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Stop-Loss as Plan Asset + Fiduciary Reminder

If you ask DOL almost any generic question, such as whether Stop-Loss needs to be included on the 5500 reporting and/or if Stop-Loss has ERISA fiduciary responsibility, the answer will be, "It depends on facts & circumstances."  So, keep that in mind that there is no such thing as broad inclusive answers in ERISA.  DOL gets to decide such things with 20/20 hindsight and based on the facts as THEY choose to view them.  So, please do not be foolish and delve into wishful thinking & assumptions.   You are safer to assume the toughest interpretations.  Below is certainly not legal advice, but is intended as some helpful points in your thinking.

The important factor is NOT whether something is Stop-Loss.  The pivotal factor is what is the direct impact on plan assets.   If a Stop-Loss policy is paid completely by company assets, and payments are to the employer, and there is nothing in the plan or to plan participants saying that Stop-Loss is there for the plan.....then that Stop-Loss policy presumably is not covered by ERISA and does not need to be reported on Form 5500.    (For that kind of disconnected arrangement, think of it like the employers' fire insurance policy.)

CAUTION:  Part of the reason we(and ERISA) say that 99% of plans should have a separate trust is that if an employer is holding employee contributions and COBRA premium money (both of which are legally considered Plan as soon as the amounts are known...such as the moment it is shown as a deduction on the pay stub or the COBRA premium is received), then DOL can claim that some portion of the money in an employer check to pay for the Stop-Loss policy is Plan Assets,.....and thus it should be reported on the 5500.  Moral of the story: Yet another reason why having the trust saves many headaches and legal risks.  Stop-Loss & TPAs who many think they have excluded Stop-Loss from fiduciary duty can find it dragged in.

If the Stop-Loss is purchased with anything DOL might consider as plan money (from a trust, from withheld employee contributions, COBRA premiums, etc.) , or if the Stop-Loss is described as being a backup for the plan (as differentiated from a back-up for corporate finances) then the Stop-Loss policy DOES need to be reported on the form 5500, and because plan assets are involved, there is some degree of ERISA fiduciary duty applied to everything involved with the Stop-Loss.  That would mean that any disagreements over reimbursement  etc. now get judged by DOL as to whether the Stop-Loss plan is acting solely in the best interest of preserving & protecting plan assets and providing everything a plan participant reasonably expects to receive from being covered by the plan.

In all of this, always be VERY careful with wording....not only not seeming to say that the Stop-Loss is a backup for the plan (not for the employer's finances)....but the more common careless clerical error where the money source for the premium is plan assets (or the Caution paragraph above), but the policy is written stated the employer as the policy owner and/or beneficiary (or vice versa).  While it is probably a careless clerical error, it comes off as fraud to DOL, and that can win you a striped jump suit with a number on it.

The other way in which Stop-Loss unknowingly bring themselves under ERISA purview is if they try to get too involved (intrusive?  bossy?) in plan administration.  So, if Stop-Loss demands, pressures, or otherwise steers administrative decisions of the plan, then DOL is apt to view that as exercising "discretionary authority" impacting the plan.