The Form 5500 report discloses how the Plan Sponsor’s funds are allocated for participants’ Health & Welfare (H&W) benefits. The Department of Labor (DOL) expects this section to be completed with 100% accuracy. Here are the key details to know:
What Funding Characteristics Are Specified?
A Health & Welfare Plan can incorporate three types of funding, which are not required to be mutually exclusive. The Plan Sponsor may choose one funding method or a combination of methods.
The Three Funding Types:
Funded Plan
Payment of benefits comes from Plan Assets. The ERISA Plan must be held in a trust.
- Contributions from Plan Participants are generally considered Plan Assets. However, if certain criteria are met, a trust may not be required. See Technical Release 92-01 below.
Unfunded Plan
Benefits are paid solely from the employer’s general assets. Benefits under self-insured and level-funded models typically fall into this category.
- Level funding is a form of self-insurance. However, the Plan Sponsor should be careful about how funds are handled by a Third-Party Administrator (TPA), especially if the TPA is not an insurance carrier. To learn more, click here.
Insurance
Premiums are paid directly to the insurance carrier.
- Under Technical Release 92-01, even when employee contributions are applied toward benefits, the Form 5500 funding may still be considered an unfunded plan if contributions are remitted to carriers within 90 days of receipt.
Each of these three funding types directly impacts how the Form 5500 is completed. The Plan Sponsor must determine which funding boxes to check. Wrangle can assist in determining which schedules should be included based on the selected funding arrangement.
What Is Technical Release 92-01?
Under ERISA Sections 403 and 404, all ERISA plan assets must be held in trust and used exclusively for paying benefits and plan administration expenses.
Employee premium contributions to welfare benefit plans are generally considered plan assets. However, the DOL issued Technical Release 92-01, which removes the trust requirement if:
- Contributions are made under a Section 125 Plan
- Contributions are remitted to insurance carriers within 90 days of receipt for fully insured benefits
- Contributions remain in general assets and are not segregated for self-insured benefits
Where is Funding Specified in the Form 5500?
Funding is specified on page two of the Form 5500 under sections 9a and 9b.
Note: Sections 9a (2) and 9b (2), relating to Code Section 412(e)(3) Insurance, do not apply to Health & Welfare filings.
Which Schedules Are to Be Included is Based on the Funding of the Plan?
| Funding & Benefit Arrangement | Details | What to Include in the Form 5500 |
| Insurance | Fully insured benefits. Benefits are paid through premiums to the carrier (excluding stop-loss insurance). | Schedule A |
| Trust (funded plan) | Plan Assets held by a trustee and maintained separately from the employer’s accounts. | Large Trusts: Schedule H + IQPA audit as well as C, D, and G if required Small Trusts: Schedule I, and Schedules D and G if required |
| General Assets (unfunded plan) | Self-insured unfunded plan. Employer pays only the administrative service (ASO) fees to the carrier | No Schedules |
More on a Funded Plan / Plan Held in Trust
If funds are held in one of the following arrangements, there is a strong likelihood that a trust exists. A trust arrangement generally requires a Form 5500 filing regardless of group size.
- Funds are held in a TPA account rather than within the Plan Sponsor’s general assets.
- Funds are held by a TPA that is not a health insurance carrier such as Aetna, Cigna, etc.
- Funds are held in a separate account of the Plan Sponsor, but the TPA does not have check-writing authority to use the funds.
The DOL’s Form 5500 Instructions indicate that funds handled in this manner may require a trust.
Under the Form 5500 Instructions – “Who Is Required to File”
Plans that are not unfunded include plans that:
- Received employee (or former employee) contributions during the plan year, and/or
- Used a trust or separately maintained fund (including a Code Section 501(c)(9) trust) to hold plan assets or act as a conduit for transferring plan assets during the year.
What to Do if You Are Uncertain About Funding Arrangements With a TPA
Review the service agreement with the TPA and ask:
A. Is the account holding the funds in the Plan Sponsor’s name or the TPA’s name?
B. How are refunds handled?
We also encourage you to seek guidance from an ERISA attorney for review and advice.
For questions regarding funding, please email Ann McAdam at info@wrangle5500.com.