Switch from self-funded to Insured

[Guest jes]

We are switching from a self-funded health plan to a fully insured plan. The assets in the self-funded trust will be used to pay premiums for the insured plan. Is anyone familiar with any requirements (e.g., notice?) to terminate the self-funded trust? Thanks in advance for your help.

[Guest jamesfdavis]

You may not want to terminate the trust right away, in case you need it to fund self-funded claim administration, run-out and extended disability claims -- I assume the new insurer is not assuming liability for them.

You may want to disclose the funding method change as a material modification. Also, your new SPDs will be phrased differently in those passages dealing with funding and administration. Down the road your SARs will read differently as well.

[This message has been edited by jamesfdavis (edited 12-03-98).]

[Guest derek]

Just some reminders on the termination of the trust.....as stated above, it probably is best to keep the trust in tact and use the funds to pay various admin expenses and premiums, but be sure you are aware of the Form 5500 and Audit requirement that is still in place as long as the trust is there. Generally, even if the trust is in place for a few months during the new plan year, there is an audit requirement. Also, remember the final Form 990 for the trust based on the stub "trust" year. Other than that, I don't think there are any special notice requirements - other than changing the SPD or doing a SMM (if required).

[KIP KRAUS]

Jes:

I have no experience with a trust for self-insured medical plans. The self-funded plans I have managed in the past paid benefits from general assets. However, I would be interested in knowing what prompted your company to go from self-insured to fully insured. If you are willing to share this information, I would appreciate it.

[Guest victoria davis]

I agree with the advice from the others about being sure that you no longer need the trust before you terminate it. For example, under ERISA any assets remaining in the trust must generally be used to provide benefits under the plan originally funded through the trust (there are some exceptions). So, all runoff claims should be paid from the trust and if there are assets left they can be used to pay insurance premiums to the new carrier. When all assets have been used up, then the trust should be terminated. You should read the trust document termination section to see exactly what is required by the document to terminate the trust. Ordinarily, this will require board approval. In addition, since VEBAs are filed with the IRS for a determination letter regarding the trust's exempt status, a notice should be sent to the IRS stating that the trust has been terminated. Again, don't forget the final Form 990 and final audit for the 5500 (assuming that the plan had 100 or more participants). Good luck.

[Guest victoria davis]

I agree with the advice from the others about being sure that you no longer need the trust before you terminate it. For example, under ERISA any assets remaining in the trust must generally be used to provide benefits under the plan originally funded through the trust (there are some exceptions). So, all runoff claims should be paid from the trust and if there are assets left they can be used to pay insurance premiums to the new carrier. When all assets have been used up, then the trust should be terminated. You should read the trust document termination section to see exactly what is required by the document to terminate the trust. Ordinarily, this will require board approval. In addition, since VEBAs are filed with the IRS for a determination letter regarding the trust's exempt status, a notice should be sent to the IRS stating that the trust has been terminated. Again, don't forget the final Form 990 and final audit for the 5500 (assuming that the plan had 100 or more participants). Good luck.