Self-Employed Premiums/Trust Requirement for Self-Insured Plan

[namealreadyinuse]

Self-Insured Health Plan with Participant Contributions Through Cafeteria Plan -

We understand that Tech Release 92-1 and preamble to plan asset regulations won't exempt participant contributions from self-employed (sole proprietors) from trust requirement because they are not under a cafeteria plan.

What do people do? Wouldn't a trust for just these contributions ruin using 92-1 for the cafeteria plan contributions?

[GBurns]

If self employed persons cannot participate in a cafeteria plan, How do you get contributions from them?

Why does the self insured health plan even need a Trust? Is a union requiring it?

[namealreadyinuse]

Pretty common (very common?) situation we believe . . .

Non-employee sole proprietor participates in a contributory self-insured health plan. Any premiums paid by the sole proprietor will be after-tax. These after-tax contributions are subject to a trust requirement, aren't they? What do people REALLY do??

[GBurns]

Probably very very rare for a number of reasons.

1. Sole props tend to be small and it is very unlikely that a small entity would find it practical or economical to be self insured. I would hate to think that someone advised a sole prop with less than 100 lives to be self insured.

2. I do not think that there are many cafeteria PDs that make any provision for after tax contributions. after all the sole purpose of a Cafeteria Plan is so as to allow pre-tax contributions. If there are after tax contributions they would not be under the Cafeteria Plan anyhow, would they?

3. That Sole props just like self employed persons do not participate in cafeteria plans is very well known and so many PDs sepecifically exclude them and so would the enrollers and the Plan Adminstrator. If it is missed on enrollment, it should be picked up on testing soon enough.

4. In a Sole Prop or an S -Corp there would be no purpose in having a premium split with the business paying a share and the sole prop or more than 2%shareholder paying a share (even after tax).

I still do not see why you are hung up on this Trust issue. I doubt that you can find anyone with a Trust for their cafeteria plan money, and I doubt that you can find anyone with a Trust for the health insurance premiums (other than those with a VEBA).

What people REALLY do is to just pay premiums and claims expeditiously. A Trust is not needed.

By the way, you posted "Pretty common (very common?) situation we believe " which suggests that there is some basis for the belief. If so, the source of that basis should very easily answer the question for you and also should have given you a good explanation regarding the purpose and use of Cafeteria Plans.

[namealreadyinuse]

Ok then, partners or s corp shareholders. Anyone who cannot participate in a cafeteria plan but participates in a contributory self-insured medical plan. The after-tax participant contributions are plan assets that must be held in trust under ERISA. The DOL's nonenforcement of the trust requirement in ERISA Technical Release 92-1 won't apply.

[GBurns]

The non enforcement will apply. In other words there will be no enforcement.

A Trust was never necessary, anyhow since remittance of moneys is almost immediate. In the case of a self insured plan where the employer is funding claims on an as made/needed basis from general assets, I think that was further exempted from the Trust requirement even before that Technical Release.

Have you ever seen a Trust in use for health plan (insured or self insured) outside a VEBA and MET?

[GBurns]

Are you saying that Trust is always necessary for a Cafeteria Plan?

Or are you saying that non enforcement of a provision means that it will be prosecuted?

[Brigid Anderson]

Pretty common (very common?) situation we believe . . .

Non-employee sole proprietor participates in a contributory self-insured health plan. Any premiums paid by the sole proprietor will be after-tax. These after-tax contributions are subject to a trust requirement, aren't they? What do people REALLY do??

[Brigid Anderson]

Pretty common (very common?) situation we believe . . .

Non-employee sole proprietor participates in a contributory self-insured health plan. Any premiums paid by the sole proprietor will be after-tax. These after-tax contributions are subject to a trust requirement, aren't they? What do people REALLY do??

Only employees of the employer sponsoring a cafeteria plan may participate, so you are correct that sole proprietors must make after-tax contributions.

As to the trust issue, the preamble to the final DOL regulation on when participant contributions become plan assets makes clear that Technical Release 92-01 also applies to after-tax contributions, such as retiree contributions and COBRA contributions, received in connection with a cafeteria plan:

t is the view of the Department that the mere receipt of COBRA contributions or other after-tax participant contributions (e.g., retiree contributions) by a cafeteria plan would not by itself affect the availability of the relief provided for cafeteria plans in the technical release.

DOL Reg. § 2510.3-102, as reissued in final form on August 7, 1996, 61 Fed. Reg. 41220.

The other issue here, however, is that allowing an individual who is not the employee of the employer sponsoring the health plan to participate may make the health plan a MEWA (multiple employer welfare arrangement) and subject it to greater state insurance law regulation than might otherwise apply. But that is another story . . . . !

Regards,

Brigid Anderson