On August 12th, Wrangle hosted our second national webinar: Demystifying Form 5500s and Nondiscrimination Testing. We thought all would benefit to read a portion of the Q&A from the attendees. We have selected two questions for each topic discussed:
Form 5500s and Schedule As:
Question: The 2020 Form 5500 is going to be the first year my group files a 5500. It has a Wrap SPD and each of the two policies have different plan anniversary dates – medical is 6/1, but all the ancillary is 10/1. What date should I use for the ERISA plan date: 6/1 or 10/1 on the SPD?
Answer: The ERISA Plan year can be set as a calendar year, fiscal year, or match the policy renewal dates. The Plan Sponsor will choose and then list it in the Wrap Plan Document. Typically, the information is found within the first few pages of the Plan Document. The policy periods can be different from the ERISA Plan year and these policy periods would be listed on the Schedule As.
Please note the policy periods cannot exceed the ERISA Plan Year. For example, the Wrap Plan document lists a calendar year as its ERISA Plan year: January 1, 2020 to December 31, 2020. One of the policies is 6/1. For the Schedule A, you would list: 6/1/2019-5/31/2020. If you listed 6/1/2020-5/31/2021, this would be incorrect since it exceeds 12/31/2020. Always feel free to ask Wrangle for assistance. Mapping out policy periods within a 5500 report can be tricky.
Question: Is the plan sponsor responsible to reconcile the Schedule A data? We do often find errors.
Answer: The 5500 filing is the responsibility of the Plan Sponsor. However, the Schedule A data does come from the carrier. Often, the data may not always match up to the employers’ billing/accounting records, typically due to lags in reporting. Keep in mind that the 5500 is not an accounting or tax form and is not required to match accounting records. If there are errors, the plan sponsor would need to work with the insurance carrier to correct the Schedule A. If the Plan Sponsor goes ahead and makes the changes without involving the carrier, the carrier is no longer held liable for the Schedule A data.
Summary Annual Report (SAR):
Question: Are there penalties if an employer does not provide a SAR?
Answer: The penalties for not being prepared to distribute the SAR are significant:
- If a SAR is not available within 30 days of a written request from a participant the penalty fee is $110 per day.
- If a SAR is not available for the DOL when requested during an audit, the penalty fee is $161 per day (not to be greater than $1,613 per request).
Question: Do Plan Sponsors need to send SARs to ex-employees who left the plan mid-plan year and had no continuing benefits or relationship with the plan at the end of the plan year? Is there a deadline to send the SAR to termed employees and does it include those on post-tax plans only?
Answer: Termed employees, including those who chose not to enroll in COBRA, who were enrolled within the Plan year are to receive the SAR by the same deadline for the active employees: within two months of the Form 5500 efiling deadline. Any participant, in any benefit, for any period of time, must receive the SAR.
If the benefit was endorsed by the Plan Sponsor and part of the ERISA Plan, even if the employees paid 100% of the premium post-taxed, the former participant is to receive the SAR.
Question: Our client’s EAP is bundled with life. It does not require commissions or premiums. In addition, the carrier did not mark EAP on their Schedule A. It is simply an add-on. Does the 5500 still reflect the benefit?
Answer: Yes, the Schedule A’s M box labeled “Other” under 8b on page four will be checked. This box represents miscellaneous. We will type out: Employee Assistance Program. Furthermore, we also would include the benefit code 4Q which represents “Other” on page two of the 5500 to specify that the EAP is part of the 5500 filing.
Question: Do all of the endorsement elements have to be met or is one enough to make it an ERISA Plan?
Answer: Only one of the elements of being endorsed needs to be met for a benefit to lose its safe harbor status.
Question: Does the eligibility test apply to the new hire waiting period between classes?
Answer: They are eligible if they are in a waiting period, just not participating yet.
Question: Who doesn’t have to do the ND Testing?
Answer: NDT is not required for fully insured plans or post-tax plans. However, it is rare to see an employer without a cafeteria plan so most will have to do at least Section 125 testing.
Wrangle will continue to strive to be an educational source for you and your clients. Future webinars of our Demystifying series will be released in 2022. In the meantime, we do provide 101 and 201 trainings at no cost to teams of ten or more people. If you would like to schedule a training, please contact Ann McAdam at firstname.lastname@example.org.