An employer that sponsors a self-insured benefit plan may be able to count a plan-related medical insurance stop-loss policy as its own asset, not a plan asset, even if the participants help pay for the plan coverage.

Louis Campagna, head of fiduciary interpretations at the Employee Benefits Security Administration (EBSA), gives that advice in a new ruling, Advisory Opinion 2015-02A.

Nancy Gerrie, a lawyer working with Schneider Electric Holdings Inc. and the holding company’s Schneider Electric USA Inc. subsidiary, asked how EBSA and EBSA’s parent, the U.S. Department of Labor, would classify sponsor-paid stop-loss coverage.

An employer with a self-insured medical plan can buy stop-loss insurance, or insurance for benefit plans, to insure itself against the possibility that the plan might receive huge, catastrophic claims.

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In 1992, an official at the agency that later became EBSA, the Pension and Welfare Benefits Administration (PWBA), told the Self-Insurance Institute of America Inc. (SIIA) that a stop-loss policy connected with a fully employer-paid self-insured health plan would be the employer-sponsor’s asset, not the plan’s asset.

Because the stop-loss policy was the employer’s asset, not the plan’s asset, the plan could leave the stop-loss policy out of its annual reports, a PWBA official ruled.

The PWBA official noted that an employer’s creditors could go after the stop-loss policy proceeds, and that the plan and its participants would have no right to jump ahead of other creditors when seeking to share in stop-loss benefits payments.

In the new ruling, the situation described was the same as the situation described in the 1992 ruling, except that the plan participants help pay part of the cost of the medical coverage.

Campagna says an employer-sponsor can make a stop-loss policy its own asset, rather than a plan asset, if it:

  • Uses its own cash to pay the stop-loss premiums.

  • Sets up an accounting system to ensure that no employee contributions go toward paying stop-loss premiums.

  • Retains full responsibility for paying medical plan benefits.

  • Gives the stop-loss insurer no responsibility for paying medical claims.

  • Structures the stop-loss policy in such a way that the policy reimburses the sponsor only if the sponsor pays claims under the plan from the plan’s own assets, so that the sponsor “will never receive any reimbursement from the insurer for claim amounts paid with participant contributions.”

Campagna reminded Gerrie that, under Labor Department enforcement rules, the employer-sponsor and plan fiduciaries would still have an obligation to “ensure that participant contributions are applied only to the payment of benefits and reasonable administrtive expenses of the plan.”

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“Utilization of participant contributions for any other purpose may result not only in civil sanctions under Title I of [the Employee Retirement Income Security Act (ERISA)] but also criminal sanctions,” Campagna writes.

Campagna notes that the advisory opinion interprets a provision of ERISA but does not address any stop-loss classification issues that might involve provisions of the Internal Revenue Code.

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