fringe benefit plans

[Guest leon]

Has anyone analyzed IR-2003-89, posted to the IRS web site on July 14, 2003? (Retirement Plans Need Not File Fringe Benefit Information)

Leon T. Konecny, Jr. CPA

[Theresa Lynn]

Leon,

Is there something in particular about the release that gives you concern?

It seems rather straightforward in trying to prevent unnecessary filing of Forms 5500 and Schedules F by plans that are exempt from filing--i.e., plans filing solely because of the fringe benefit rules and otherwise not employee benefit plans. Do you see something we don't see?

Could you share with us your concerns?

Thanks

[Guest leon]

Theresa

The notice states that reporting has been suspended for "pure fringe benefit plans". This phrase is not defined in IRC 6039D. Where is the phrase defined?

The notice also states that the filing requirement for welfare benefit plans that are subject to Title I of ERISA and that are associated with fringe benefit plans must still file from 5500. Sounds like a trap to me!

My client's plan is a IRC 125 medical insurance (premium only plan) with less than 100 participants.

Given the potential non filing or late filing penalties, I feel that the notice should be more specific and give examples.

I appreciate your insight/comments.

Leon T. Konecny, Jr. CPA

[Theresa Lynn]

Thanks!

It just means that no separate filing is required for a cafeteria plan, an adoption assistance plan, or an educational assistance plan. If the cafeteria plan has a medical plan or some other type of plan that is subject to the Form 5500 filing requirements, you still must file a Form 5500 for that related plan. But, you no longer must file a Schedule F and no Form 5500 for a plan that is filing solely because of the 6039D requirements. When they say "pure" they must mean solely because of the fringe benefit requirements.

If your welfare plan is fully insured and/or unfunded, with less than 100 participants, it should be exempt from filing. If it would not have to file but for the fringe benefit rules, it continues to be exempt (until the new guidance is issued).

If it accepts employee contributions, it would be required to file Form 5500 unless it satisfies DOL Technical Release 92-01 (57 Fed. Reg. 23272) and 58 Fed. Reg 45359. However, DOL provided temporary relief in the case of a cafeteria plan:

(from RIA's Checkpoint and Employee Benefits Compliance Coordinator):

"In the case of a cafeteria plan described in section 125 of the Internal Revenue Code, the Department will not assert a violation in any enforcement proceeding solely because of a failure to hold participant contributions in trust. Nor, in the absence of a trust, will the Department assert a violation in any enforcement proceeding or assess a civil penalty with respect to a cafeteria plan because of a failure to meet the reporting requirements by reason of not coming within the exemptions set forth in §§2520.104-20 and 2520.104-44 solely as a result of using participant contributions to pay plan benefits or expenses attendant to the provision of benefits.

In the case of any other contributory welfare plan with respect to which participant contributions are applied only to the payment of premiums in a manner consistent with §§2520.104-20(b)(2)(ii) or (iii) and 2520.104-44(b)(1)(ii) or (iii), as applicable, the Department will not assert a violation in any enforcement proceeding or assess a civil penalty solely because of a failure to hold participant contributions in trust.

In the case of either of these types of plans, with respect to which a trust is not established in reliance on this Release, the reporting exemptions would continue to be available where participant contributions are used within three months of receipt to pay premiums as provided in §§2520.104-20 and 2520.104-44."

So, if you apply the contributions directly to the premium and otherwise comply with all other applicable requirements, you probably can avoid filing a Form 5500 until DOL issues further guidance on the subject.

I hope this helps!