"Unfunded" vs. "funded" - I need a quick answer

[Lori Friedman]

The Dept. of Labor has determined that a welfare benefit plan isn't unfunded if employees contribute. The benefits aren't paid solely from the employer's general assets and, therefore, the plan doesn't qualify as unfunded.

Does the term "employees" encompass both active and terminated employees?

Here's the situation: There's a life insurance welfare benefit plan. The employer pays 100% of the premiums for its active employees. If retirees want to participate, however, they're required to pay their own premiums. I believe that this is a funded plan.

[Don Levit]

Lori:

Do the retirees pay premiums to the "commercial" insurer or to the employer?

If they pay to the employer, I would say that it is funded, for employee contributions are plan assets.

Don Levit

[Lori Friedman]

Thank you for your quick help, Don.

I actually calmed down long enough to find the information's authority, which is ERISA Technical Release 92-01. It turns out that the Technical Release refers to "participants", not to "employees":

For example, a welfare plan that applies participant contributions directly to the payment of benefits (or indirectly by way of reimbursement to the employer) would not qualify for exemptive relief because the benefits under such a plan could not be considered as paid “solely from the general assets of the employer.

So, I think it's clear that any participant contributions, whether from active or former employees, will cause a plan to be funded.

[Guest jessica_ward@wellsfargois.com]

On a similar topic, I have an client who has:

1. A self-funded dental plan

2. Claims paid out of general assets

3. Employees pay pre-tax payroll contributions to participate in plan

4. There are only 38 plan participants

Does a 5500 need to be filed?

Thanks for your help!