Refund - terminated self-insured group health plan

[taxllm]

Need suggestions on how to distribute refund from a terminated self-insured group health plan (premiums were paid pre-tax by employees only, no employer contributions).  Sponsor terminated the plan in 2015 and recently received substantial refund. The new plan is an insured plan.  Sponsor is a temp agency with high turnover.  In 2015, participants in the self-insured plan were 200-$300 but every month they had 40-50 participant turnover.  Based on the number of participants the refund would be around $300/participant. 

Should they try to locate former participants based on a cost analysis?  Participants in the new insured plan includes management employees who were not eligible to participate in the self-insured group health plan.

Thanks

[Sandra Pearce]

A self insured plan, by it's nature, puts the employer fully at risk for the cost of all administrative expenses and claims whether or not those expenses and claims exceed the cost paid by the employees. When an employee reduces income to pay for a pre-tax benefit offered doesn't that benefit becomes equal to employer paid?  I would expect the refund to be retained by the employer.  No legal expert here but an HR practitioner with many years of experience in the area of benefits, including self-insured medical plans. This is simply my opinion.

[leevena]

I am sorry, but I do not agree with Sandra.  The contributions were all employee funded via a section 125 plan, thus providing a tax benefit to the participating employees.  Sponsor is dealing with a variety of state and federal laws.  I have always been told that these excess funds either need to be used for another benefit plan or refunded back to employee, based on their percentage contribution.  This will more than likely cause a tax event.