Posted by Christopher J. Ciminera
*Post was updated 12/17/14 to further clarify this topic.*
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.
Like the situation I got myself in, plan sponsors may be filing their retirement plan 5500s, but have forgotten their “little sister” welfare plans. As a testament to this, recently a client asked me about the possibility of having to file 5500s for its health and long-term disability plans. It appears the Department of Labor (DOL) has isolated 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 identify such non-compliance. Like the reminder from my mom prior to forgetting my sister, the DOL (acting as a mother reminding her son)is reminding plan sponsors by sending e-mail notifications to plan sponsors who have filed a 5500 for their LARGE 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 easier.
So why is it a red flag to the DOL if a large retirement plan 5500 with a Schedule H has been filed, but not a 5500 for a large health and welfare plan? If a Form 5500 with a Schedule H is filed for a large retirement plan, then the retirement plan benefits over 100 participants. Generally, a health and welfare benefit plan will cover the same employees listed as active retirement plan participants, such that if the retirement plan shows more than 100 active employees on the participant count, then the welfare plan likely has to file a Form 5500 too. So 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 which is covered by ERISA is required to file a 5500. The 5500 instructions list welfare plan benefits as medical, dental, life insurance, apprenticeship and training, scholarship funds, severance pay, and 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.
2. A welfare benefit plan maintained outside the US primarily for persons substantially whom 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 1) an individual or an individual and his or her spouse, who wholly own a trade or business, whether incorporated or unincorporated, or 2) 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 just as bad if you forget your “little sister” health and welfare plan filing.