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IRS filing requirements for POP cafeteria plan


Guest Betsy Oakey
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Guest Betsy Oakey

I have a 125 cafeteria POP with over 100 participants - do I have to file a 5500 or is this considered a "pure fringe benefit plan? Is this a gray area or am I just overworked and underpaid? I have been hours trying to figure this out.

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A cafeteria plan does not need to file Form 5500. The cafeteria plan is merely a funding mechanism. The health benefit plan (including a health FSA) or other ERISA plan funded through the cafeteria plan is subject to the reporting requirements of ERISA. If you use the cafeteria plan to wrap you ERISA plans it will look like the cafeterial plan is is filing the Form 5500.

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IRS requires it for 100+ groups

I respectfully disagree. The IRS doesn't require a filing.

Betsy, it's best to think of the arrangment as 2 separate "animals": (1) a Sec. 125 plan and (2) the underlying welfare benefit plan.

The Sec. 125 plan is a fringe benefit plan within the meaning of I.R.C. Sec. 6039D(d)(1), and its filing requirements are governed by the IRS. IRS Notice 2002-24 suspended the Form 5500 filing requirements for all types of fringe benefit plans.

The medical insurance benefit, however, is a wefare benefit plan that's subject to the Department of Labor's rules. Unless the plan meets one of the filing exclusions, it's required to file a Form 5500.

In summary:

Sec. 125 plan -- no Form 5500

Medical benefit plan -- maybe, it depends

Lori Friedman

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Guest Betsy Oakey

okay you guys, I am overworked and underpaid and this is a gray area. Or at least hard to understand.

Let me phrase it better. I have one plan, it is a POP only, no other cafe provisions. Over 100 participants. I think you are telling me that it really is two "kinds" of things. First it is a pure fringe benefit plan which no longer needs to be file for as per IRS Notice 2002-24, and second because it deals with medical "benefits" it still needs to be filed for under ERISA because there are over 100 participants. Thank you all

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You cannot have just 1 plan, you have at the least 2 plans. Plan #1 is the health insurance plan and Plan #2 is the POP which is a section 125 Cafeteria Plan which provides the employee share of the premium for Plan #1.

The POP is not the health insurance plan it is only a premium paying mechanism.

If you also have premiums being deducted for other items such as Vision and Dental, those are additional plans.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Betsy, if you're feeling a bit confused by all of this, you have plenty of good company. I really like this language from the PPC 5500 Deskbook:

The term welfare benefit plan...is really a DOL term. In contrast, the term fringe benefit plan is an IRS term. The fact that the same Form 5500 has been used by two different government agencies, the IRS and the DOL, has caused much confusion about which benefit plans must file Form 5500...The IRS suspended the IRC Sec. 6039D filing requirements for fringe benefit plans. The DOL has not changed its filing requirements for welfare benefit plans. Unfortunately, fringe benefit plans may also be welfare benefit plans, and although no longer required to file by the IRS, the plan will be required to file by the DOL unless it meets one of the DOL filing exceptions. Thus, the practitioner must weave through the maze of determining if a plan is a fringe benefit plan or a welfare benefit plan, or both, and then determine if the plan meets either of the filing exclusions of the IRS or the DOL.

Lori Friedman

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We started out saying this is a pure fringe plan, whatever that is. I can't immediately find my F 5500 instructions, but they reference a DOL pronouncement 2001-2 or was it 2002-1, which describes the fringe characteristics that result in exemption from filing). The gist of 2001-2 is that if there's ONLY employee money involved (no chipping in by the employer), and if that money is used within 60 days to pay for premiums, then there's no filing required.

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Doing this from memory, here is my attempt to explain this situation in a comprehesible manner.

1. The POP is not a plan that is governed by ERISA, which position was taken in one or more DOL Advisory Opinions. That is because it is just a means of paying the premiums with pre-tax dollars; it does not provide any medical benefits by itself. Thus, there is no 5500 filing requirement for the POP under ERISA.

2. The IRS has ruled that POPs do not have to file a Form 5500. Thus, there is no 5500 filing requirement under the IRC.

3. It is true that there is at least one other plan, such as a medical plan. (There may also be a dental and/or a vision plan.) There must be another plan or you wouldn't need a POP to pay the premiums with pre-tax dollars.

But the original post didn't ask about the filing obligations for the underlying plan or plans. The question is just about whether there is a Form 5500 filing obligation with respect to the POP.

Kirk Maldonado

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But the original post didn't ask about the filing obligations for the underlying plan or plans. The question is just about whether there is a Form 5500 filing obligation with respect to the POP.

Running with the presumption that the original poster might be interested in knowing about the requirements or lack thereof applicable to the underlying welfare plan--Further review (F. 5500 instructions, left hand column of page 4, second of three 'notes') shows the correct key cite here is DOL Technical Release 92-01 (time flies when you're having fun), aka 57 FR 23272.

The DOL regs describing welfare plan exemptions from certain reporting requirements are 2520.104-20 and 2520.104-44.

Looking at the above cites, my revised gist of it is that a plan with more than 100 participants must file a 5500 but is exempt from the audit if the plan exhibits the relevant specs. And the presence of employer contributions doesn't necessarily hurt the exemption. There can't be a trust and the contributions by employer must be from its general assets.

The employee contributions must be used to pay the premiums within 90 days.

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saabraa -- I think that you were right the first time. Check Notice 2002-24.

I don't understand your comment. Are you saying it's possible a plan with >100 p's can potentially escape filing a 5500 altogether? Notice 2002-24 says "We at IRS are doing a 180. Whereas the former rule was all fringe plans must file, the new rule is that no specified fringe plan need file for IRS purposes. Now you must proceed to step 2 and look at the DOL's welfare plan rules, which are unchanged." (paraphrased).

So we look at the DOL verbiage. I think we have to set aside the subtleties that separate the fringe plan component from the underlying welfare plan(s), when the bottom line question is "do I have to file a 5500 for this arrangement?" I don't understand how an administrator can say that since there's no IRS requirement to file, and since I was hired to deal with the POP part, that's the end of the concern.

Looking at the DOL exceptions from their general rules, I read that the particular arrangement we're discussing must file as a welfare plan but very possibly is exempt from the CPA audit. Haven't quite figured out if the exemptions are merely carving out relief from parts/all of DOL's usual filing/disclosure requirements or are actually concluding that this or that arrangement is now deemed to be (pick one or more depending on the facts): a) not a welfare plan, (b)unfunded after all, even tho it contains employee contributions, ©fully insured after all, even tho it isn't. At this point, I'm thinking I was wrong the first time.

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I thought you originally indicated the POP/cafeteria plan didn't have to file, then changed your mind and said it did.

A stand alone cafeteria plan that is used to fund premiums to an insured plan only is not an ERISA plan. It is only an IRS arrangement that would have had to file under 6039D. In the past, an arrangement that had over 100 participants would have filed a Form 5500 with basically only the Schedule F completed. After 2002-24, that is no longer necessary. No filing for a cafeteria plan that is solely a POP.

There are some cafeteria plans that include flexible spending arrangements, etc. that are considered health plans under ERISA and have to follow the ERISA requirements for filing 5500s. 2002-24 does not exempt them. But that did not sound like the case here.

To the extent you're now addressing the unasked question of whether any filing is required -- for the related health plan on which premiums are being funneled -- I agree that 2002-24 doesn't exempt it.

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--I thought you originally indicated the POP/cafeteria plan didn't have to file, then changed your mind and said it did.

A stand alone cafeteria plan that is used to fund premiums to an insured plan only is not an ERISA plan. It is only an IRS arrangement that would have had to file under 6039D. In the past, an arrangement that had over 100 participants would have filed a Form 5500 with basically only the Schedule F completed. After 2002-24, that is no longer necessary. No filing for a cafeteria plan that is solely a POP.

..........To the extent you're now addressing the unasked question of whether any filing is required -- for the related health plan on which premiums are being funneled -- I agree that 2002-24 doesn't exempt it.

E, your first sentence is correct.

The 2nd sentence is what I originally thought but changed position after reading the regs. Please show me if I missed something: Reg 2520.104-20(b)(1) says there's a filing exemption only if <100 p's at beginning of year. Reg 2520.104-44(e) says if >100, then you don't need an audit but still need 5500. I don't see anything kicking the POP out of the basic welfare plan definition at Erisa sec. 3(1). (Even as I write the prior sentence, the phrase "payroll practice plan" comes to mind. Not sure where DOL talks about these, but maybe that's verbiage defining arrangements not considered to be welfare plans at all).

DOL Technical Release 92-01 deals with finer points of eligibility for the exceptions; i.e., is such and such a situation still going to be considered unfunded or fully insured, for reporting purposes.

Notice 2002-24 was unilaterally released by IRS and explicitly says you have to separately look at the DOL (Erisa) aspect. We're agreed on that.

Correct me if I err in presuming that most service providers enter into contracts to prepare the required 5500 and do not somehow specify that this is only from the perspective of the IRS/fringe/POP, thus leaving the client to get someone else to consider the Erisa part. And just because the original question used IRS lingo and did not explicitly ask about the Erisa part does not mean they're a disinterested party re Erisa.

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Never mind. DOL reg 2510.3-(1)(j) describes the features of the typical POP. This cite does take it out of the welfare plan definition entirely. I'm back with my original response and realize that even though this back and forth stuff is off the cuff, it's still best to fully research something before running one's mouth. Also enforces Mrs. Guenther's rule stated in 6th grade science class, "Your first answer is normally your best."

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Betsy, your question would have been much simpler to answer if you'd asked, "I have a Sec. 127 educational assistance program with over 100 participants. Do I have to file a Form 5500?".

The answer would have been a clear and decisive "no". A Sec. 127 program is a pure fringe benefit plan, governed only by the IRS rules. It's not subject to DOL's filing requirements, regardless of the number of participants.

Because you asked about a POP, however, you have a fringe benefit plan (IRS) that serves as a sort of "umbrella" over a welfare benefit plan (DOL). Your actual POP -- the Sec. 125 element -- doesn't file a Form 5500, but the underlying medical plan has to follow the DOL rules.

Lori Friedman

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  • 3 weeks later...
  • 2 weeks later...
Guest Ira Hayes

A free-standing POP is not a welfare plan subject to Title I of ERISA. IRS Notice 2002-24 suspended indefinitely the requirement to file under IRC Section 6039D Form 5500 along with Schedule F regardless of the number of employees participating in the POP.

Bottom-line, it makes no difference how many participants there are in the free-standing POP authorized through a signed, dated Section 125 POP document. There is no Form 5500 filing requirement for a free-standing POP presently.

In contrast, there is a filing requirement under Title I of ERISA for a Healthcare Flexible Spending Account (HCFSA) having 100 or more participants at the begining of a plan year to file Form 5500. The good news is that if the funding is solely from the general assets of the employer (including pre-tax employee HCFSA contributions), then there is no requirement to prepare and distribute a Summary Annual Report.

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Guest b2kates

But the benefits offered through the POP may be required to file if over 100, i.e. medical reimbursement FSAs are still medical plans, subject to 105(h).

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  • 4 months later...

You folks sound knowledgeable. So, I'll ask my question.

My question is about DOL requirement that a welfare benefit plan be audited by a CPA.

I have read that a "funded" medical plan (with more than 100 participants) has to be audited.

It's my understanding that there are two types of "funded" medical plans.

1. A VEBA.

2. Any plan in which employee participants' money is used to pay (or help pay) for the medical coverage.

Example:

A medical plan of a C-corporationis not insured.

The participants' medical bills are paid by employer (corporation), directly to the medical provider.

However, the employer withholds $10 from each participant's bi-weekly paychek (the employer uses the $10 to help pay the medical bills).

The employer pays (from its general assets) the lion's share of the medical bills. The $10 withholding is minute compared to the overall amount disbursed by employer.

This seems to be an unfunded plan because benefits are paid from the general assets of the employer. There is no VEBA, so at first glance it appers that the plan is not a funded plan. But, the fact that participant's money is also used to help pay the medical bills means to me that the plan is funded (just as if the employer had kept those employee provided monies in a segregated account until needed by employer to pay medical bills). It's like a hybrid unfunded & funded plan.

Questions:

If the above plan has 1,000 employee participants .... does the plan have to audited ?

Does the $10 withholding from participants cause the plan to be funded ?

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  • 11 years later...

I need some help with a question I cannot seem to get answered about a POP 125 Plan.  I am the bookkeeper for a small office 2 employees that are paid by manual payroll.

The owner wants the employees to contribute a portion of their monthly health insurance premium pre-tax. 

There are no other plans in place - this is only for a medical premium.

We have been told to set up a POP Section 125 Plan.  We have a 2 page document written up and it just needs to be signed by the employees.

How is the IRS aware of your plan once it is in place?  I ask because I file the Quarterly and Yearly Payroll tax forms - 941's, etc.

If we are paying less in payroll tax then we should according to the gross payroll because of the pre-tax deduction, do I just adjust the gross payroll on the 941 to what it is after the insurance deductions?

Then on the W2's do you use that gross for the Federal gross amount but the regular gross for State, etc?

thank you!

 

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Please clarify if the employee can choose to pay for medical premiums by salary reduction (looks like payroll deduction, but it is not) or if the payment of the premium by payroll deduction is required.  This is to determine if the arrangement is really covered by section 125 of the tax code.

If the arrangement is covered by section 125, a written plan document is required and I cannot believe that two pages suffice for what should be stated in a section 125 plan document.  Also, participants do not sign a plan document.  It is possible that the 2-page document is the salary reduction agreement document for an employee to choose "pre-tax" payment of medical plan premiums.

Why are you not asking questions of whoever it is that told you to set up "a POP Section 125 Plan" and furnished the two pages?

 

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