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Guest maddie

Stop Loss insurance premiums in audited financial statements vs. Form

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Guest maddie

The AICPA's guide on audits of employee benefit plans clearly says that an audit of a funded health and welfare plan is an audit of the PLAN and not the TRUST. A plan may establish a trust to hold assets to pay all or PART of the covered benefits. We have been auditing and reporting on plans for years where we show stop loss premiums paid and stop loss refunds received by the Plans. For Form 5500 purposes, the stop loss premiums do not have to be reported if they are in the name of the Plan Sponsor, which is usually the case. Because of this, we are including them on the face of the financials, excluding them on the Form 5500, and preparing a reconciling footnote in the notes to the financial statements. Is this the proper treatment? Shoud we be showing them in the financials at all?

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Speaking as an actuary with no special insight into the mind of the AICPA, I believe that the reason that they audit the plan and not the trust is because for auditing purposes (for purposes of properly showing the existence and financial impact of the health plan on the sponsoring employer's financial statements), it really makes no difference whether the employer funds the plan through a VEBA, through a grantor trust or in an account of the corporation.

Form 5500 need not be consistent with the audit. But you are suggesting that an employer establishes a VEBA trust and then purchases and pays stop-loss premiums outside the trust ("in the name of the Plan Sponsor"). That is not only inappropriate but should be noted on the audit and corrected. Your question only arises because your clients are messing up. As an auditor, you should note their incorrect treatment in the audit report so as to CYA. Otherwise you have liability also.

The problem is that unless there are 2 health plans (one the self-insured coverage funded through the VEBA, the other the insured stop-loss plan with an insurance company or companies), the plan is not being operated consistent with the terms of the plan documents. Of course this may not be true if the health plan does not mention the VEBA Trust and is simply described as an employer-provided health plan, but that would be unusual.

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