Stop-loss insurance is a critical component of self-funded plans, primarily serving to protect employers or plans if managed under a trust. However, it typically does not serve as protection for participants. To provide a comprehensive understanding of how stop-loss policies should be addressed in Form 5500 filings, it’s essential to consider the guidance provided by the U.S. Department of Labor (“DOL”) and specific conditions outlined in Advisory Opinion 2015-02A.
Advisory Opinion 2015-02A and Stop-Loss Policies
In 2015, the DOL issued Advisory Opinion 2015-02A to clarify the treatment of stop-loss policies under certain conditions. These conditions are as follows:
- The acquisition of stop-loss policies should closely mirror the facts and circumstances presented in Advisory Opinion 92-02A, with the exception of using participant contributions to partially fund medical benefits within the plans.
- An accounting system must be in place to ensure that premium payments for these policies do not include any contributions from employees.
- The purchase of stop-loss insurance should not absolve the plans from their responsibility to provide benefits to plan participants. Furthermore, stop-loss insurers should not be obligated to cover the claims made by plan participants.
- Policies should only provide reimbursements to plan sponsors when the sponsors use their own assets to pay for claims within the plans. This condition ensures that plan sponsors do not receive any reimbursement from the insurer for claims paid using participant contributions.
Form 5500 Filing and Schedule A Reporting
To determine whether a stop-loss policy should be included in a Form 5500 filing, employers should consult experienced legal counsel. However, the following are some general considerations:
For Plans Operating Through a Trust
When the plan is the policyholder of the stop-loss policy, and premiums are paid from the plan’s assets, it is necessary to include a Schedule A in the Form 5500 filing. This situation implies that the stop-loss policy directly protects and benefits the plan. The DOL mandates that plans under these conditions should include a Schedule A in their Form 5500 filing, providing transparency and compliance with Employee Retirement Income Security Act of 1974 (“ERISA”) regulations.
For Plans with Employers as Policyholders
In cases where the employer is the policyholder, and premiums are paid from the employer’s general assets, generally it is not necessary to include a Schedule A in the Form 5500 filing. In this scenario, the stop-loss policy insures and benefits the employer, not the plan. Reimbursements paid from the policy are typically directed to the employer, not the plan. Consequently, such cases fall outside the scope of Schedule A reporting in the Form 5500.
For Plans Incorporating Participant Contributions
When plans include the cost of a stop-loss policy in determining employee contributions, special consideration is required. Employee contributions are generally considered to be plan assets, which can trigger the requirement for a Schedule A in a Form 5500 filing.
Seek Legal Counsel for Compliance
It is crucial for employers and plan administrators to consult with experienced legal counsel to ensure compliance with specific situations and potential changes in regulations. Laws and regulations can evolve, and interpretations may vary based on individual circumstances, making legal advice essential when determining reporting requirements for Form 5500.
For more information on Form 5500 reporting requirements for stop-loss policies, read our article Understanding DOL Opinion 2015-02A on Stop-Loss Premiums.