Surprise, when employees pay part of the premiums, you might need a Form 5500.

The rule seemed clear: if your welfare plan (medical, dental, life insurance, disability, etc) has under 100 participants at the beginning of the year, you are exempt from filing Form 5500 if it is (a) unfunded, (b) fully insured, or (c) a combination of insured and unfunded. But wait, there’s more. 

The instructions to the 5500 toss in the following: "see 29CFR 2520.104-20."

If you whip out your copy of the CFR, you will see an "and", as in

"and for which, in the case of an insured plan——

(i) Refunds, to which contributing participants are entitled, are returned to them within three months of receipt by the employer or employee organization, and

(ii) Contributing participants are informed upon entry into the plan of the provisions of the plan concerning the allocation of refunds."

There are indications that the IRS is giving new emphasis to this provision. A posting on Benefitslink.com reports this excerpt from a recent letter from the IRS to an employer :

"If you have fewer than 100 participants on your group welfare benefit plan(s) you are exempt from filing a Form 5500 provided you have an SPD in place with the appropriate "refund allocation" language. The Form 5500 filing exemption may be lost if a Plan Sponsor does not disclose how insurer refunds are allocated. This can be problematic because many small employers do not prepare and distribute an SPD containing this language, nor do they file a Form 5500-relying on the small plan exemption. However, failure to prepare and file Form 5500 by the deadline can result in a DOL penalty of up to $1,100/day."

So, to summarize:  The instructions don't actually mention an issue that is likely to affect the smallest employers, the one's without a team of ERISA advisors, and this issue could lead to nonfiling penalties that can be in the millions of dollars, and the IRS thinks this could be "problematic"?  Perhaps a stronger word is in order...