Is stop-loss coverage considered ERISA-reportable, thereby requiring inclusion of a Schedule A with the Form 5500 filing?
The answer depends on two key factors:
- Funding method
- Designated policyholder
| Policy Holder | Answer | Why? |
| The Plan (under a Trust): Funds from the Plan Assets | Yes | 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. |
| Employer: Funds from its General Assets or Insurance Premium | No | 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. |
What if Participant Contributions Are Used to Fund Stop-Loss Premiums and the Plan Is Not Held in Trust?
Because employee contributions are considered plan assets under ERISA, using those contributions to fund stop-loss premiums can trigger the requirement to include a Schedule A for the stop-loss policy as part of the Form 5500 filing—even in cases where plan assets are not maintained in a trust.
Additionally, some ERISA counsel advised that if the plan document explicitly provides that:
- Participant contributions are allocated, in part, to fund the stop-loss coverage; and
- Any reimbursements received under the stop-loss policy are applied to offset participant costs or otherwise benefit the plan.
Then the stop-loss coverage may be deemed to provide protection to the plan and its participants. In such cases, inclusion of a Schedule A may be required.
Conversely, if the plan document does not clearly address these elements, or if stop-loss reimbursements are not returned to the plan or used to benefit participants, the reporting determination becomes less clear. In these circumstances, the Plan Sponsor must consult with qualified ERISA counsel to assess whether Schedule A reporting is required as part of the Form 5500.
Wrangle’s position is to rely on the direction of the plan sponsor and its legal advisors. As we do not have access to all plan-specific details, we cannot make definitive reporting determinations. Plan sponsors are encouraged to review their wrap plan document and Summary Plan Description (SPD) as part of their evaluation. For more information, reach out to Ann McAdam at info@wrangle5500.com.
The DOL’s Input on Stop Loss
The DOL has written on 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.
In 2015, the DOL issued an advisory opinion on Stop Loss (2015-02A), declaring Stop Loss as not a Plan Asset to the Plan if:
a. 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.
b. 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.
c. 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.
d. 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.