The IRS has suspended the Form 5500 Schedule F filing requirement for all plan years for section 125 cafeteria plans, section 127 educational assistance programs, and section 137 adoption assistance programs. This article clarifies some of the issues arising from this guidance. Notice 2002-24.
In order to assess the applicability of this change to a company's Form 5500 filings, it is important to clarify the interaction between cafeteria plans and health and welfare plans. ERISA section 3(1) defines an "employee welfare benefit plan" and a "welfare benefit plan" as "any plan, fund, or program which [is]...established or maintained by an employer or by an employee organization, or by both, to the extent that [it is] established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise...medical, surgical, or hospital care or benefits in the event of sickness, accident, disability, death or unemployment..."(emphasis added).
Thus, a health flexible spending arrangement (FSA) or medical reimbursement plan that reimburses participants and beneficiaries for medical expenses meets the definition of a welfare benefit plan under ERISA section 3(1) on its own (regardless of whether it is part of a cafeteria plan) because it provides medical benefits by a means other than insurance.
In order to determine whether an FSA or medical reimbursement plan is required to file Form 5500, the arrangement needs to be analyzed under the Department of Labor's (DOL's) Form 5500 exemption regulation.
Under ERISA section 104(a)(3), the DOL may exempt any welfare benefit plan from all or part of ERISA's reporting and disclosure requirements. Under ERISA Reg. Sec. 2520.104-20, the DOL exempts certain health and welfare plans from filing Form 5500.
To be exempt, such a plan:
Here are some examples of the effect of Notice 2002-24 on cafeteria plan filings:
Affect on Government and Church Plan Sponsors
Interaction with DOL Compliance Programs
Effect on Companies
Because the 2001 Form 5500 was released prior to the issuance of Notice 2002-24, the Form includes references to fringe benefits and Schedule F that are no longer relevant. Thus, plan sponsors no longer indicate on the Form 5500, Line 8c that the plan has fringe benefit features, nor do they check box 10c, which indicates a Schedule F is attached.
Both DOL and IRS have the right to collect penalties for the late filing of the Form 5500 annual report by retirement plans, and they both administer voluntary fiduciary correction programs.
When the DOL established VFC to allow for the correction of certain prohibited transactions, the program did not provide for waiver of the IRS penalties under Code section 4975. Plan sponsors were still exposed to the collection of Code section 4975 penalties for the prohibited transactions reported in their VFC filings. The DOL is working on a prohibited transaction class exemption that would eliminate this problem, but class exemptions take time. In Announcement 2002-31, the IRS states it will essentially waive its prohibited transaction excise tax for plan sponsors who satisfy the proposed exemption's conditions (one of which is successful completion of VFC).
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