Which Welfare Plans Must File Form 5500?

Funded Plans:
All  “funded” welfare plans covered by ERISA must file a Form 5500. A “funded” plan is one where funds are set aside in a custodial account or trust fund for the exclusive benefit of plan participants. The type of Form 5500 (Form 5500 vs. Form 5500-SF) filed is determined by the number of plan participants in a funded welfare plan. In other words, all funded welfare plans must file a Form 5500, regardless of the number of plan participants. Self-insured welfare plans that hold funds in a trust fund (such as, a “Voluntary Employees’ Beneficiary Association”) or hold employee contributions in a separately maintained fund, makes them funded and subject to annual Form 5500 filings.

UnFunded Plans:
Most welfare plans covered under ERISA, however, are not funded. The greater majority of welfare plans are either fully-insured or partially insured through a stop-loss insurance policy. The Department of Labor (DOL) has an exception for unfunded and insured welfare plans. If a welfare plan covers fewer than 100 participants at the beginning of a plan year and is unfunded and/or insured, then the plan sponsor is not required to file a Form 5500. Also, a plan sponsor does not need to file a Form 5500 for a self-insured welfare plan if the plan has less than 100 participants at the beginning of the plan year and is not funded.

Filing the 5500 for a Self-Funded Plan:
If a plan sponsor of a self-insured welfare plan simply funds the plan out of their general assets and covers less than 100 participants, then no Form 5500 filing is required. When a welfare plan does cover 100 or more participants at the beginning of the plan year, the plan sponsor must file a Form 5500 regardless of how the plan is funded or what insurance arrangement is in place. 

5500 Schedules:
Schedule A – Insurance Information (Required for a fully-insured welfare benefit plan or a self-funded plan that is under a Trust Arrangement.)

• Schedule A must be completed if any benefits under an employee benefit plan are provided by an insurance company, insurance servicer, or other similar organization. This includes investment contracts with insurance companies.
• Insurance premiums, broker commissions and year-end enrollment information are reported on Schedule A.
• Self-insured plans are required to attach Schedule A for stop-loss coverage ONLY IF the plan itself is the named policyholder of the stop-loss policy. Typically, a plan is the policyholder of a stop-loss policy only when it is funded through a trust.

Schedule C – Service Provider Information (Required only for a FUNDED welfare benefit plan i.e., has a trust that pays service providers)

• Schedule C must be completed if a service provider was paid $5,000 or more in compensation, directly or indirectly from the plan, or an accountant or enrolled actuary was terminated during the reporting year.
• Schedule C is NOT required for payments made by the EMPLOYER for plan-related expenses. Schedule C is required only when payments are made from the PLAN. Because the employer makes all payments to service providers for an unfunded plan, a Schedule C is typically required only for funded plans. If the provider allocated services to the Plan Sponsor who in turn funded via general assets and a trust IS NOT in place, then the Schedule C is not applicable to be reported in the Form 5500 report.

What if you filed a Schedule you didn’t need to file?
There is no penalty for oversharing information with the IRS regarding your plan. The bigger question is why you would if you don’t have to?

Wrap Up:

• All “funded” welfare plans must file a Form 5500;
• All unfunded (self-insured) and/or insured welfare plans must file a Form 5500 IF the plan covers 100 or more plan participants as of the beginning of the plan year.

Plan sponsors need to understand when to file a Form 5500 for a welfare plan. The penalties ($1,100 per day) for not filing are severe and worth noting. The DOL has also learned how to find out if a plan sponsor is not filing a Form 5500 for a welfare plan. If your organization sponsors any kind of retirement plan, the DOL may send you a letter asking for your welfare plan filing. If your organization may be in this situation, take the time now to review your welfare plan filing obligation.

Funded Plan	All funded plans (funds set aside in a trust or custodial account for the exclusive benefit of the plan’s participants) must file Form 5500 regardless of size.
Unfunded Plan	Insured plans or self-funded plans that are unfunded (benefits paid as needed directly from the general assets of the employer or employee organization that sponsors the plan). Unfunded plans that have 100 or more participants at the beginning of the plan year must file Form 5500.  Unfunded plans with less than 100 participants at the beginning of the plan year are not required to file.
Schedule A	Schedule C
For Fully-Insured (premium-based) insurance policies. Schedule A for stop-loss policy is to be included if the plan is funded via a trust ERISA Plan.	Only to report fees of $5,000 or more paid out of trust fund assets to entities for services provided to the Plan.
Includes the total premiums within policy period plus participants (covered persons).	Includes the fees paid out of the trust’s plan assets to service providers for legal, marketing, etc.
Commissions, bonus or other sources of revenue from the Carrier to Broker are to be noted.	Broker’s commissions are not reportable on a Schedule C. However if the broker’s fees were paid out of trust fund assets, then those would be reported on the Schedule C.

Get Eligibility Right the First Time or Pay for It Later

Missing, incorrect, or late information regarding eligibility can lead to mistaken interpretation of coverage, no coverage/denied claims, or incorrect participant information. These can all lead to overbilling, underbilling, and claim payment errors. Additionally, eligibility errors can “over-obligate” the plan by allowing an invalid member to linger on the plan, for example: enrolling in COBRA for 18 months or longer. The ACA prohibits a rescission of coverage except in cases where the individual has engaged in fraud or made an intentional misrepresentation of material fact. This emphasizes the importance of getting eligibility correct the first time!

One area that is often overlooked or not tracked efficiently are the circumstances surrounding when a member terminates their coverage under the group health plan. Coverage in the group health plan will end based on the termination language outlined in the plan’s medical plan document. It is important to be aware of these terms and to realize that termination of coverage does not necessarily mean termination of employment. There are situations when a member may no longer be eligible for the health plan while still maintaining their employment with the employer, for example:

Illness / Disability Federal FMLA State Continuation/FMLA

Workers’ Compensation Leave of Absence Reduction of Hours

Termination Pitfalls:

Divorce	This is a difficult area to track as the employer may have to rely solely on the member’s notification. Without that, ex-spouses could be left on the plan and only discovered when a claim is filed with stop loss.
Aging off	Dependents are no longer eligible upon attainment of age 26. Refer to your plan document for the actual coverage end date/qualifying event for dependents.
Workers’ Compensation	WC typically leads to a reduction in hours which is considered a COBRA event. Also, if your plan specifies that an employee working under a specified number of hours is not eligible, then extending coverage to someone with reduced hours will contradict the plan and will lead to concerns with stop loss coverage.
Actively at Work	Employees who are left on the plan but are not actively at work can be flagged when a stop loss claim is filed. Medical records and/or payroll records will show that the person could not/was not at work.
Leaves of Absence	Be sure to follow your plan document language as to any continuation of coverage provisions for leaves of absence. FMLA requires continuation of coverage for up to 12 weeks. Various states have implemented paid family and medical leave that will require continuation of coverage for a certain time period. Once this time period is exhausted, employees must be offered COBRA if they have not returned to work.
COBRA	Be familiar with COBRA rules concerning qualifying events, secondary qualifying events, the timeframe to offer COBRA, and when COBRA can be terminated.
Late Terminations	As a self-funded plan, you are responsible for paying your member’s claims. A late termination could mean costly, high dollar claims for medical and Rx being incurred and paid for by the plan for an inactive member.

Diversified Group encourages all plan sponsors to follow its best practices for enrollment, such as:

Fully completed enrollment forms, annually Verification of loss of other coverage

Verification of marriage, divorce, birth or adoption TPA and COBRA administrator should be the same or at least working together in real time

The plan administrator has a fiduciary duty to manage a self-funded plan in a manner that serves the best interests of the participants and the beneficiaries. This includes following the instruments of the plan, such as the rules outlined within the plan document. Failure to do so can be costly!

Always contact Diversified with any questions concerning an enrollment, eligibility, or termination.

ACA Affordability Percentage for 2020

On July 23, 2019, the Internal Revenue Service (IRS) issued Revenue Procedure 2019-29 which indexes the contribution percentages for 2020 for purposes of determining affordability of an employer’s plan under the Affordable Care Act (ACA). For plan years beginning on or after January 1, 2020, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.78 percent of the employee’s household income for the year for purposes of the employer shared responsibility rules. This is a decrease from the 2019 affordability threshold percentage of 9.86%. The 2020 decrease in the affordability percentage for employer shared responsibility purposes means that employers will have to charge employees a slightly lower price for their health benefits to meet the “affordability” test.

Since an employer would not know an employee’s household income, IRS Notice 2015-87 confirmed that ALEs using an affordability safe harbor may rely on the adjusted affordability contribution percentages if they use one of three affordability safe harbor methods. The three safe harbors to measure affordability are Form W-2 wages from that employer, the employee’s Rate of Pay or the Federal Poverty Line (FPL) for a single individual. The affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that also satisfies the minimum value requirement.

Below is an example of how the percentage change impacts an employer’s monthly affordable amount using the three safe harbor tests. The example assumes an employee earns $11/hour.

*Based on Jan. 2018 FPL of $12,140 for 2019 and Jan. 2019 FPL of $12,490 for 2020

Under the ACA, employees (and their family members) who are eligible for coverage under an affordable employer-sponsored plan are generally not eligible for the premium tax credit from the Exchange. This is significant because the ACA’s employer shared responsibility penalty for applicable large employers (ALEs) is triggered when a full-time employee receives a premium tax credit for coverage under an Exchange.

Connecticut Paid Family and Medical Leave Law

On June 25, 2019, Governor Ned Lamont signed into law Connecticut’s Paid Family and Medical Leave law. Below are some highlights from the new law:

Connecticut Paid Family and Medical Leave Law
Key Dates	June 25, 2019 – CT Governor signs legislation into law; January 1, 2021 – Employee payroll tax begins; January 1, 2022 – Benefits become available and final regulations are due; July 1, 2022 – Annual notice of benefits to all new employees required.
Governing Body	New state agency, the Paid Family Leave Insurance Authority.
Covered Employers	Employers with at least one employee working in the state. The law exempts municipalities, local or regional boards of education, and nonpublic elementary and secondary schools. Municipal union employees can bargain to be covered under the state program. If the union bargains and is granted inclusion, non-union employees for that municipality will automatically be included.
Eligible Employees	An employee who has earned at least $2,325 in a base period (ex:  first four of the five most recently completed calendar quarters) and have been employed at least 3 months preceding the leave request. Available to full-time, part-time and former employees (if they apply within 12 weeks of losing their job).
Leaves Covered	Family leave to bond with a newborn or adopted child. Medical leave to care for a family member with a serious illness (family member’s include spouse, child, parent, parent-in-law, stepparent, others who are equivalent to a family member, grandchild, grandparent or sibling).  Medical leave is also available for the employee’s own serious illness. Paid leave is also available to serve as an organ or bone marrow donor. Intermittent leave will also be allowed except in the case of bonding with a newborn or adoption.
Length of Leave	Up to 12 weeks of paid family and medical leave during a 12 month period, with another two weeks available for a serious health condition related to pregnancy.
Benefit Amount	95% of base weekly earnings up to 60 times the minimum wage rate (maximum weekly amount will be approximately $780 per week in 2022 up to $900 per week in 2023).
Payroll Contribution	Beginning January 1, 2021, a new payroll tax up to .5 percent of the employee’s wages will be deducted to fund the program. Wages are capped at the Social Security wage base ($132,900 in 2019).
Concurrent Benefits	If an employee is receiving worker’s compensation, unemployment compensation and another other state or federal wage replacement, they will not be eligible for benefits under the CT Paid Family and Medical Leave.
Private Employer Plans	Connecticut employers can opt out of the state program if they have an employer sponsored private plan that provides the same or more generous benefit. Private plans must be approved by a majority of covered employees.

The above is a brief overview of the law as it stands today and is subject to change. Final regulations are due by January 1, 2022 which is the same date that benefits are first payable. The regulations should clarify issues surrounding implementation, coordination with CT’s unpaid FMLA leave and provide sample model notices. Diversified Group will keep you informed of any developments.

MA Paid Family and Medical Leave – Delay of Payroll Tax Deduction

The Massachusetts Paid Family and Medical Leave law (effective in 2021) requires employers to start making financial contributions to support the paid leave program starting on July 1, 2019. The law allows employers to deduct a part of the required contribution from each employee’s wages (along with an employer contribution*) to fund the program. The initial contributions are set at 0.63% of each employee’s wages.

On June 12^th, the Governor, Charlie Baker, announced a three-month delay to the start of the payroll tax which would have begun July 1^st. The delay is to help clarify the provisions of the program and to give employers adequate time to adjust and implement the program. The goal is to have the new tax in place by the fall. This delay comes in part due to the May 20^th request from Associated Industries of Massachusetts (AIM) and various labor groups requesting the delay, as well as fixes to the policy that better align the law with the federal Family and Medical Leave Act.

*Employers with fewer than 25 employees do not have to pay the employer share of the cost. 

Diversified Group will stay up-to-date on this issue and pass along any further developments.

Diversified Group State Mandate Update: New Jersey

Pre-Tax Transportation Fringe Benefits:

On March 1, 2019, New Jersey becomes the first state to require employers to offer pre-tax transportation benefits to employees. A pre-tax transportation fringe benefit is a benefit that allows an employee to set aside wages on a pre-tax basis, which is then only made available to the employee for the purchase of certain eligible transportation services, including transit passes and commuter highway vehicle travel (vanpooling).

• Every employer in the State of New Jersey that employs at least 20 employees is required to offer transit benefits to all employees who are not currently covered by a collective bargaining agreement (however employers with collectively bargained employees will be required to offer this benefit to them once the bargaining agreement in effect as of March 1, 2019 expires);
• An employee is identified as anyone hired or employed by the employer and who reports to the employer’s work location. This mirrors the definition used in New Jersey’s unemployment compensation law;
• There is no exception for non-profits or state and local governmental employers;
• If an employer has less than 20 employees, there is no requirement to offer the benefit at this time;
• Employers must provide pre-tax election transportation benefits that provide commuter highway vehicle and transit benefits at the maximum benefit level allowed under federal law (Section 132(f)(2)). For 2019, the maximum benefit level is $265/month for commuter highway benefits and any transit pass combined, as well as $265/month for qualified parking;
• The law is effective 3/1/19 but penalties for non-compliance will not be assessed until the earlier of March 1, 2020 or the effective date of any implementing rules and regulations;
• Non-compliance, when enforced, will be a penalty of not less than $100 and not more than $250 for the first violation of failure to offer transit benefits. The employer will then have 90 days to offer the employees the benefit if a penalty is imposed;
• Associated program costs are not deductible from federal corporate income tax. Employers will need to discuss any New Jersey tax-favored status with their tax advisers.

For now, employers should monitor developments and news regarding the program. The New Jersey Transit Corporation, in conjunction with the New Jersey Turnpike Authority and the South Jersey Transportation Authority will be conducting public awareness campaigns encouraging the public to contact employers about the benefit. Additionally, employers may want to start talking to third party administrators who can administer the transportation fringe benefit program.

Diversified Group can assist you in the administration of Section 132 Parking and Transportation benefits. Please call Jamie Fazio for a quote at 800-322-2524 Ext. 391.

Health Insurance Mandate:

In 2018, New Jersey Governor, Phil Murphy signed into law The New Jersey Health Insurance Market Preservation Act. This law requires all New Jersey residents to have health insurance or pay a penalty. Lawmakers in New Jersey drafted this legislation in response to the decision to eliminate the ACA individual mandate with the passage of the Tax Cuts and Jobs Act of 2017. Although the law focuses primarily on the individual market, there will be reporting requirements on employers that provide health insurance coverage to New Jersey residents staring for the 2019 tax year. Visit www.nj.gov for instructions on reporting (anticipated to be posted by mid-2019).

Individual penalties will mirror the ACA individual mandate penalties; the greater of 2.5% of an individual’s income or $695. The penalty will be capped at the average annual premium for bronze level plans in New Jersey (currently $3,012 per year). Revenue collected (estimated to be between $90M and $100M annually) will be used to fund New Jersey’s reinsurance pool.

The New Jersey law will require certain entities—employers that offer job-based coverage, insurers, and the New Jersey Department of Human Services—to comply with new reporting standards. Under the law, entities that provide MEC to a New Jersey resident will be required to submit a return to the state treasurer. Employers must provide the same information (Form 1094-C and Form 1095-C or Form 1094-B and Form 1095-B) for New Jersey that they currently provide to taxpayers and the IRS. Employers who already use Forms 1094-C or B, and Forms 1095-C or B, to report health coverage information federally, will be required to remit copies of these documents to the New Jersey Division of Taxation on or before February 15th following the close of each calendar year, beginning in 2020.

Out-of-State Employers of New Jersey Residents
Out-of-State employers that withhold and remit New Jersey Gross Income Tax for New Jersey residents have the same filing requirements as businesses located in New Jersey.

Adult Children
Under the federal Affordable Care Act, adult children up to the age of 26 may be covered by their parents’ health plan. New Jersey does not require Forms 1095-B or 1095-C be provided separately to children who are covered by their parents’ health plans, regardless of their residency, beyond the current requirement under 26 U.S.C. s.6055, as that section was in effect and interpreted on December 15, 2017. It is recommended employers advise employees to provide a copy of any Form 1095-B or 1095-C containing coverage information to their children residing in New Jersey.

2020 HSA Limits and ACA Out-of-Pocket Maximum

The Internal Revenue Service released its 2020 Health Savings Account Inflation Adjustment Limits. A comparison of the 2019 and 2020 limits are listed below. The ACA maximum out-of-pocket limits have also been adjusted. The ACA uses a different adjustment calculation than the IRS when setting HSA limits year over year.

2019 PCOR Fee Increase

For 2019, the annual fee to fund the federal Patient-Centered Outcomes Research Institute (PCORI), paid by employers that sponsor self-insured health plans and by commercial group health insurance providers, will go up by about .06 cents per employee or dependent enrolled in the health plan. The fees are due by July 31. The chart below shows the fees to be paid in 2019, which rose slightly from the fees owed in 2018.

Plan Year Ending in 2018	Fee per Plan Enrollee for July 31, 2019, Payment
Plan year ending on or after Oct. 1, 2018, through Dec. 31, 2018, including calendar-year plans.	$2.45
Plan year ending on or after Jan. 1, 2018, through Sept. 30, 2018	$2.39

For self-funded plans, the self-insured employer is responsible for submitting the fee and accompanying paperwork to the IRS. PCOR fees are reported on IRS Form 720, Quarterly Federal Excise Tax Return. On page two of Form 720, under Part II, the employer needs to designate the average number of covered lives under its applicable self-insured plan. Although the fee is paid annually, employers should indicate on the Payment Voucher (720-V)—located at the end of Form 720—that the tax period for the fee is the second quarter of the year. Failure to properly designate ‘2nd Quarter’ on the voucher will result in the IRS’s software generating a tardy filing notice.

Sponsors of self-insured health plans will pay their last PCOR fee by July 31, 2019 (for calendar-year plans) or by July 31, 2020 (for certain non-calendar year plans). The PCOR fee will no longer apply for policy and plan years ending on or after Oct. 1, 2019. The final filing for a calendar year plan will be July 31, 2019, with respect to the 2018 plan year.

Clients who have elected to have Diversified Group assist with the PCOR fee calculation can expect an email in June which will include a copy of the completed Form 720 and a PCOR calculation worksheet with supporting documentation. Clients will need to file the Form 720 by July 31, 2019.

Updated Draft Regulations for MA Paid Family and Medical Leave

The newly created Massachusetts Department of Family and Medical Leave released updated draft regulations on March 29^th for the new Paid Family and Medical Leave law. The Department will hold several listening sessions in May throughout the state before issuing final regulations sometime before July, 2019. Below is an outline of the draft regulations with pertinent information for employers concerning their obligations under the law.

Provision	Description
Key Dates	July 1, 2019, final regulations due and quarterly reporting instructions due;  July 1, 2019, employers must begin employee payroll deductions;  July 1, 2019, new hire notice distribution begins;  July 1, 2019, informational posters must be displayed on or before this date; October 31, 2019, contributions (employer and employee) for July through September due;  January 1, 2021, most leave available;  July 1, 2021, all leave available;  January 1, 2023, Retaliation against an employee for exercising rights under the PFML will be prohibited.
Governing Agency	The Department of Family and Medical Leave (DFML) within the Executive Office of Labor and Workforce Development.
Benefit Administrator	The Department of Family and Medical Leave (DFML) within the Executive Office of Labor and Workforce Development.  Except for employee notification, quarterly reporting, collecting and remitting contributions, employers are not involved in the benefit determination or payment of benefits.  However, note that the DFML may contact the employer for information on an employee that applies for benefits.  When this happens, employers will have 5 business days to respond to DFML.
Covered Employers	All employers (one or more employees) who are required to contribute to the Massachusetts Unemployment Insurance program (UI) must submit contributions on behalf of their employees to cover the portion of PFML contribution due from employees, as well as make their required employer contribution to the medical leave portion.  Employers with fewer than 25 employees must submit contributions on behalf of their employees, however they are not required to pay the employer portion of the contributions for medical leave. Cities and towns are exempt but can opt in to the program; employers not covered by UI can also opt in to the program.
Eligible Employees	All employees who meet the monetary eligibility requirements of the state’s UI program (i.e. the employee must have earned 30 times the weekly unemployment benefit that the employee would be eligible to receive and must have earned at least $4,700 during the last four calendar quarters). No minimum hour requirement. Additionally employees whose employer they contract with issues 1099-MISC to more than 50% of its workforce are covered employees.

DOL’s Recent Clarification Surrounding FMLA

The Department of Labor (DOL) on occasion will issue opinion letters to clarify employer’s obligations under various federal employment laws. These DOL opinion letters help employers to understand their obligations and can be relied upon to establish a “good faith” defense against certain federal claims.

On March 14, 2019, the DOL issued an opinion letter regarding FMLA leave and its coordination with other employer leave provisions. The DOL clarified that if an employee’s leave taken for medical reasons is deemed FMLA qualified, the employer must then designate the leave as FMLA leave within five business days and may not delay such designation even to accommodate or benefit its employee. In other words, if an employee requests to take paid PTO leave and delay the designation of qualified FMLA leave until after the paid PTO is exhausted, per this opinion letter, once an eligible employee communicates a need to take leave for a qualified FMLA reason, neither the employer nor the employee may decline FMLA protection for that leave. Thus, when an employer deems that leave is for a qualified FMLA reason, the leave counts toward the employee’s FMLA leave entitlement.

The employer may instead allow the employee to “stack” the FMLA leave and paid leave by allowing the employee to take the FMLA leave unpaid and to use any available paid leave upon exhaustion of the FMLA entitlement. Alternatively, the employer may require employees to utilize available paid leave concurrently with FMLA leave, thus paid leave counts toward the FMLA leave entitlement, and vice versa.

Employers should review applicable state leave laws that may offer additional or different benefits that may cause the DOL opinion letter to contradict existing precedent. For example, this opinion letter contradicts the 2014 Ninth Circuit Court’s case Escriba v Foster Poultry Farms, Inc. which found that an employee could affirmatively decline to exercise their FMLA rights, even when they clearly would have qualified, in order to preserve the FMLA rights for future use. Those employers in the Ninth Circuit jurisdiction (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) may want to consult their legal counsel prior to relying on this opinion letter.

It is intended for Diversified Group’s medical plan document language to correspond with an employer’s human resource practices. Our documents typically include language that FMLA will run concurrently with other leaves in compliance with the DOL’s intent. To ensure that your medical plan document and your HR practices are coordinated, we offer a gap analysis which looks at gaps between your plan document and your employee handbook with an eye to ensuring compliance with your plan document and your stop loss carrier’s requirements. Gap analysis is done at no cost to you. If you are interested in having a gap analysis completed, please contact either Dave Follansbee or Laura Williams at the contact information below.

Dave Follansbee – dfollansbee@diversifiedgb.com / 860-295-6531
Laura Williams – lwilliams@diversifiedgb.com / 860-612-8644