The Big Difference between Form 5500 Filing Requirements for Welfare and Retirement Plans

Posted By Tyler Starr, CPA

Disclaimer: All blog posts are valid as of the date published.

In “The DOL can use large retirement plan filings to uncover missing welfare plan filings,” we discussed the importance of plan sponsors not forgetting to file a Form 5500 for their health and welfare plans, when filing the annual Form 5500 for their retirement plan. Health and welfare plans include medical, dental, life insurance, scholarship funds, severance pay, disability, apprenticeship and training plans just to name a few of the welfare benefit plans listed in the Form 5500 instructions.  EFAST electronic filings have made it possible to easily isolate potential noncompliance, and the DOL has been known to send notices 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.

Why has the DOL targeted large retirement plans? Because companies with large retirement plan are also likely to cover enough people for their welfare plan to have a filing requirement, although the correlation is not certain because how participants are counted is different for retirement plans and welfare plans.

General Filing Requirements

The general rule is that for any year in which a welfare plan had 100 or more participants on the first day of the plan year, the Form 5500 must be filed within 7 months of the close of the plan year:  July 31 for a calendar year, with extensions available. Unlike retirement plans, welfare plans do not have a filing requirement as a small plan. For that reason, the 80-120 exception that allows previously small retirement plans that are growing to cover over 100 participants to elect to continue to file as a small plan until they reach 121 participants on the first day of the plan year, as described in our blog “I don’t want to grow up, I want to be a small plan,” is not available to welfare plans. The reason is that to benefit from the 80-120 election, a plan must have filed a Form 5500 in the previous year. Welfare plans and retirement plans that cover more than 100 people on the first day they are created cannot use the 80-120 election because they did not submit a filing in the previous year.

How to Define Participants

The big difference between welfare and retirement plans is the definition of a participant. For welfare filing requirements, participants should only include employees, or former employees, who actually subscribe to receive continuation coverage benefits as defined by ERISA, not those who are eligible to receive benefits but do not subscribe to receive coverage. Here’s how the filing instructions of Form 5500 define a participant, located on Page 16:

“An individual becomes a participant covered under an employee welfare benefit plan on the earliest of:

  • the date designated by the plan as the date on which the individual begins participation in the plan;
  • the date on which the individual becomes eligible under the plan for a benefit subject only to occurrence of the contingency for which the benefit is provided; or
  • the date on which the individual makes a contribution to the plan, whether voluntary or mandatory.”

See 29 CFR 2510.3-3(d)(1), the DOL Regulations lists the same definition for participants covered under a welfare benefit plan.  Spouses and dependents are not counted for purposes of determining filing requirements. This differs from retirement plans, as the definition of participant includes employees eligible to participate, even if they choose not to participate

Is a Financial Statement Audit Required too?

Ready for some more good news? For welfare plans that are self-funded, fully insured, or a combination thereof, there is no audit requirement. If benefits and/or insurance premiums are paid directly from the general assets of the employer/plan sponsor, or through insurance rather than a trust, there are no financial statements for the plan and, as a result, no financial statement audit to attach to the filing. If the plan uses a trust, however, it will be considered a funded plan, and an audit will be required if there are 100 or more participants.

Get Your Count Right

With that in mind, plan sponsors that offer more than one type of welfare benefit under the same umbrella welfare plan must count employees who receive each type of benefit if only one Form 5500 is filed for all the relevant welfare benefits offered under the same umbrella plan.  If separate plans offer separate benefits and multiple Forms 5500 are filed, then each Form 5500 would report the employees subscribed to each benefit offered under that Form 5500.  To determine whether one filing or multiple Forms 5500 must be filed, plan sponsors must understand whether they have a wrap document that offers all welfare benefits under one umbrella welfare plan, or separate welfare plans. It is also important to remember that the plan year and the policy year do not have to coincide. Information entered on the Schedule A of the Form 5500 should pertain to any policy year ending with or within the plan year. Multiple Schedule A’s for different welfare benefit coverages with multiple policy years that differ from the plan year on the umbrella plan document can be included with one Form 5500 filing.

In summary, for health and welfare plans, if an active participant is eligible to participate but chooses not to elect a benefit in an employer-sponsored welfare benefit plan arrangement, that participant is NOT counted as participating for Form 5500 purposes. So, to determine if employees are in or out, employers really do have to count the same group of heads twice, one time for the welfare plan and one for the retirement plan, and the final counts will likely have different results.  In the employee benefit world, 1+1 does not always have to equal 2.

Photo by (Sarah Barker) License