Section 125 Plan - DOL filing?

[Guest KEK]

I have a Section 125 Plan with over 100 participants that includes both pre-tax premium reimbursement and health FSA. A Form 5500 has never been filed for this plan. (Note: A Form 5500 has been filed for the welfare plan, which is required by the DOL)

Clearly, I have to file the late Forms 5500 under IRC 6039D. My question is "Am I also required to file the Form 5500 by the DOL?"

I have always been under the impression that a Section 125 plan is NOT required to file by the DOL; however, someone recently told me that a Section 125 plan MAY BE required to file by the DOL.

This becomes an issue because I need to know if DFVC is an option. Obviously, if the filing is not required by the DOL, then we won't file under DFVC.

Thanks!

[Guest KEK]

An update to my prior post:

One ERISA attorney just mentioned to me that he believes that the health FSA portion of the plan would qualify as a welfare plan under ERISA and, therefore, be subject to DOL late filing penalties. He believes that if the Section 125 plan were only pre-tax premium reduction, then it would not fall under ERISA.

Anyone have thoughts on this?

[GBurns]

KEK..

What do you mean by "pre-tax premium reimbursement"?

[Guest KEK]

I should have said "pre-tax premium conversion," meaning the opportunity for the employee to pay his/her portion of the premium on a pre-tax basis.

[Guest Dick Boever]

The medical FSA is an ERISA plan and the reporting rules of ERISA do apply.

That said, as a former DOL investigator, I would handle your situation in one of two ways. Neither of which are the textbook answer. But using my common sense approach has saved clients over a half-million in penalties and late fees.

First, file for the most recent closed year and begin filing regulary thereafter. The Form 5500 for the 125 plan is an informational filing and a good faith effort to begin doing it right from now is usually all they ask. A variation of this would to be to file the last late year with a letter requesting waiver of penalties, explaining you thought the Form 5500 for the welfare plan covered this filing as well.

Secondly, you are allowed to file the welfare plan and the 125 plan on the same Form 5500 in some cases. File an amended Form 5500 for the welfare plan for the past three years, check the fringe benefit box and attach a Schedule F. I would then begin filing a separate Form 5500 for the 125 plan beginning with the next filing.

e-mail me if you have any specific questions.

[Guest FAQ]

Originally posted by Dick Boever

The medical FSA is an ERISA plan and the reporting rules of ERISA do apply.

In light of IRS Notice 2002-24, http://www.irs.gov/pub/irs-drop/n-02-24.pdf , is a 5500 still required for a medical FSA?

It seems to me that, since medical FSAs are ERISA welfare benefit plans, the elimination of the filing requirement for certain fringe benefit plans via Notice 2002-24 does not impact the need to file a 5500 for a medical FSA (unless perhaps it is a small welfare plan otherwise exempt from ERISA filing requirements and the 5500 was filed only for purposes of including Schedule F, an IRS-only form).

Assume an employer has 150 employees and offers only a medical FSA. Wouldn't the employer still have to file a 5500? I imagine the difference under Notice 2002-24 would be that no Schedule F would be required (if it is part of a cafeteria plan).

Any thoughts on this?

[Guest KEK]

I agree that a medical FSA with no pre-tax premium conversion is till required to file the Form 5500, subject to the general filing requirements (e.g. over 100 participants for fully insured, general assets, or combination). However, the filing would not include the Schedule F.