December 7, 2015

Certain Stop-Loss Insurance Policies Are Not Plan Assets, Says DOL (article)

An employer can offer a health plan that is funded, such as through insurance or a trust; or paid from its general assets (unfunded), or is a combination of funded and unfunded.  Employers who self-fund health coverage often intend that the plan be funded solely from the employer’s general assets.  The employer, however, wants some level of protection for itself.  To this end, an employer might purchase stop loss insurance with its own funds. 


Years ago, the Department of Labor’s Employee Benefit Security Administration opined (Advisory Opinion 92-02A) a scenario wherein an employer sponsoring a self-insured welfare benefit plan purchased a stop-loss insurance policy and paid benefits out of its general assets; however, no employee contributions were required.  This arrangement was deemed permissible based upon the following factors:

  1. The insurance proceeds are only paid to the employer who is the named insured under the policy;
  2. The employer has all rights of ownership under the policy, and the policy would be subject to the claims of the employer's creditors;
  3. Neither the plan nor any participant or beneficiary has any preferential claim against the policy or any beneficial interest in the policy;
  4. The policy is not used to provide plan benefits or as security for payment of benefits; and
  5. The benefits associated with the plan are not limited or governed by the amount of insurance proceeds received by the employer.

The Department of Labor recently opined (DOL Advisory Opinion 2015-02A, 10/19/2015) in a similar scenario that stop loss policies purchased by a plan sponsor to manage risk associated with a self-insured contributory welfare plan do not constitute plan assets.  While the plan is largely funded from the general assets of the plan sponsor, the employees also make contributions for the medical coverage.  Even with the distinction of employee contributions in the current scenario, the DOL concluded that the stop loss policies would not constitute plan assets, based upon:

  • Meeting the criteria as outlined above in Advisory Opinion 92-02A;
  • The sponsor utilizing an accounting system wherein participant contributions are not, in any way, used to pay stop loss premium;
  • The plan continues to pay benefits and the stop loss insurer does not pay participant claims; and
  • The stop loss policies reimburse the plan sponsor only if it pays claims from its general assets without reimbursement from the insurer for claim amounts paid with participant contributions.

The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.  

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