Guest Article

IRS Suspends Form 5500 Filing Requirements for Fringe Benefit Plans, With a Catch

By Christine P. Roberts
Mullen & Henzell, LLP
April 11, 2002

The Internal Revenue Service ("IRS") recently announced a suspension, effective immediately, of the annual reporting (Form 5500) requirements for cafeteria plans, educational assistance programs, and adoption assistance programs. However there is an exception to the suspension which is not immediately apparent in the announcement, set forth in IRS Notice 2002-24, and the IRS has had to make unofficial comments to clarify the Notice since its release.

First, a bit of background information is in order. The Employee Retirement Income Security Act of 1974, as amended ("ERISA") requires pension and most welfare benefit to file a Form 5500 Return/Report for each plan year. However, "small" welfare benefit plans that cover fewer than 100 participants at the beginning of a plan year are exempt from the reporting requirement, provided that the plans are "unfunded," i.e., plan benefits are either fully insured, or are paid exclusively from the employer's general assets.

Certain fringe benefit plans that would not otherwise be subject to the Form 5500 reporting requirements under ERISA have until recently been required to report certain information on Schedule F to Form 5500, pursuant to a special rule under Internal Revenue Code ("Code") Section 6039D. The fringe benefit plans subject to this special reporting requirement are cafeteria plans, educational assistance programs, and adoption assistance programs under Code Sections 125, 127, and 137, respectively. Typically, if an employer sponsored a welfare benefit plan that was subject to filing requirements (such as a group health plan covering 100 or more participants) together with a cafeteria plan or other fringe benefit plan mentioned above, the employer would file Form 5500 for the health plan, and attach Schedule F with information about the fringe benefit plan.

By contrast, if an employer's welfare plan was exempt from Form 5500 reporting requirements because it was unfunded and covered fewer than 100 participants, but the employer also sponsored a fringe benefit plan such as a cafeteria plan, the employer would file Form 5500 solely for the purpose of attaching Schedule F with information about the cafeteria plan.

The IRS has now suspended the reporting requirements for the three types of fringe benefit plans mentioned above: cafeteria plans, educational assistance plans, and adoption assistance plans. Because of the way that the IRS worded the Notice, however, confusion arose as to whether the Notice suspended filing requirements only for Schedule F, or also for Form 5500 when it is required in conjunction with Schedule F. In response to inquiry by SunGard Corbel, the IRS has since clarified that the Notice operates to suspend both filing requirements, when related to one of the three types of fringe benefit plans (cafeteria, education assistance, and adoption assistance). That means that employers whose group health plans are exempt from reporting requirements (e.g., fewer than 100 participants, or a government or church plan) but who have been filing Form 5500 & Schedule F solely for their cafeteria plans, need no longer file either Schedule F or Form 5500 for the welfare plan arrangement.

Note, however, that the IRS Notice did not suspend the Form 5500 reporting requirement for welfare benefit plans that, standing alone, are required to file Form 5500 (i.e., must file independent of the fact that the employer maintains a fringe benefit plan subject to reporting under Code Section 6039D). What that means is that an employer who maintains a group health plan with 100 or more participants, together with a cafeteria plan or other fringe benefit plan mentioned above, must continue to file Form 5500 for the health plan only. The employer may stop filing Schedule F to the Form 5500, however, for the fringe benefit plan(s).

The IRS Notice also provides relief from failure to file return/reports for fringe benefit plans in prior years. Therefore, employers who owed "delinquent" submissions from prior plan years need no longer prepare and submit the overdue Form 5500 & Schedule F returns for their fringe benefit plans. Again, the exemption does not apply in instances where Form 5500 was required independent of the existence of a fringe benefit plan. For example, if the employer owed a Form 5500 in a prior year because it maintained a group health plan with 100 or more participants, the employer would be required to file the delinquent Form 5500. If the employer maintained a cafeteria plan in the same prior plan year, however, the employer would no longer need to file the delinquent Schedule F.

The author, Christine P. Roberts, is an attorney with the Santa Barbara, California, law firm of Mullen & Henzell, LLP.

Not for publication or distribution without written permission of the author. All rights reserved. Copyright 2002, Christine P. Roberts.