For many years, a common technique for reducing the number of Forms 5500 an employer needed to file was for the employer to wrap its welfare plans (e.g., health, dental, medical reimbursement, etc.) into a single plan. Generally, the plan of choice for wrapping was a cafeteria plan. The cafeteria plan served as a convenient plan into which to wrap the other plans because it often served as the funding vehicle for the employee portion of the costs. Although the wrap plan approach has been utilized for a number of years, the DOL never formally recognized the wrap plan in its Form 5500 instructions. However, the DOL, for the first time in the 2005 filing instructions, discusses the wrap plan and acknowledges that such a plan design will create a single plan for filing purposes.

To create a single plan, the employer incorporates the various benefits or policies into one comprehensive plan. The DOL does not prescribe any specific language but generally all that is necessary is incorporation language in the wrap document. The principal benefit of the wrap plan is the reduction of the number of Forms 5500 an employer will need to file. However, the use of the wrap plan may work against the employer by transforming several small welfare plans exempt from filing a Form 5500 into a single large welfare plan that must file a Form 5500.

For purposes of the Form 5500, an individual who is a participant in any of the welfare benefits is part of the participant count. If the wrap plan has 100 or more participants at the beginning of the plan year, the employer must file Form 5500 for the plan, even though each of the underlying welfare plans is unfunded or fully insured. Of course, an individual who participates in more than one welfare benefit is one participant.

The IRS has suspended the Form 5500 filing requirement for a cafeteria plan. However, if the cafeteria plan serves as the wrap plan for one or more welfare plans and the welfare plans are subject to the Form 5500 filing requirement (e.g., large plan), the employer must file a Form 5500 for the wrap plan. In preparing the Form 5500, the preparer will report only the welfare benefit information and not any of the cafeteria plan information. However, since the cafeteria plan is the wrap plan, the preparer will use the name of the cafeteria plan on the Form 5500.

EXAMPLE: Corporation X maintains a “wrap” cafeteria plan with 250 participants at the beginning of the plan year. The plan provides three group insurance policies: health, dental and term life. X will file the information for the three benefits under a single Form 5500 with the appropriate schedules for the welfare benefits. Although the IRS filing suspension relieves the employer of the filing requirement for the cafeteria plan, the employer must continue to file the Form 5500 because the suspension does not apply with respect to the welfare benefits, and the wrap plan has 100 or more participants. Accordingly, the employer will file a Form 5500 identifying the cafeteria plan as the plan for which it is filing the Form 5500 because the cafeteria plan includes the welfare benefits.

If an employer has been filing separate Forms 5500 for its welfare plans, may the employer wrap the plans into a single cafeteria plan and commence filing a single Form 5500? The answer is “yes.” The employer would need to add the incorporation language to the cafeteria plan. The employer then would need to file final Forms 5500 for welfare plans and commence filing a Form 5500 for the cafeteria plan with the welfare benefit information.

An employer should note that a wrap plan may be a single plan for Form 5500 filing purposes but not a single plan for other purposes (e.g., COBRA, HIPAA).

For a complete explanation of how to file a Form 5500 for a “wrap” plan, as well as a line-by-line explanation of Form 5500 and the accompanying Schedules, plan to attend one of our Form 5500 Workshops. The Workshop is offered in 29 cities during April and May.

For help in completing Form 5500 and in answering the difficult questions, SunGard publishes The Form 5500 Filing Guide. You may obtain more information and order The Guide on our Web site.