3514 / Must an employer sponsoring a cafeteria plan file an information return with the IRS?

Under IRC Section 6039D, an employer sponsoring a cafeteria plan was required to file an information return with the IRS. This return indicated the number of the employer’s employees, the number of employees eligible to participate in the plan, the number of employees actually participating in the plan, the cost of the plan, the identity of the employer, the type of business in which it is engaged, and the number of its highly compensated employees in the above categories.

Under prior law, all employers that maintained cafeteria plans were required to file an information return (Form 5500 series with Schedule F) for each year.¹

However, the IRS has currently suspended the operation of these reporting requirements with respect to cafeteria plans.² This suspension is in effect for plan years beginning prior to the issuance of further guidance from the IRS. Proposed Form 5500 regulations released in July 2016 would require plans that provide group health benefits to provide information on whether health plan funding and benefit arrangements are through a health insurance issuer and whether benefits are paid through a trust or from the employer’s general assets. Further, Schedule J to Form 5500 would require these plans to disclose whether there were participant and/or employer contributions. “Participant contributions” include all elective contributions made under a cafeteria plan.³

The proposed regulations would not require welfare benefit plans (including cafeteria plans) to file Form 5500 if the plan (1) does not provide health benefits, (2) covers fewer than 100 participants and (3) is unfunded, fully insured or a combination of insured and unfunded (unfunded plans have benefits paid directly from the general assets of the employer or sponsoring employee organization). If the plan receives participant contributions, it is funded.⁴ Despite this, a cafeteria plan may be treated as though it is unfunded if it meets the requirements of DOL Technical Release 92-01, 57 FR 23272 (June 2, 1992) and 58 FR 45359 (Aug. 27, 1993).

The IRS action does not affect annual reporting requirements under Title I of ERISA, or relieve administrators of employee benefit plans from any obligation to file a Form 5500 and any required schedules (other than the Schedule F) under that title. However, many practitioners believe that, under ERISA and the new proposed Form 5500 regulations, cafeteria plans containing Health FSAs with more than 100 participants are required to file Forms 5500 because the FSA is a welfare benefit that provides health benefits. And because the IRS Section 6039D suspension does not affect ERISA filing requirements, such cafeteria plans are therefore required to file.