Demystifying Trust Form 5500s

When a new client comes on board with a Trust ERISA Plan, you may feel a wave of uncertainty and know just enough of what needs to be done to be dangerous. Do you have any of the following questions in your mind: What is required? When? How does the report all come together? Is that IQPA (Independent Qualified Public Accountant) report really needed by the DOL? If you have any of these questions, be sure to read up on the eight most common questions that we receive, and their answers.

1. Why is a Trust Required?

To be honest, setting up a trust can happen inadvertently, even if you don’t properly set up an official Trust Agreement/Document. When a client segregates specific funds outside of general assets under the Plan’s name, the funds are deemed as Plan Assets. ERISA requires them to have extra care and attention to ensure that those funds are used properly for Plan Participants’ interests. To meet this provision, the funds are to be overseen and managed by an appointed person or entity, the fiduciary who handles “plan funds or other property,” and are thus considered to be in a trust.

Per the DOL: ERISA Opinion Letter 94-31A , 09/09/1994

… If an employer takes steps that cause the plan to gain a beneficial interest in particular assets, under ordinary notions of property rights, such assets would become plan assets.

Considering the costs for managing a trust (see below), if a trust is definitely not wanted, the Plan Sponsor needs to be careful on three fronts:

a. Section 125 Plan

Employee Contributions (withdrawn pre-tax via Section 125) that are funneled to the Plan Sponsor’s general assets account need to be allocated to the carriers within 90 days of receipt (as outlined by Technical Release 92-01). If the timeframe extends beyond 90 days, the trust may be required.

b. Insured Benefit

Technical Release 92-01 also applies when the insured benefit is funded with insurance funds and general assets. Employee contributions from general assets are to be allocated within a reasonable time to the carrier, and the Plan Sponsor has the policy outlining how to handle funds if the insurance carrier refunds money or has another type of repayment to the Plan Sponsor, such as a rebate.

c. TPA Involved on Handling Funds

The TPA and Plan Sponsor need to set up an account under the Employer’s name, and best practice is for the TPA to have check-writing ability for an account under the Employer.

This was supported by Technical Release 92-01:

“The mere segregation of employer funds to facilitate administration of the plan would not in itself demonstrate an intent to create plan assets.”

As further protection for the Employer, the Plan Document should state that the monies remain as property of the employer, not the TPA.

If the account is under the TPA name, or if the TPA segregates all funds into one account for all of the employers who use the TPA’s services, the need for a trust comes into play.

Costs for a trust:

• Cost to manage by a trustee – in the six figures
• Auditor for the IQPA: Starting at $10,000

2. The group is under 100 enrolled active employees + ex-employees/COBRA. Is a filing required?

Yes, trusts file as long as there are plan assets, even if there are zero enrolled.

3. What comes first: Schedule H or Audit?

The Audit is needed to create the Schedule H. However, Wrangle can insert beginning year data (from previous year’s end data) to help the auditor.

4. Do we include a Schedule A for Stop Loss?

Yes. When the Plan (not the employer) pays the premium for the stop loss, the Schedule A is included.

5. “Are we there yet?” Why is this taking so long?

We all know audits take a long time. However, the larger issue is the interplay amongst the auditor, Wrangle, the broker, and the client. With so many critical players involved and so much information flowing back and forth, a conference call to discuss the process would greatly benefit all involved, if held early in the process. Wrangle is always available to participate and provide details on what is needed to complete the Form 5500 and the special trust Schedules.

6. Why don’t you use the Schedule C from Carriers?

If the Plan’s Assets paid for services for the Plan, and those services were $5,000 or more total, then those services should be reported on the Schedule C.

These fees should be provided by the auditor and/or the accountant as they have access to the payables from the trust fund assets. These are the most accurate payments and highly preferred over the Carriers’ Schedule Cs.

Other notes to mention on the Schedule C:

• It is only for large group Trusts
• If premiums and commissions are reported on a Schedule A, do not report these amounts on the Schedule C
• The purpose of the Schedule C is not to report self-insured benefits. Instead, it is to report fees paid out of trust funds assets. These might include marketing, legal, accounting, or administration of benefits costs
• There are numerous service codes – see page 27 in the Form 5500 Instructions

To learn more on Schedule Cs, read up in a past blog piece covering this topic.

7. What is included in a trust filing?

Item Needed	Small	Large	Notes
Form M1 (for MEWAs only)	x	x
Schedule A	x	x	For fully insured benefits, including Stop Loss
Schedule C		x	Reports fees of $5,000 or more paid out of trust fund assets for services to the plan.
Schedule D	x	x	Applicable for DFEs and MEWAs, CCTs, PSAs, MTIAs, 103-12 IEs, and GIAs). Also applicable if the funds are within a collective trust, which would be noted on the Schedule H.
Schedule G		x	Must complete if Schedule H, Line 4b, 4c, or 4d is required to be checked “Yes,” or, even where Schedule H is not required, to report any non-exempt transactions.
Schedule of Assets		x	Provided as part of the audit and must be attached when e-filing, if indicated as present in the Schedule H.
Schedule H		x
Schedule I	x
IQPA audit		x
Document outlining trans-actions in excess of 5%		x	Provided as part of the audit and must be attached when e-filing, if indicated as present in the Schedule H.

8. We don’t have the IQPA report ready. Can we file the 5500 send without it for now, and then include it with an amended report?

The report is mandatory per ERISA.

An IQPA (Independent Qualified Public Accountant) is to prepare an annual audited financial statement of a plan’s operations per ERISA § 103(a)(3)(A). The independent qualified public accountant’s opinion must be made a part of the Annual Report and may rely on the correction of any certified actuarial matter, provided the accountant expressly states he is so relying on the Annual Report per ERISA § 103(a)(3)(B).

To send without the IQPA report can lead to a penalty. The letters that we have read from the DOL list the penalty amount as high as $50,000. If the IQPA report is not available, we encourage an ERISA attorney to be brought in to advise on what can be done. There would be two choices:

• Risk sending without and then amend when the IQPA is ready
• Hold until the audit is available and pay the DFVC late penalty fee of $10 per day (the fee caps at $2,000 after it is late for 200 days or more for the first year).

No doubt trusts are very complicated and time-consuming. We are here to help every step of the way. Feel free to contact Ann McAdam if you have any questions: amcadam@wrangle5500.com.