MEWA and Collective Bargaining Unique Benefit Codes

Multiple Employer Welfare Arrangements (MEWAs) and Collective Bargaining Arrangements tend not to be on many radars. Nevertheless, there is the likelihood that you will run into one if not both types of attributes for your groups’ 5500 at some point. As a result, we wanted to ensure you were aware of two benefit codes that may apply to these filings; however, we encourage you to be very cautious in using them. If you find out that your filing has had them inserted in the 5500 reports, we urge you to have the data checked by the company’s accounting and legal, as appropriate. You may need to amend to have the code(s) removed.

The two codes that would be found on page two Section 8 of the Form 5500 are from the IRS:

• 4T: 10 or more employer plans under Code section 419A(f)(6)
• 4U Collectively Bargained Welfare Benefit Arrangement under Code section 419(f)(5)

They are to be used (1) if there is a trust and (2) if the groups have further deductions that they can apply. Per the IRS, “contributions to a welfare benefit fund are deductible when paid, but only if they qualify as ordinary and necessary business expenses of the taxpayer and only to the extent allowable under § 419 and § 419A of the Code” The IRS has strict limits. However, if these codes are used, then the Plan Sponsor is declaring that they meet an exception to some of these limits. The IRS may choose to review and audit to see if in fact, the Plan Sponsor meets the criteria to be able to go beyond the limits imposed.

Click here to learn more on 4T and click here to learn more on  4U deductions under 419(f)(5).

As a result, a client’s CPA should be called to confirm their usage. If the IRS runs an audit and finds these codes in the 5500, they may do a deeper dive to review the taxes. Penalties could come into play.

If the benefit code has been incorrectly used, we would encourage for the Form 5500 report to be amended. As a reminder, if Wrangle prepared the report in the past, we would amend at no additional charge.

If you have any questions or would like to discuss, feel free to contact Ann McAdam, at amcadam@wrangle5500.com.