Premium Only Plans

[Guest Brian Nash]

When is a POP considered a welfare plan? I am trying to determine if we are required to file form 5500 for our POP.

[papogi]

A POP is a pre-tax funding mechanism under Section 125, and is really never a welfare plan. As far as your 5500, your POP does not need to file a 5500. If you have over 100 participants, your underlying welfare plan (the health plan) does need to file a 5500 under ERISA Title 1, unless this is a government or church plan.

[T.J. Orr]

How are the number of participants determined for purposes of whether or not a Form 5500 filing is required. That is, since recent relief from filing Form 5500 for Sec. 125 plans applies only when you do not have more than 100 participants, is the participant count for this purpose the number of employees that were eligible to participate had they chosen to, or the number of employees who actually elected to participate?

[SLuskin]

It is 100 eligible employees who are actually participating in the plan. It does not count dependents.

[T.J. Orr]

I'm not sure why you mentioned dependents, but just to clarify, in a 125 plan you are only a participant if you have made a contribution (or in a POP plan has paid a premium)?

[Ron Snyder]

On page 1 of the instructions for the 5500 we read:

"Every employer maintaining a specified fringe benefit plan as described in Code section 6039D (except Code sections 79, 105, 106, 120, and 129 plans) is also required to file each year."

And on page 2 it states: "The exemptions below do not apply to fringe benefit plans. A Form 5500 for a fringe benefit plan must be filed under Code section 6039D even if it is associated with a

welfare benefit plan that is exempt from filing under one of the

categories below."

Finally on page 4 we read (under Fringe Benefit Plan): "Cafeteria plans described in Code section 125, educational assistance programs described in Code section 127, and adoption assistance programs described in Code section 137 are considered fringe benefit plans and are required to file the annual information specified by Code section 6039D."

There is no rule that exempts plans with 100 or fewer employees: that applies to welfare plans only (although not to welfare plans that include fringe benefit plans).

[T.J. Orr]

Has "vebaguru", the previous respondent, incorporated IRS Notice 2002-24 into their response?

[Ron Snyder]

I hadn't incorporated it into my comment.

Notice 2002-24 suspended the Schedule F filing requirement, but not the requirement for filing of form 5500 for fringe benefit plans, including cafeteria plan arrangements. Therefore, all fringe benefit plans, including cafeteria plans must file form 5500 by the due date.

I have heard orally that IRS has backed off the position on the Notice and claimed that the 5500 filing requirement has been done away with, but have been unable to verify this in any published material.

[papogi]

Form 5500 is not required for cafeteria plans at all. The underlying welfare plan may need filing under ERISA, but the cafeteria plan need not complete Schedule F or 5500. See these:

http://benefitslink.com/articles/schedF020412.shtml

http://www.kilstock.com/site/print/detail?...Article_Id=1056

[Ron Snyder]

The references provided do not provide anything on which a taxpayer may rely. The first article quotes a telephone call between Corbel and IRS. The second article quotes from the notice itself that specifically states that "This notice does not affect annual reporting requirements under Title I of the

Employee Retirement Income Security Act of 1974 ( ERISA), or relieve administrators of employee benefit plans from any obligation to file a Form 5500 and any required schedules (other than the Schedule F) under that title."

We are supposed to rely on the heresay assertion that "In response to inquiry by SunGard Corbel, the IRS has since clarified that the Notice operates to suspend both filing requirements, when related to one of the three types of fringe benefit plans (cafeteria, education assistance, and adoption assistance)."

IRS did not subsequently amend Notice 2002-24. And I know of no evidence that the conversation between an unnamed person at Corbel and an unnamed person at IRS took place, was understood correctly by both sides and supercedes IRS' published position. So I would still advise my clients as well as practitioners that barring evidence to the contrary that IRS in fact abrogated the filing requirement, they must still file form 5500.

[papogi]

EBIA verified this independently with Harry Beker, as well. However, I do understand your apprehension.

[Ron Snyder]

Do you know what the Statute of Frauds is? It states basically that a written instrument cannot be superceded by an oral representation.

Harry Becker's opinion is not the IRS's published position and cannot be. If it were IRS's position, they would have amended the Notice or at least clarified it in writing.

We have no evidence that the unnamed person at EBIA and Harry Becker had the conversation other than hearsay which is never acceptable evidence. And the accuracy of the reported heresay is questionable since it is refuted by IRS's published position. Prove that I am wrong and I'll gladly tell people that they don't have to file. But the "proof" you offer is heresay with no probative value at all.

[Guest Brian Nash]

For what it's worth, below is a copy of an email sent to me from the IRS EP Corner.

"The intent of Notice 2002-24 was to eliminate the filing requirement for cafeteria plans. It does not change the filing requirement for a welfare plan. If your plan covered fewer than one hundred participants and was not required to file as a welfare benefit plan (welfare benefit plans with less than 100 participants which are fully insured, unfunded, or a combination of insured and unfunded, are not required to file a return) then your plan will no longer have a Form 5500 or Schedule F filing requirement.

Plans with over 100 participants which are welfare plans that use a Section 125 feature as their funding arrangement, will still have to file a Form 5500(with the appropriate schedules) for the welfare benefits portion of their plan but will not have to attach a Schedule F. However, if these types of plans had been filing separate Form 5500's for the welfare benefit portion and cafeteria portion of their plan, the Form 5500 with Schedule F will no longer be required for the cafeteria plan but the welfare plan is required to continue to file Form 5500 with the appropriate schedules.

I understand your confusion. We are going to try to clarify this issue with an article in our Spring Edition of our Employee Plans Newsletter that will be available at www.irs.gov/ep. You may want to go to the web page and sign up to be on the mailing list to receive our newsletter. "

[papogi]

Check this URL address to an IRS publication which was brought up in the last hour on another similar thread. Look at page 10:

http://www.irs.gov/pub/irs-utl/sprsum02.pdf

While I did not have access to this web page earlier, and am borrowing the reference, it should confirm the contention that Form 5500 is not required for your POP. Again, your underlying welfare plan might have filing requirements to satisfy for ERISA, but your POP owes nothing. If you have over 100 participants, you have to file under ERISA (but not IRS) unless you are a church or gov't plan. If you have fewer than 100 participants and are "unfunded," you have no 5500 filing to do at all (IRS or ERISA).