Form 5500-Fringe Benefit

[Guest dsw713]

I know the Schedule F was suspended, but what about the requirement for the Form 5500 itself? IRS vs. DOL vs. ERISA. This would be solely for a flexible spending account arrangement that that receives employee payroll deductions to reimburse for unpaid medical costs. Only 30 ees actively participating, but 114 employees are eligible to participate. I can't seem to get a straight answer.

[BeckyMiller]

This arrangement would be considered an ERISA plan - it provides an ERISA welfare benefit - reimbursement of health costs.

But, you may not have a filing requirement.

1. Unfunded welfare plans that have fewer than 100 participants are excluded from filing see ERISA reg. 2520.104-20.

2. The DOL has an outstanding nonenforcement policy for 125 plans that provides that such funds do not have to be held in trust. So, if the employee contributions are simply held by the sponsor, the plan is likely to be considered unfunded.

3. The counting of participants for a welfare plan is different that a pension plan. See ERISA Reg. 2510.3-3(d)(1). Typically, an employee doesn't qualify as a participant in a welfare plan until they make the required contribution.

[Guest dsw713]

Thanks. I can sleep better now. The plan is unfunded and not held in a trust. I really appreciate the help.

[Guest SuzieQNEC]

I've been reviewing some of the posts regarding the requirement to file Form 5500 for flexible spending plans but somehow something is not registering with me. The plan in question is strictly flex spending for medical and childcare expense reimbursement. There are well under 100 participants but it is administered by a separate company from the employer. So my question then is, if the administrating company sets up a separate bank account, does that mean there is a trust and therefore it needs to have a form filed? Otherwise if they just do the bookkeeping, but the company sets aside the money themselves then there would be no requirement? Honestly, I am unfamiliar with administration of flex plans but I need to determine if there is a 5500 requirement. Thanks much.

[J Simmons]

I've been reviewing some of the posts regarding the requirement to file Form 5500 for flexible spending plans but somehow something is not registering with me. The plan in question is strictly flex spending for medical and childcare expense reimbursement. There are well under 100 participants but it is administered by a separate company from the employer. So my question then is, if the administrating company sets up a separate bank account, does that mean there is a trust and therefore it needs to have a form filed? Otherwise if they just do the bookkeeping, but the company sets aside the money themselves then there would be no requirement? Honestly, I am unfamiliar with administration of flex plans but I need to determine if there is a 5500 requirement. Thanks much.

In part it depends on how the bank account is titled. If it is merely in the name of the employer, then the funds in the account remain part of the employer's general assets, subject to claims of its general creditors (including the employees for unpaid benefits). In such a situation, unless there is some account agreement or other legal reason that the funds in the bank account may only be applied to benefits claims of employees, there should be no separate trust. This is so whether the TPA has unilateral drawing authority on the account, or not.

On the other hand, if a bank account is set up that specifies as part of its title or in account agreements that it is for the plan or payment of benefits under it, then you have a trust. This is true whether the bank account is set up by a TPA or the employer itself.

The key is whether the funds in the bank account are yet part of the employer's general assets, subject to the claims of the employer's general creditors. If so, then most likely no trust. On the other hand, if ear marked for the plan or payment of its benefits, then the employees might have greater, preferential rights over general creditors of the employer to having those funds applied to the payment of accrued benefits. If there is any such legal preference, then you have a trust.

Of course, if the account is in the name of a trust, or someone with whom the employer or plan has a trust arrangement, then you also have a trust.