039D; therefore, this plan is not
required to file.
Share this article:
New IRS Form 990 Instructions for Tax-Exempt Organizations
International Tax Services
International Newsletters and Articles
Track your Refund
Tax Tools and Calculators