EBSA: Stop-loss policies purchased to manage self-insured welfare plan risk are not plan assets,(Oct. 27, 2015)

Stop-loss insurance policies purchased by a plan sponsor to manage risk associated with a self-insured contributory welfare plan do not constitute plan assets, according to a recent EBSA Advisory Opinion.

Background. Schneider Electric Holdings, Inc. (SEHI), and its subsidiary, Schneider Electric USA, Inc. (SEUSA) (Plan Sponsors) sponsor the Schneider Electric Benefit Program for US Employees (Plan I) and the Schneider Electric USA, Inc. and Subsidiaries Employee Welfare Benefit Plan for Coordinated Bargaining Employees (Plan II). Plan I covers non-collectively bargained employees. Employees who are covered by collective bargaining agreements with one of three unions participate in Plan II. Both Plans provide medical, dental, vision, health care flexible spending accounts, and dependent care flexible spending accounts under Code Sec. 125. Although the medical portions of the Plans are largely funded from the general assets of the Plan Sponsors, employees also make contributions to both Plans at specified rates.

Purchase of stop-loss insurance. The opinion indicates that the Plan Sponsors want to purchase one or more stop-loss insurance policies (Policies) for the purpose of managing the risk associated with their liabilities under the medical benefit portions of the Plans. The Plan Sponsors put certain accounting procedures in place to ensure that no monies attributable to employee contributions are used for paying premiums on the Policies. Specifically, participant contributions are paid into the general account of SEUSA and recorded in a balance sheet. All health claims and other Plan expenses are paid from this SEUSA general account. The Plan Sponsors will pay premiums for the Policies, or any other stop-loss insurance, exclusively from a general account of SEHI.

Except for the use of participant contributions to partly fund the medical benefit portions of the Plans, the purchase of the Policies will be identical in all material respects to the facts surrounding the purchase of the stop-loss insurance policy described in Advisory Opinion 92-02A (Jan. 17, 1992), where the Department of Labor found that a stop-loss insurance policy purchased by an employer sponsoring a self-insured welfare benefit plan to which employees did not contribute, and that provided benefits exclusively out of the employer’s general assets, would not be an asset of the plan.

Not plan assets. The Advisory Opinion concluded that the Policies would not constitute assets of the Plans. The conclusion is premised on the following:

• Except for the use of participant contributions to partly fund the medical benefit portions of the Plans, the facts surrounding the purchase of the Policies will be identical in all material respects to the facts surrounding the purchase of the stop-loss insurance policy described in Advisory Opinion 92-02A.
• With respect to the use of participant contributions to fund in part the benefits under the Plans, there is an accounting system in place that ensures that the payment of premiums for the Policies includes no employee contributions.
• The purchase of such insurance will not relieve the Plans of their obligation to pay benefits to Plan participants, and the stop-loss insurer has no obligation to pay claims of Plan participants.
• The Policies will reimburse the Plan Sponsors only if the Plan Sponsors pay claims under the Plans from their own assets so that the Plan Sponsors will never receive any reimbursement from the insurer for claim amounts paid with participant contributions.

SOURCE: EBSA Advisory Opinion 2015-02A, October 19, 2015.

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