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:

Funded Plan

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. 

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Unfunded Plan

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 Description Filing Requirement
  1. Cafeteria Plan (IRC Sec. 125 plan)
Participants 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.  IRS 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. 
  1. Premium-only plan (POP) or Premium conversion plan
Benefits (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 1.  See Item 1. 
  1. Plan providing medical, surgical, hospital care, accident, disability, or death benefits
These 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 1.  Must file Form 5500 unless the plan meets one of the DOL filing exclusions.
  1. Educational assistance program (EAP)
Assists employees in furthering their education. Educational assistance includes tuition, fees, books, supplies, and equipment. It does not include meals, lodging, or transportation.  Is not required to file Form 5500 since IRS Notice 2002-24 suspended the filing requirements for this plan. 
  1. Dependent care assistance plan (DCAP)
Provides care for employees' dependents. Benefits may be employer maintained day care centers, cash reimbursement, or dependent care centers. No Form 5500 filing required (DOL Reg.2520.104-25; IRS Notice 90-24).
  1. Sick Pay
Provides 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 benefit plans.  No 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 usually insurance.)
  1. Vacation and holiday pay
Provides 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.) No 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.)
  1. Severance pay plan
Provides 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 exclusions. 
  1. Employee assistance plan (EAP)
Employer provides benefits, which may include referrals, counseling, or treatment for various items, such as drug abuse, alcohol abuse, marital problems, depression, etc. Plans 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).
  1. Adoption assistance programs (AAP)
Provides 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.  IRS Notice 2002-24 suspended the filing requirements for all fringe benefit plans under IRC Sec. 6039D; therefore, this plan is not required to file. 

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