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. 

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.

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