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Company contribution to self-funded health plan


Guest Thornton

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Guest Thornton

Company A sponsors a Section 125 plan and self funds health claims. Are the company contributions to pay claims included on the Form 5500 like the employee premiums are?

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Thornton,

You do not include the company's cost to fund the self-insured medical plan in the 5500 form for the Section 125 plan. They are two separate plans if I corectly understand your question.The self-insured medical plan would require a separate 5500 form to be filed.

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I agree with Joe provided the self-insured plan is funded only from the general assets of the company. If they are funded through a trust of some sort, then I think financial information is required to filed with the 5500.

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Guest RLewis

Can we discuss this a bit further? I assume Thornton's question concerned the Schedule F attachment to the Form5500 for a fringe benefit plan. Thornton says this is a self funded plan with employee premiums. So the employees are contributing some amount (the "employee premiums") and the employer is contributing whatever it takes to cover the cost of all claims in excess of the amount contributed by the employees.

Item 6 of Schedule F asks for the total cost of the fringe benefit plan for the year.

The instructions say for a Section 125 cafeteria plan, enter the amount of the salary reductions (being the employee contributions or premiums) and other employer contributions. It appears to me that the "other employer contributions" would be the amount the employer contributed to cover claims costs in excess of the employee premiums.

This, of course, is contrary to Joe Priselac's opinion above to the effect that you do not include the comapny's cost to fund the self-insured medical plan in the 5500 form for the Section 125 plan.

Can somebody shed some light on this?

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RAL

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We maintain a separate Section 125 plan for premium contributions only. We also maintain a self-insured dental plan and one self-insured medical plan and several fully insured HMO medical plans. We take the postiion that there are no employer premium contributions to the self-insured or medical plans because claims are paid from general assets. However, we do include the medical stop loss premiums in item 6 of Schedule F and premiums for the HMOs.

We file several welfare plans separate from the Section 125 plan, and do not include paid claims on a Scedule A or Schedule F.

From our perspective,and because how we have set up our plans, I agree somewhat

with Priselac with regard to including claims costs with the 5500 filing.

If anyone knows of an IRS interpretation or reg. that is contrary to what we are doing I would appreciate knowing about it.

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Guest RLewis

For what it is worth, folks, I have just received the following from one of the major benefits consulting firms in response to my question about what is to be included on Line 6 of Schedule F:

"Our legal research staff interprets the instructions to require inclusion

of more than just the employee's pre-tax salary reduction contributions. The

note in italics at the bottom of the printed instructions indicates to include salary reductions and other employer contributions. It further defines "other employer contributions" to include nonelective contributions and flexible credits. This would be your company's contribution for employer-provided coverage

under a cafeteria plan. You do not use flexible credits in your plan."

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I think that everyone is right depending on the facts and circumstances. Thorton should clarify the exact circumstances of Company A. Kip and I are correct, in my opinion, if the self-funded medical/dental plan operates independently of the Section 125 plan. If a company of 250 had a self-funded dental plan for example that required no employee contributions, there is no need for a Section 125 plan because Section 105(h) allows for this type of program. The 5500 filing would include all the financial information relevant to that dental plan. If the company required employee contribution to its medical and dental plans, then they could adopt a Section 125 plan to permit employees to contribute their share on a pre-tax basis. The only dollars actually running through the Section 125 plan would be the employee contributions. The overall costs of the dental plan would be reported on its separate 5500 filing.RLewis is correct if, and we have clients who do this, the employer makes direct contributions to employee spend accounts in the Section 125 or gives credits in the Section 125 Cafeteria Plan.

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Guest GAshley

At the risk of beating a dead horse, I have been informed by representatives of the IRS that the inclusion of employer contributions to a self insured health plan (includes contributions to benefits and not limited to credits or spending accounts)should be included in the total cost of the plan for levels of medical coverage in which employees are also required to contribute. E.G. Employer A maintains a self insured health plan and a cafeteria plan. Under the health plan, Employer A pays the entire premium for employee only coverage but Employer A pays only a portion of the premium for family coverage. Employees of A must pay the remaining cost of family coverage. They may pay this premium on a pre-tax basis pursuant to the cafeteria plan. In this instance, the IRS has indicated that the total cost of the plan includes the employee salary reductions for family medical and the employer contributions for family medical. I am sure as most of you know, this exact information is virtually impossible to obtain. It has been my experience that most employers indicate an employee cost, collect payroll deductions, and then dump then into general assets, only to pay claims as needed from general assets. It is likely that most do not know what the employer contribution is. The IRS has indicated to me that you have to use claims paid in that situations. If you have stop loss, you would have to subtract the reinsurance reimbursement. It makes no sense to me. I spoke with the IRS yesterday with the hope that we could only use salary reductions. The reason for the total cost of the plan is to monitor the lost taxable revenue. Including employer contributions (other than flexible credits) simply distorts that figure since those contributions would be tax free (assuming they satisfy the 106 rules) with or without the cafeteria plan. I would like some comments on this as the more derogatory comments I can get on this particular method the better. I would love to inform my contacts at the IRS that the current method of determining the total cost of the plan are faulty.

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GAshley

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