Frequently Asked Questions

Under ERISA Title I, there are various reporting and disclosure provisions needing to be met. One of those requirements is satisfied by the Health and Welfare (H&W) Form 5500 Annual Report. It is used to report information concerning employee benefit plans. More specifically, it is comprised of various schedules with information on the financial condition and operation of the Plan.

Per the Department of Labor (DOL) and IRS, this report is required to be e-filed annually by many Plan Sponsors (see question six for further details). The requirements for completing the Form 5500 will vary according to the type of plan or arrangement.

The primary reason for the Health and Welfare Form 5500 is to meet the ERISA Title I compliance provisions on reporting. It is intended to assure that employee benefit plans are operated and managed in accordance with certain prescribed standards. These standards exist to ensure that participants and beneficiaries have access to sufficient information to protect their rights and benefits under employee benefit plans. Additionally, the DOL, IRS and other governmental agencies, including Congress use the data for research in assessing employee benefit, tax, and economic trends and policies.

A Health and Welfare Benefit plan, also known as Welfare Benefit Plan or Employee Welfare Benefit plan, is any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise: medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services.

Please note: Several payroll practices are specifically excluded from the definition of employee welfare benefit plans (namely overtime, shift, holiday and vacation pay as well as certain time off).

The following two points provide the due dates for the Form 5500:

• Form 5500s are due the last day of the 7th month after the end of the plan year
• Form 5500s can be extended for an additional 2 ½ months, if the extension (Form 5558) is filed prior to the original due date

A plan sponsor must furnish a Summary Annual Report (SAR) to plan participants. The principal purpose of the SAR is to provide participants with information regarding the plan’s financial condition and to summarize information provided in the Form 5500.

The SAR is due within nine months after end of the ERISA Plan Year or two months after the filing Form 5500 due date (with an approved extension).

• Small funded plans -Trust plans (unless deemed unfunded Technical Release 92-01)
• A welfare benefit plan that covers 100+ participants* as of the first day of ERISA Plan year such as:
  • Large unfunded plans (or deemed unfunded by Technical Release 92-01
  • Large insured plans
  • Large combination unfunded/insured plans
• Plans required to file Form M-1: MEWAs **

* Participants are the Enrolled Subscribers +enrolled COBRA subscribers +enrolled Retirees (if applicable)

 **A MEWA is a multiple employer welfare arrangement as defined in section 3(40) of ERISA, and Entities Claiming Exception (ECEs), as defined in 2520.101-2. Generally a MEWA is a plan maintained by two or more employers. However, if the employers are deemed to be a part of the same “controlled group”, they would not be considered a MEWA, but a single employer plan.

A welfare benefit plan that covers fewer than 100 participants* as of the first day of the plan year and is unfunded, fully insured or a combination of insured and unfunded.

* Participants are the Enrolled Subscribers +enrolled COBRA subscribers +enrolled Retirees (if applicable)

Starting with the 2013 plan year, this exemption does not apply to a plan that is a MEWA that is required to file an M-1 must file a Form 5500.

• A welfare benefit plan maintained outside the United States for persons substantially all of whom are non-resident aliens
• Governmental Plans
• An unfunded or insured welfare plan for a select group of management
• An employee benefit plan maintained only to comply with workers’ compensation, unemployment compensation or disability insurance laws
• An apprenticeship or training plan
• Church Plans

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). This includes former employees who are receiving group health continuation coverage benefits pursuant to Part 6 of ERISA and who are covered by the employee welfare benefit plan. Covered dependents are not counted as participants.

Severe fines can be imposed for each day that the filing is not in compliance. There is only one way a plan administrator can remedy a delinquent filing; take advantage of EBSA’s Reduced Penalty Program (Delinquent Filer Voluntary Compliance – DFVC) which allows for voluntary compliance and payment of reduced penalties.

A Schedule A (Insurance Information) consists information about insurance contracts under which plan benefits are provided. The premiums paid (applicable to both experience and non-experience contracts), plus fees and commissions paid to brokers, agents, or other persons are to be noted are outlined by the carrier in the Schedule A.

A Schedule C: The purpose of the Schedule C is to provide information about service providers’ fees and compensation. This Schedule is only reported in a Form 5500 if the plan is funded through Plan Assets (ERISA Plan is under a Trust).

A MEWA is a multiple employer welfare arrangement as defined in section 3(40) of ERISA, and Entities Claiming Exception (ECEs), as defined in 2520.101-2. Generally a MEWA is a plan maintained by two or more unrelated employers who share benefits particularly medical. 

MEWAs have additional compliance mandates to meet; ERISA attorneys should be brought in to assist.

There are in fact instances when bundling all benefits under a Wrap Plan would not be advisable. In general if there are variations within a Plan such as funding; a Wrap Plan would not work. For example,

A group of employers are part of a controlled group. They all share the benefits and contribute. However, there is one benefit that is isolated and funded by just one of the employers solely for its employees. This establishes a separate Plan. The Form 5500 instructions highlight this fact by the following statement found on page 14:

A separate Form 5500, with line A (single-employer plan) checked, must be filed by each employer participating in a plan or program of benefits in which the funds attributable to each employer are available to pay benefits only for that employer’s employees, even if the plan is maintained by a controlled group.

If all entities join the plan and each requires different waiting periods, eligibility, and contribution rates it most likely will fail the 105(h) benefits test.

If the entities want to keep those plan designs they might want to consult a legal advisor who could help them set up the plan so each group’s self-funded benefits can be tested separately.

Treas. Reg. § 1.105-11(c)(4)(i) provides that a single plan document may be used for two or more self-insured plans, provided “that the employer designates the plans that are to be considered separately and the applicable provisions of each separate plan.” Based on this guidance, some employers divide their self-insured benefits into multiple plans for testing purposes. Disaggregation can be risky because it is unclear what criteria the IRS uses to determine whether multiple plans are truly separate. If the plans are administratively intertwined, backed by the same stop-loss policy, or otherwise operationally entangled, the IRS may disallow the disaggregation.

Technically speaking, 125 testing is to be done after the end of each plan year, but if the plan passed the first test and utilization is good, a lot of groups skip years. 105h testing regulations don’t require annual testing.

ERISA Desk’s suggestion is to test when the plan is set up to get the eligibility and benefits tests right, for 125 plans: after the end of each plan year if the group is risk sensitive, mid-year if they think they have a utilization problem, and whenever there are major business changes that affect enrollment (I.e. Mergers/acquisitions).

If each entity has a separate HR Department handling participant questions, all HR contacts (address/phone/etc.) can be added to the documents.

• First-class mail
• Second- or third-class (w/ return/forwarding postage guaranteed and address correction requested)
• Inclusion in company publications if the mailing list includes all covered participants and a notice is added to the cover announcing that the SPD is contained in the publication;
• Hand-delivery at the worksite (keep a log)
  Determining whether an SPD was furnished to a participant or beneficiary is an important issue in litigation. An employer should be prepared to prove that it furnished one in a way “reasonably calculated to ensure actual receipt,” using a method “likely to result in full distribution.”

The requirements for employees with work-related computer access—Definition of work-related computer access: Employees have the ability to access documents at any location where they reasonably could be expected to perform employment duties. In addition, access to the employer’s electronic information system must be an integral part of their employment duties.

• Electronic materials must be prepared and delivered in accordance with otherwise applicable requirements (e.g., timing and format requirements for SPDs as outlined under ERISA.)
• A notice must be provided to each recipient, at the time that the electronic document is furnished, detailing the significance of the document.
• The notice must advise the participant of their rights to have the opportunity, at their work site, to access documents furnished electronically and to request and receive (free of charge) paper copies of any documents received electronically.
• The employer must take appropriate measures to ensure the electronic distribution will result in actual receipt of information by the participants (i.e. return-receipt.)
• If the disclosure includes personal information relating to an individual’s accounts and benefits, the plan must take reasonable and appropriate steps to safeguard the confidentiality of the information.

Additional requirements for non-employees or employees with non-work related computer access –

• Affirmative consent for electronic distribution must be obtained from the individual. Before consent can be obtained, a pre-consent statement must be furnished that explains:
  • The types of documents that will be provided electronically;
  • The individual’s right to withdraw consent at any time without charge;
  • The procedures for withdrawing consent and updating information (e.g. updating the address for receiving electronic disclosure);
  • The right to request a paper version and its cost (if any); and
• The hardware and software requirements needed to access the electronic document.
• The regulations permit the pre-consent statement to be provided electronically if the employer has a current and reliable e-mail address.
• If system hardware or software requirements change, a revised statement must be provided and renewed consent from each individual must be obtained.
• If the documents are to be provided via the Internet, the affirmative consent must be given in a manner that reasonably demonstrates the individual’s ability to access the information in electronic form, and the individual must have provided an address for the receipt of electronically distributed documents.
• The employer must keep track of individual electronic delivery addresses, individual consents and the actual receipt of e-mailed documents by recipients.

Placing the SPD on a company website will satisfy the electronic distribution rules if the plan administrator (1) uses appropriate and necessary means to ensure that posting the SPDs on a company’s website results in actual receipt; (2) prepares and furnishes the SPDs in accordance with all applicable SPD requirements (e.g., timing and format requirements); (3) provides a written or electronic notice to employees directing them to the website, at the time the SPD is posted, and describing the SPD’s significance and the right to request a paper copy; and (4) provides a paper copy of the SPD on request without charge.

Taking “appropriate and necessary” measures to make sure the posting of SPDs on a company’s website results in actual receipt could include—

• Adding a prominent link from the website’s homepage to the separate section that contains the SPDs;
• Providing directions on the website for how to replace a lost or forgotten password to the extent one is needed; and
• Maintaining the SPDs on the website for a reasonable period of time following notice to employees of their availability.