CAFETERIA PLANS NO LONGER FILE FORM 5500

By Jeff Belfiglio, Stuart Harris and Anne Northrup
[Spring 2002]

The IRS recently issued Notice 2002-24, which suspended the filing requirement for cafeteria plans. Some employers have been confused, reading the Notice to mean a cafeteria plan could cease filing Schedule F to the Form 5500, but still had to file a bare-bones Form 5500. However, IRS representatives have been explaining that the intent is to cease the entire 5500 filing requirement for cafeteria plans.

This is great news and will simplify life for plan administrators and human resources and benefits managers who previously had to make sure a 5500 was filed, no matter how small the plan or employer. However, employers need to remember that Notice 2002-24 only applies to cafeteria plans, and not the “welfare plans” that might constitute part of a cafeteria plan. Stated another way, Notice 2002-24 does not affect Form 5500 filings required by ERISA. As defined in ERISA Section 3(1), a “welfare benefit plan” is required to file a Form 5500 unless specifically exempted by either ERISA or regulations. For example, a typical cafeteria plan provides for a choice of cash or pre-tax payment of premiums under the employer’s group health insurance plan. This means that although the cafeteria plan need no longer file Form 5500, the group health insurance plan, as an ERISA welfare plan, must still file a Form 5500 unless an exemption applies.

A filing exemption exists if a “welfare benefit plan” (i) covers fewer than 100 participants at the beginning of the plan year and (ii) is unfunded, fully insured or a combination of the two. An “unfunded plan” is a plan that has its benefits paid as needed directly from the general assets of the employer or employee organization that sponsors the plan. In a “fully insured” plan, the premiums are paid directly to the insurer either out of the employer’s general assets or from withholding from employee paychecks. A plan with more than 100 participants must file a Form 5500 regardless of whether it is funded, unfunded or fully insured. In addition to the exemption for unfunded/fully insured plans covering fewer than 100 participants, the following welfare benefit plans are also exempt from filing a Form 5500:

• Welfare benefit plans maintained outside the United States primarily for persons who are nonresident aliens.
• Governmental plan.
• Unfunded or insured welfare plans for a select group of management or highly compensated employees that meet the requirements of 29 CFR 2520.104-24 (A so-called Top-Hat Welfare Benefit Plan.)
• Employee benefit plans maintained only to comply with workers’ compensation, unemployment compensation or disability insurance law.
• Welfare benefit plans that participate in a group insurance arrangement that files a Form 5500 on behalf of the welfare benefit plan as specified in 29 CFR 2520.103-2. See 29 CFR 2520.104-43.
• Apprenticeship or training plans meeting all of the conditions specified in 29 CFR 2520.104-22.
• Unfunded, dues-financed welfare benefit plans exempted by 29 CFR 2520.104-26.
• Church plans under ERISA section 3(33).
• Welfare benefit plans solely for (1) an individual or an individual and his or her spouse, who wholly owns a trade or business, whether incorporated or unincorporated, or (2) partners or the partners and the partners’ spouses in a partnership. See 29 CFR 2510.3-3(b).
• Fringe benefit plans previously required to file Form 5500 under Internal Revenue Code Section 6039D.

Any questions about this Advisory should be directed to :

Jeff Belfiglio, Bellevue, (425) 646-6128, jeffbelfiglio@dwt.com
Stuart Harris, Portland, (503) 778-5428, stuartharris@dwt.com
Anne Northrup, Seattle, (206) 628-7735, annenorthrup@dwt.com

This Employee Benefits Alert is a publication of the Employee Benefits Department of Davis Wright Tremaine LLP. Our purpose in publishing this Alert is to inform our clients and friends of recent developments in employee benefits. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.

Copyright © 2002, Davis Wright Tremaine LLP.

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