Stop-loss is a critically important benefit for plans that have self-funded policies. Generally speaking, the DOL considers this benefit to protect the Employer or the plan if under a trust. It typically does not protect the participants/employees.
If the benefit does not protect participants, is this benefit ERISA-reportable, thus requiring a Schedule A to be included in the Form 5500 filing?
The answer depends on how the benefit is funded and who the policyholder is. Also, as you read the following paragraphs, please note that there is no one universal answer. We have been informed by the DOL that each situation with stop loss needs to be reviewed on a case-by-case basis, and that the plan sponsor and their legal counsel need to make the final determination.
|The plan (under a trust): Funds from the plan assets*||
|The stop-loss policy protects the plan directly after being funded via the plan assets and the stop-loss reimbursement goes back to the plan assets. The Schedule A as a result would be included in the Form 5500 filing.|
|The employer: Funds from its general assets or insurance premium||
|The policyholder protected is the employer, and the stop-loss reimbursement goes back to the employer, not the plan. A Schedule A would not be included in the Form 5500 filing. For further clarification, please reference the DOL Advisory Opinion letter 92-02A.|
*The stop-loss policy needs to be listed within the Trust and ERISA Plan Documents to be included in the Form 5500.
What if participant contributions are used to fund the stop-loss premium and the plan is not under a trust**?
Plan sponsors may be incorporating the cost for the stop-loss policy when determining the participant’s portion of the premium or their employee contributions. Since employee contributions may be considered plan assets, this action of accepting employee contributions that are used for the stop-loss policy may inadvertently lead to the requirement for a Schedule A for a stop-loss to be included in the Form 5500 report, even though plan assets are not held in a trust.
We have been informed by some ERISA attorneys that if the plan document specifies that the employee contributions are going to the stop-loss policy and funds collected from the policy’s reimbursement are applied back to the employees’ contribution level, the stop-loss is protecting the plan and participants. A Schedule A would be required.
** If employee contributions are temporarily held in general assets and are then directed to insurance carriers within 90 days of receipt, a trust is not required as noted under Technical Release 92-01.
What if the details are not outlined in a plan document or the reimbursements are not given back to the plan from the stop-loss?
The plan sponsor has the responsibility to review with an ERISA attorney if a Schedule A is to be included with the Form 5500. Wrangle’s position is to follow the instructions of the plan sponsor and their legal counsel. As we do not have access to all plan details, we cannot advise other than to encourage that the wrap plan document and SPD be used for guidance.
The DOL’ s Input on Stop-Loss
The DOL has written about stop-loss in two advisory letters. Both letters do not elaborate on what happens when employee contributions are applied to the stop-loss payment. This is the grey area that many find themselves facing. These advisory letters are noted below for additional reference material.
- Except for the use of participant contributions to partly fund the medical benefit portions of the plans, the facts surrounding the purchase of the policies will be identical in all material respects to the facts surrounding the purchase of the stop-loss insurance policy described in Advisory Opinion 92-02A.
- With respect to the use of participant contributions to fund in part the benefits under the plans, there is in place an accounting system that ensures that the payment of premiums for the policies includes no employee contributions.
- The purchase of such insurance will not relieve the plans of their obligation to pay benefits to plan participants, and the stop-loss insurer has no obligation to pay claims of plan participants.
- The policies will reimburse the plan sponsors only if the plan sponsors pay claims under the plans from their own assets so that the plan sponsors will never receive any reimbursement from the insurer for claim amounts paid with participant contributions.