Employer Endorsement

[Guest tm3333]

Will allowing non-employer sponsored insurance to be paid pre-tax via a premium only plan constitute endorsement?

[Chaz]

Danger, Will Robinson, danger!

Permitting participants to pay for voluntary benefits on a pre-tax basis through a cafeteria plan is a strong indicator of employer "endorsement" for purposes of determining whether an ERISA plan exists. It's not definitive and depend on other circumstances, but I would not attempt it without having a short conversation with your counsel. There are unfavorable consequences if ERISA does end up applying to these benefits.

[GBurns]

It is too easy to inadvertently endorse or to imply endorsement, to be worth the risk.

[Guest tm3333]

Thank you for the input. That is what I suspected. Are you aware of any IRS or DOL guidance that addresses this issue?

[Chaz]

Thank you for the input. That is what I suspected. Are you aware of any IRS or DOL guidance that addresses this issue?

DOL Reg. 2510.3-1 contains the safe harbor for voluntary plans.

There are a lot of cases that look at what is employer "endorsement" including some that address including the program in a cafeteria plan. There is also a lot of DOL advisory opinions on employee endorsement although I cannot recall anyone that specifically looked at the cafeteria plan angle. I'm not aware of any IRS guidance except to state what benefits can be offered in a cafeteria plan, but I don't think this is an area where they would get involved.

[jpod]

I am confused by the angst over this. This is what the pertinent portion of the regulation says:

(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and

It sounds like the only thing the employer is doing is delivering payroll deduction amounts. Separately, it is doing it under a cafeteria plan to enable employees to save taxes. We all know that the DOL takes the position that employee money is employee money even though it may be fictionally treated as "employer money" for certain purposes under the IRC and IRC regulations. This is not to say that there isn't an endorsement going on here for other reasons, but not because of the facilitation of premium payments via payroll deduction.

[Chaz]

I am confused by the angst over this. This is what the pertinent portion of the regulation says:

(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and

It sounds like the only thing the employer is doing is delivering payroll deduction amounts. Separately, it is doing it under a cafeteria plan to enable employees to save taxes. We all know that the DOL takes the position that employee money is employee money even though it may be fictionally treated as "employer money" for certain purposes under the IRC and IRC regulations. This is not to say that there isn't an endorsement going on here for other reasons, but not because of the facilitation of premium payments via payroll deduction.

I don't necessarily disagree with you but there has been at least one court that does. If I recall, one of the reasons running a voluntary program through a cafeteria plan is problematic is that the tax savings enjoyed by both the employer and employee tie the program to the employment relationship.

[Guest ERISA Pros]

There is a good discussion on this topic in ERISA Pros' March 2010 Newsletter, and more information can be found here.

[TPApril]

It sounds like if a voluntary plan is run through the cafeteria plan, it is a form of an endorsement and therefore an ERISA plan.

Consider a plan that is not part of the cafeteria plan. It was formerly paid by the employer which transitioned to completely voluntary in 2010. Since then they have continued to file Form 5500 with the same plan number, as well as maintain the same plan name (including plan sponsor name) on employee handouts. They will therefore be filing 5500 through 2012. Can they transition effective 2013 to a non-ERISA plan that no longer files Form 5500 if they change the plan name and no longer endorse it, thereby falling into the Safe Harbor discussed in the links above? If so, can they go so far as checking off Final Form for 2012?

[TPApril]

Just rephrasing prior question.

ERISA Plan transitions to fully voluntary, not run through cafeteria plan, post tax payments made through payroll. Can this plan simply stop filing 5500?

The closest thing we have found to a company endorsement is that the enrollment form says the company name. Is that right there enough to disqualify plan from safe harbor, thereby requiring 5500 filing?