ERISA-DOL Discusses Whether A Stop-Loss Insurance Policy Is An ERISA “Plan Asset”

In DOL Advisory Opinion 2015-02A, U.S. Department of Labor (the “DOL”) responded to the question of whether stop-loss insurance policies purchased by a plan sponsor to manage risk associated with self-insured contributory welfare plans would constitute “plan assets” for purposes of ERISA.

The Facts: The welfare plans in question (the “Plans”) provide medical, dental, vision, health care flexible spending accounts, and dependent care flexible spending accounts under Internal Revenue Code section 125. Although the medical portions of the Plans are largely funded from the general assets of the plan sponsors (the “Plan Sponsors”), employees also make contributions to both Plans at specified rates.

The Plan Sponsors wish to purchase one or more stop-loss insurance policies (the “Policies”) for the purpose of managing the risk associated with their liabilities under the medical benefit portions of the Plans. Pursuant to the Policies, the insurer will reimburse the Plan Sponsors only if, during the policy year, they pay benefit claims required under the Plans in excess of a pre-determined amount, or attachment point, consistent with applicable state insurance law. The purchase of such insurance will not relieve the Plans of their obligations to pay benefits to Plan participants, and the stop-loss insurer has no obligation to pay claims of Plan participants. The Policies will reimburse the Plan Sponsors only if the Plan Sponsors pay claims under the Plan from their own assets, so that the Plan Sponsors will never receive any reimbursement for claim amounts paid with participant contributions. The Plan Sponsors will use certain accounting procedures to ensure that no monies attributable to employee contributions are used for paying premiums on the Policies.

Other Pertinent Facts: (1) the insurance proceeds from the Policies would be payable only to the Plan Sponsors, who would be the named insured under the Policies; (2) the Plan Sponsors would have all rights of ownership under the Policies, and the Policies would be subject to the claims of the creditors of the Plan Sponsors; (3) neither the Plans nor any participant or beneficiary of the Plans would have any preferential claim against the Policies or any beneficial interest in the Policies; (4) no representations would be made to any participant or beneficiary of the Plans that the Policies would be used to pay benefits under the Plans or that the Policies in any way represent security for the payment of benefits; and (5) the benefits associated with the Plans would not be limited or governed in any way by the amount of stop-loss insurance proceeds received by the Plan Sponsors.

The DOL’s Answer: The DOL concluded that the Policies would not constitute assets of the Plans. Why? The DOL said the following. First, except for the use of participant contributions to partly fund the medical benefit portions of the Plans, the facts surrounding the purchase of the Policies will be identical in all material respects to the facts surrounding the purchase of the stop-loss insurance policy described in Advisory Opinion 92- 02A, in which the DOL found that the policy was not a plan asset. Second, with respect to the use of participant contributions to fund in part the benefits under the Plans, the Plan Sponsors use an accounting system that ensures that the payment of premiums for the Policies includes no employee contributions. Third, the purchase of such insurance will not relieve the Plans of their obligation to pay benefits to Plan participants, and the stop-loss insurer has no obligation to pay claims of Plan participants. Fourth, the Policies will reimburse the Plan Sponsors only if the Plan Sponsors pay claims under the Plans from their own assets so that the Plan Sponsors will never receive any reimbursement from the insurer for claim amounts paid with participant contributions.

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