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New Requirements for Welfare 5500 filings


SLuskin
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Has anyone had a small fully insured plan penalized because they didn't file a Welfare 5500 and they didn't have a Welfare SPD which spells out the "refund allocation" language?

See below, which one of our clients received from the IRS. Thanks.

If you have fewer than 100 participants on your group welfare benefit plan(s) you are exempt from filing a Form 5500 provided you have an SPD in place with the appropriate "refund allocation" language. The Form 5500 filing exemption may be lost if a Plan Sponsor does not disclose how insurer refunds are allocated. This can be problematic because many small employers do not prepare and distribute an SPD containing this language, nor do they file a Form 5500-relying on the small plan exemption. However, failure to prepare and file Form 5500 by the deadline can result in a DOL penalty of up to $1,100/day.

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  • 2 weeks later...

You got me looking into this. One relevant link I found is:

http://www.law.cornell.edu/cfr/text/29/2520.104-20

Item (b)(3)(ii) in the link does not mention the SPD, but it seems to require some kind of informing of participants if you don't want to file a 5500 for the small plan. We are reviewing how we plan to do the informing.

The allocation design can be sensible, according to EBSA 2011-04, so that's good.

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Thanks. I am surprised we haven't been inundated with stuff about this from all the subscriptions that we have. We do prepare the Welfare SPD and Wrap Documents, and our attorney has given us the language for this, so now the small clients have the choice of either having the welfare spd (which they are required to have but generally do not) or the 5500.

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small clients have the choice of either having the welfare spd or the 5500.

I think that sums it up nicely.

And you're right, no one seems to be tooting the horns about about this. Thanks for your post here.

We added a paragraph in our wrap doc.

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  • 3 weeks later...
Guest El Guapo

that is a substantial development. First, because the IRS appears to be enforcing the disclosure of the refund policy to participants (which I had not heard about before). Second, and perhaps more importantly, they seem to be implicitly requiring that the disclosure must take place via an SPD. that's quite a stretch, IMO. As GMK points out, there's no mention of an SPD in the regs (nor is there mention of the refund allocation language in the SPD-content guidance).

Essentially, this approach would apply the 5500 penalties to the SPD distribution requirement (unless you file the 5500). that's a big deal. Sluskin, any chance you could post a redacted version of that IRS letter? I could give you my email as well. thanks for posting.

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  • 4 weeks later...
that is a substantial development. First, because the IRS appears to be enforcing the disclosure of the refund policy to participants (which I had not heard about before). Second, and perhaps more importantly, they seem to be implicitly requiring that the disclosure must take place via an SPD. that's quite a stretch, IMO. As GMK points out, there's no mention of an SPD in the regs (nor is there mention of the refund allocation language in the SPD-content guidance).

Essentially, this approach would apply the 5500 penalties to the SPD distribution requirement (unless you file the 5500). that's a big deal. Sluskin, any chance you could post a redacted version of that IRS letter? I could give you my email as well. thanks for posting.

Sure, Guapo. my email is susan@div125.com. Send me an email and I will forward you what I got.

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  • 3 weeks later...
Guest El Guapo
that is a substantial development. First, because the IRS appears to be enforcing the disclosure of the refund policy to participants (which I had not heard about before). Second, and perhaps more importantly, they seem to be implicitly requiring that the disclosure must take place via an SPD. that's quite a stretch, IMO. As GMK points out, there's no mention of an SPD in the regs (nor is there mention of the refund allocation language in the SPD-content guidance).

Essentially, this approach would apply the 5500 penalties to the SPD distribution requirement (unless you file the 5500). that's a big deal. Sluskin, any chance you could post a redacted version of that IRS letter? I could give you my email as well. thanks for posting.

Sure, Guapo. my email is susan@div125.com. Send me an email and I will forward you what I got.

Hey Susan, thanks so much! I'm just getting back from 2 weeks vaca, so just saw this today. will send an email shortly:)

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  • 5 months later...

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