Posted by Christopher J. Ciminera
When I was younger my little sister would come to the park with my friends and me. One day I was walking back with my friends and realized I forgot my sister who was left playing with friends. Unlike retirement plans, most welfare plans are a combination of unfunded and fully insured, so they don’t file a Schedule H with plan financial information, and they do not have to attach audited financial statements to the Form 5500 filing, so large welfare plan sponsors often forget the filing requirement, just like I forgot my little sister.
As a testament to this, someone recently asked me about the requirement of file 5500s for its health and long-term disability plans. It appears the Department of Labor (DOL) has identified lack of welfare plan filings as a potential problem, since there have been a few articles indicating that the DOL has started a program to curtail such non-compliance. Like the reminder from my mom prior to forgetting my sister, the DOL is reminding plan sponsors by sending e-mail notifications to plan sponsors who have filed a 5500 for their retirement plan but have not filed a 5500 for their health and welfare plan. The mandated electronic filing requirements have allowed the DOL to pick out these red flags much more easily.
You may wonder, why is it a red flag to the DOL if a retirement plan 5500 has been filed, but 5500 for a health and welfare plan has not? Well, the requirements for both are that the plans must file a 5500 if the plan benefits 100 or more participants. If a 5500 is filed for a retirement plan, then the retirement plan benefits over 100 employees. Generally a health and welfare benefit plan will cover those same retirement plan participants and thus need to be reported to the DOL.
Let’s discuss the requirements for a health and welfare benefit plan to file a 5500.
A health and welfare plan that covers 100 or more employees and is covered by ERISA is required to file a 5500. The 5500 instructions list welfare plan benefits as medical, dental, life insurance, short- and long-term disability, to name a few.
There are exceptions to the requirement for a health and welfare benefit plan covered by ERISA to file a 5500.
The exceptions listed in the 5500 instructions are:
1. A welfare benefit plan covering fewer than 100 participants at the beginning of the plan year and is unfunded, fully insured, or a combination of insured and unfunded.
a. Unfunded – benefits paid as needed directly from the general assets of the employer or employee organization that sponsors the plan.
b. Fully Insured – benefits provided exclusively through insurance contracts or policies, the premiums of which must be paid directly to the insurance carrier by the employer or employee organization from its general assets or partly from contributions by its employees or members. The insurance contracts or policies discussed above must be issued by an insurance company or similar organization (such as Blue Cross, Blue Shield or a health maintenance organization) that is qualified to do business in any state.
c. Combination unfunded/insured – benefits provided partially as an unfunded plan and partially as a fully insured plan. As an example, a welfare plan that provides medical benefits as in an unfunded welfare benefit plan and life insurance benefits as in a fully insured plan.
Plans are NOT unfunded if they received employee contributions, except for cafeteria plans.
2. A welfare benefit plan maintained outside the US primarily for persons who are nonresident aliens.
3. A governmental plan.
4. An unfunded or insured welfare benefit plan maintained for a select group of management or HCE (which meet certain requirements).
5. An employee benefit plan maintained only to comply with workers’ comp, unemployment comp, or disability insurance laws.
6. A welfare benefit plan that participates in a group insurance arrangement that files a Form 5500 on behalf of the welfare plan.
7. An apprenticeship or training plan (which meet certain requirements).
8. An unfunded dues-financed welfare benefit plan.
9. A church plan.
10. A welfare benefit plan maintained solely for a) an individual or an individual and his or her spouse, who wholly own a trade or business, whether incorporated or unincorporated, or b) partners or the partners and the partners’ spouses in a partnership.
There are a number of exceptions and specialized terms. It is best to discuss this with those who are familiar in this area to determine if the health and welfare plan meets one of the above exceptions.
So, in conclusion, don’t forget to file your organization’s “little sister” health and welfare plan 5500 filings. Although my mother’s admonishment for forgetting my sister was pretty bad, I know the DOL is worse if you forget your “little sister” health and welfare plan filing.