BUSINESS INSIGHTS | SUMMER 2010 EFFECT

Annual Reporting Requirements for Welfare Benefit Plans

by Darren Paumen

Most plan sponsors are aware of the annual Form 5500 reporting requirement for their retirement plans, but several overlook what’s required for welfare benefit plans. Generally, brokers and insurance companies provide information to complete Form 5500 and related schedules but do not actually complete the returns for their clients; therefore, it is imperative that plan sponsors understand the reporting requirements subject to Title I of the Employee Retirement Income Security Act (ERISA) of 1974.

You are required to file Form 5500 if ...

Under ERISA, typically any welfare benefit plan sponsor with 100 or more participants (as of the beginning of the plan year) is required to file an annual Form 5500 (and any related schedules). Sponsors with fewer than 100 participants are generally not mandated to file an annual 5500. Welfare benefit plans provide health, dental, life, vision, disability, accident and death, severance pay, apprenticeship and training, and certain employee assistance programs. In addition, fringe benefit plan sponsors (e.g., S125 cafeteria plans) with 100 or more employees in a medical reimbursement portion of the plan may be subject to the Form 5500 reporting requirement. Some welfare plans may be exempt based on its entity structure, for example, a governmental or church plan under ERISA 3(33).

Schedules A and C

In addition to the Form 5500, you may need to file a related schedule depending on the funding and benefit contracts of the welfare plan. If your plan includes an insurance contract, you will generally receive information from the insurance company or broker. This will help you complete Schedule A, Insurance Information, which reports on commissions, fees, and premiums received by the provider. Sponsors with self-insured plans may receive information from service providers to complete a Schedule C, Service Provider Information, which reports direct and indirect fees received by the service provider (subject to certain provisions).

How to file

Effective January 1, 2010, EFAST2, the computerized filing system, is the only acceptable filing method for the Form 5500 series starting with the 2009 reporting year.

When to file

Form 5500 and any related schedules are due seven months following the end of the plan year, which may be the contract year unless a plan document specifies otherwise. If you need more time, complete Form 5558, Application for Extension of Time To File Certain Employee Plan Returns. This will give you an additional two and a half months to file. There can be significant penalties and interest if you do not meet the filing requirements. Plan administrators could be fined up to $1,100 for each day they fail or refuse to file a complete report, subject to certain maximum penalty amounts or imprisonment (or both). However, there is relief.

If you are delinquent, the Department of Labor (DOL) permits administrators to pay reduced civil penalties for voluntarily complying with their DOL annual reporting obligations. This initiative is called the Delinquent Filer Voluntary Compliance (DFVC) Program.

With continued DOL scrutiny in the benefit plan industry and emphasis on risk management, sponsors should consider reviewing their employee benefit plans and the annual filing requirements. Taking a closer look at your benefits practice doesn’t have to be a burden, rather it is a great opportunity to review and refine internal controls.