Fiduciary Responsibilities: Handling Employee Contributions

Funding of Plan Important ERISA applies a number of requirements on benefit plans depending on how the plan is funded Four major funding vehicles for ERISA plans: General assets of the employer Insurance purchased from an insurance company or HMO (stop loss coverage not counted in this category) Separate funds or accounts maintained exclusively for the purposes of the plan Contributions from plan participants or plan beneficiaries HCRAs are viewed as ERISA plans and employers need to understand these rules because their funding arrangements can impact reporting requirements High performer pay 12% less in health cost for employees roughly $1,200 less per employee mma-mi.com

Funded Plans A plan that uses plan assets to pay for benefits is considered a funded plan Funded plans have additional requirements under ERISA: Trust requirements: General rule for ERISA requires plan assets be held in a separate trust established with one or more trustees Exclusive benefit rules: The assets of the plan must be held for the exclusive purpose of providing benefits to plan participants and defraying reasonable expenses for administering the plan More details on Trust requirements on CD High performer pay 12% less in health cost for employees roughly $1,200 less per employee

What are Plan Assets? Unfortunately, ERISA never defines plan assets, but some of the following are considered plan assets: If a plan accepts participant contributions (salary reductions, COBRA premiums and so on). Contributions become plan assets when they can be segregated from employer’s general assets. If funds are segregated, employers must separate funds within 90 days after being withheld from pay If the employer sets up a separate account to accumulate funds to pay benefits under the plan, this could be considered funded By definition, most HCRA plans should could be considered funded plans, and therefore subject to ERISA’s trust requirements and exclusive benefit rules, except… High performer pay 12% less in health cost for employees roughly $1,200 less per employee mma-mi.com

Technical Release 92-01 DOL Technical Release 92-01 specifies that the trust requirements will not be enforced for certain welfare plans, including HCRAs: That accept participant contributions made through a Section 125 plan and Benefits are paid directly out of the employers’ general assets Trust requirements will involve significant more work in annual filings and will require additional administrative cost Set up your banking arrangements such that your plan meets the non-enforcement policy of Technical Release 92-01 is a good idea High performer pay 12% less in health cost for employees roughly $1,200 less per employee

Trust Requirements Apply If Benefits are paid from an account other than general assets A separate account in Employer’s name that is set up for the sole purpose of plan administration does not necessarily create plan assets Separate account in plan’s name creates plan assets What if the account is in a third party’s name? Some TPAs will set up zero-balance accounts to fund benefit payments from plan Not clear if this creates a funded plan, but not likely, if the employer owns the zero-balance account or maintains control If the TPA owns or maintains control of the account, this would likely require the employer meet the trust requirements High performer pay 12% less in health cost for employees roughly $1,200 less per employee mma-mi.com

The View of Employee Contributions Pre-tax employee contributions viewed differently by the Internal Revenue Code and ERISA: Internal Revenue Code: Views employee contributions as “employer contributions” ERISA: Contributions to pay for benefits under an ERISA plan are viewed as participant contributions that become plan assets and are subject to ERISA protections Distinction is important depending on the compliance issues that may impact your plan High performer pay 12% less in health cost for employees roughly $1,200 less per employee

In Summary How you set up banking arrangements impacts how your plan is viewed by the DOL and the reporting and trust requirements: Segregating funds into separate accounts, not necessarily an issue Employer must own and maintain control of the accounts Meeting the requirements of Technical Release 92-01 saves your plan money and hassle As an aside, with so many companies in financial turmoil: Employee contributions must be used to pay for benefits under the plan If you collect employee contributions to pay for a benefit plan, contributions must be forwarded to a carrier within 90 days High performer pay 12% less in health cost for employees roughly $1,200 less per employee