Welfare benefit plans provide benefits such as medical, dental, vision, life insurance, long-term disability, short-term disability, accidental death & dismemberment, and severance pay; these include fully insured benefits, self-insured benefits, and a combination of the two  (where a plan has both insured benefits and self-insured benefits).

General Form 5500 filing requirements

The Employee Retirement Income Security Act (ERISA) states that any plan sponsor with a welfare benefit plan with 100 or more participants as of the beginning of the plan year is required to file an annual Form 5500 and related schedules.

Plan sponsors with plans with fewer than 100 participants are generally not required to file an annual Form 5500 unless the benefits are funded through a trust. If the plan’s benefits are funded through a trust, a welfare benefit plan is required to file an annual Form 5500 regardless of the number of participants. However, governmental and church plans (as defined under ERISA section 3(33)) are usually exempt from the filing requirements.

How do you count participants for a welfare 5500?

Counting participants for a welfare plan Form 5500 is different than counting participants for a pension or retirement plan Form 5500.  The process for counting welfare plan participants begins with defining the universe of total eligible employees, former employees, those participating in COBRA, and those who are eligible for COBRA but have not yet elected coverage.

For purposes of the welfare benefit plan filing requirements, generally a participant would include a) former employees who are covered under a welfare plan arrangement, b) former employees who are entitled to benefits under a welfare plan arrangement pursuant to Part 6 of ERISA (i.e., former employees that are eligible to receive COBRA that have yet to elect benefits), and c) current employees who are covered by the welfare benefit plan. Coverage is generally defined by virtue of the employee and/or employer paying for welfare benefit plan coverage for an individual under an insured arrangement, or by the employer assuming the risk of providing coverage for a participant in a self-insured arrangement. Spouses and dependents should not be included in this count. Unlike a pension or retirement plan Form 5500, for the welfare benefit plan Form 5500, if an active participant is eligible to participate but chooses not to elect a benefit in an employer-sponsored welfare benefit plan arrangement, that participant is not counted as participating for Form 5500 purposes.

The Form 5500 should include all benefits that are considered ERISA benefits, and a Schedule A should be prepared and filed with the Form 5500 for each fully insured benefit.

How many welfare plans does an employer have?

Plan sponsors should determine if they have established one or more plans for Form 5500 reporting purposes. A plan sponsor must review the governing documents and actual operations to determine if the benefits are provided as a single plan or separate plans.  If it is determined that more than one plan exists, a plan sponsor may be able to adopt a welfare wrap plan document to consolidate the benefits into one plan and thus only have one Form 5500 filing.

What are some common mistakes in failing to file a welfare plan 5500?

The most common mistakes involve a misunderstanding of the number of ERISA plans and the underlying headcounts of the plans.  For example:

• An employer provides life insurance to 125 employees in a base amount, such as $10,000; the employer provides no other welfare benefits to employees.  This employer has an ERISA welfare benefit plan that must annually file a Form 5500.

• An employer provides health insurance options to 150 employees and their families, of which only 95 active employees use benefits and 7 terminated participants are participating in COBRA coverage; the employer provides no other welfare benefits to employees.  This employer has an ERISA welfare benefit plan that must annually file a Form 5500 due to exceeding 100 participants (95+7).

• An employer provides health, life, vision, dental, and long-term disability coverage to 200 employees. All the benefits are provided by distinct policies with historically distinct communications, with no plan that legally wraps the benefits together into one plan.  The employer has annually filed a welfare plan Form 5500 for only the healthcare benefits provided to employees.  The employer has failed to file Forms 5500 for four other welfare plans— the life, vision, dental, and long-term disability plans.

In other instances, the insurance companies and their agents have not told employers that the informational filing (i.e., the Form 5500) is due, nor have they provided the employer with adequate information to prepare and file the form.  While the insurance companies are required to provide Schedule A information to plan sponsors necessary to complete the Form 5500, little direction is often given as to why the information is being provided and how to use it.  Lastly, oftentimes plan sponsors mistakenly think the insurance company or the insurance agent is filing the Form 5500 on their behalf.

What should you do if you realize that you have inadvertently failed to file a Form 5500 for your welfare plan(s)? 

It is important to file a Form 5500 for every year and for every plan that would have been required as soon as possible to minimize penalties.
If the DOL issues a notice of intent to assess a penalty, the plan is not eligible to participants in the Delinquent Filer Voluntary Compliance (DFVC) Program and penalties can be assessed as follows:

• The DOL has the authority under ERISA to impose civil penalties of up to $1,100 per day.
• The IRS may also assess a separate penalty of $25 per day for each day the Form 5500 is not filed, up to $15,000 per return.

The DOL has been increasing their attention on welfare benefit plans where Forms 5500 may not have been filed, especially where the employer files an annual Form 5500 for a pension or retirement plan that indicates there are more than 100 participants in the plan.

Is there any penalty relief available?

Late returns can be filed under the DOL’s DFVC program, which allows for reduced civil penalties if the filings are made prior to written notification by the DOL of a failure to file a timely annual report.

Plan sponsors are eligible for reduced penalties under the DFVC program if a Form 5500 is filed for every plan year it was required, again, prior to written notification of a failure to file a timely annual report.  The reduced penalty for late filing of a welfare Form 5500 is $10 per day not to exceed $2,000 per annual report.  If the delinquent filing is for multiple years, the penalty is $2,000 per annual report, not to exceed $4,000 per plan in the case of multiple years.