Understanding the Options
If your self-funded health plan has a surplus at the end of the plan year, you have several options for managing those funds. However, it’s important to navigate these choices carefully to ensure compliance with the Employee Retirement Income Security Act of 1974 (“ERISA”) regulations and fiduciary responsibilities.
Reinvest in Your Plan
One of the most common and beneficial ways to use a surplus is to reinvest it in your plan. This could involve:
- Reducing copays or deductibles: Lowering out-of-pocket costs for employees can improve their overall satisfaction with the plan.
- Expanding coverage: Consider adding new benefits or services to your plan, such as prescription drug coverage or vision and dental benefits.
- Implementing wellness programs: Investing in wellness initiatives can promote employee health and potentially reduce future healthcare costs.
Reduce Future Contributions
A surplus can provide an opportunity to reduce future contributions from both the employer and employees. However, any changes must be made in accordance with plan documents and applicable tax laws.
Premium Holidays or Rebates
If the surplus is a result of contributions from both the employer and employees, you might consider a premium holiday or rebate. During a premium holiday, employees don’t need to contribute to the plan for a specified period. A rebate involves returning a portion of the surplus to employees.
Important Considerations
- Fiduciary Duties: As a plan sponsor, you have a fiduciary duty to act in the best interests of plan participants. Any decisions regarding surplus funds must be made prudently and fairly.
- Plan Documents: Ensure that your plan documents allow for the chosen use of surplus funds. If necessary, you may need to amend your plan.
- Tax Implications: Be aware of the potential tax consequences of any actions you take. Consult with a tax advisor to understand the implications for your specific situation.
Need More Guidance?
Managing a surplus in a self-funded health plan can be complex. If you’re unsure about the best approach for your organization, consider consulting with a benefits advisor, such as Wisterm, or attorney who specializes in employee benefits law. They can help you evaluate your options and ensure that you’re making decisions that align with your goals and comply with applicable regulations.
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