1. Fiduciary Responsibilities: Handling Employee Contributions

2. 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
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3. 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

4. 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
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5. Technical Release 92-01
DOL Technical Release 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 is a good idea
High performer pay 12% less in health cost for employees roughly $1,200 less per employee

6. 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

7. 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

8. 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 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