When employers go the self-insurance route, many also purchase stop-loss insurance to protect themselves from staggering health claims. So do stop-loss policies count as plan assets?
Not a plan asset if …
The DOL gave employers some guidance when it released Advisory Opinion 2015-02A.
The DOL looked at a scenario where a stop-loss policy purchased by a self-insured health plan included mandatory employee contributions. Even though the plan’s costs would be paid with the mandatory worker contributions, the DOL said the stop-loss policy would not be considered a plan asset.
The agency spelled out how it came to that conclusion. First, the agency said the policy met the following criteria from a previous Opinion on stop-loss insurance:
- the insurance proceeds were only paid to the employer who is named under the policy
- the employer has all right of ownership under the policy, and the policy would be subject to claims of its creditors
- neither the plan nor any participant or beneficiary had any preferential claim against – or beneficial interest in – the policy
- the policy wasn’t used to provide plan benefits or as a security for benefits payments, and
- the benefits of the plan weren’t limited or governed by the amount of insurance proceeds the employer receives.
In addition to meeting the criteria listed above, the DOL said the stop-loss policy wouldn’t constitute plan assets because of these factors:
- the plan sponsor used an accounting system where participant contributions aren’t used to pay stop-loss premiums
- the plan continues to pay benefits and the stop-loss insurer doesn’t 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 claims paid with participants contributions.
One thing the DOL didn’t address: Whether all the factors listed in the Opinion must be present for a stop-loss policy to avoid plan-asset status. So if your stop-loss policy doesn’t satisfy all the factors listed in the DOL’s Opinion, you’ll probably want to talk to your broker or an attorney about the policy’s status.