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The purpose of this Release is to announce the Pension
and Welfare Benefits Administration's revised enforcement policy with
respect to cafeteria and certain other contributory welfare plans and to
provide general guidance on the application of the trust and reporting and
disclosure rules under Title I of the Employee Retirement Income Security
Act of 1974 (ERISA) to such plans.
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In 1988, the Department published the plan
assets-participant contribution regulation (29 CFR 2510.3-102) defining when
amounts that a participant pays to or has withheld by an employer for
contribution to a plan (including elective contributions) constitute plan
assets. The regulation (effective August 15, 1988) provides that such
contributions become plan assets as of the earliest date they can reasonably
be segregated from the employer's general assets, but in no event later than
90 days from receipt by the employer.
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With respect to the application of the plan
assets-participant contribution regulation, the Department notes that the
regulation contemplates that all amounts that a participant pays to or has
withheld by an employer for purposes of obtaining benefits under a plan
become plan assets without regard to when related plan expenses or benefits
are paid by the employer. At such time as participant contributions can
reasonably be segregated from the employer's general assets and, therefore,
constitute plan assets, plan fiduciaries are obligated under ERISA to treat
those assets as any other assets of the plan, which includes ensuring
compliance with applicable trust and reporting and disclosure requirements
of ERISA.
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Recognizing that the application of the plan
assets-participant contribution regulation may have presented particular
problems for plan sponsors and fiduciaries of cafeteria plans, the
Department announced, in Technical Release No. 88-1 (August 12, 1988), an
enforcement policy pursuant to which the Department would not assert a
violation in any enforcement proceeding solely because of the failure to
hold participant contributions to cafeteria plans in trust, pending
consideration by the Department of regulatory relief from the trust
requirement. In conjunction with the enforcement policy, the Department also
expressed a willingness to consider regulatory relief from the trust
requirements for other types of contributory welfare plans.
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The Department notes that, while the Technical Release
invited applications for regulatory relief for contributory welfare plans
generally, the announced enforcement policy was expressly limited to ERISA's
trust requirements as they apply to cafeteria plans.
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Since the publication of Technical Release No. 88-1, a
number of questions have been raised regarding the application of ERISA's
reporting and disclosure requirements to contributory welfare plans in
general and to cafeteria plans electing not to establish a trust in reliance
on Technical Release No. 88-1. Specifically, these questions relate to the
circumstances under which such plans may avail themselves of the reporting
and disclosure exemptions set forth in regulations at 29 CFR 2520.104-20 and
2520.104-44. In general, these regulations provide relief for certain
welfare plans from various reporting and disclosure requirements of part 1
of title I of ERISA, including, in the case of plans with fewer than 100
participants, the requirement to file an annual report and, in the case of a
plan with 100 or more participants, the requirement to engage an independent
qualified public accountant.
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Pursuant to the regulations, exemptive relief is
available only to those welfare plans with respect to which: (i) Benefits
are paid solely from the general assets of the employer (or employee
organization) maintaining the plan; or (ii) benefits are provided
exclusively through insurance contracts or through a qualified health
maintenance organization (HMO), the premiums for which are paid directly by
the employer (or employee organization) from its general assets or partly
from its general assets and partly from contributions from its employees (or
members), provided that contributions by participants are forwarded to the
insurance carrier or HMO by the employer (or employee organization) within
three months of receipt; or (iii) benefits are provided partly from the
general assets of the sponsor and partly through insurance contracts or
through a qualified HMO, as described in (ii). (See: sections 2520.104-20
and 2520.104-44 for specific relief and conditions).
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In accordance with the terms of the regulations, the
relief afforded by §§2520.104-20 and 2520.104-44 is not available to any
welfare plan with respect to which benefits or premiums are paid from a
trust. Moreover, even in the absence of a trust, (e.g., where a cafeteria
plan elects not to establish a trust in reliance on Technical Release No.
88-1), the exemptive relief would, in the absence of additional relief, be
available only to those contributory welfare plans which apply participant
contributions toward the payment of premiums in accordance with the terms of
the regulations. For example, a welfare plan that applies participant
contributions directly to the payment of benefits (or indirectly by way of
reimbursement to the employer) would not qualify for exemptive relief
because the benefits under such a plan could not be considered as paid
.solely from the general assets of the employer." At least part of the
benefits of such a plan would be considered paid from plan assets. Once the
participant contributions are used, directly or indirectly, to pay benefits,
they are, by definition, segregable from the employer's general assets.
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The Department is continuing to consider whether, and to
what extent, relief from the trust requirements may be appropriate for
certain types of contributory welfare plans. In connection with its
consideration of the trust issues, the Department also is considering the
extent to which reporting and disclosure relief may be appropriate for
contributory welfare plans with respect to which relief from the trust
requirement is made available.
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The Department recognizes that there has been
considerable confusion on the part of sponsors and fiduciaries of cafeteria
and other contributory welfare plans with respect to the scope of the
enforcement policy set forth in Technical Release No. 88-1 and with respect
to the application of the reporting and disclosure exemptions referred to
above. The Department also recognizes that requiring such plans to be
brought into compliance with the trust and reporting and disclosure
requirements for which the Department is currently considering regulatory
relief may result in many sponsors incurring significant, and possibly
unnecessary, administrative costs and burdens pending final resolution of
the nature and scope of the relief to be provided in this area. For these
reasons, the Department has decided to announce the following enforcement
policy, which is intended to provide interim relief to plan sponsors and
fiduciaries of certain contributory welfare plans pending consideration of
these issues by the Department.
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In the case of a cafeteria plan described in section 125
of the Internal Revenue Code, the Department will not assert a violation in
any enforcement proceeding solely because of a failure to hold participant
contributions in trust. Nor, in the absence of a trust, will the Department
assert a violation in any enforcement proceeding or assess a civil penalty
with respect to a cafeteria plan because of a failure to meet the reporting
requirements by reason of not coming within the exemptions set forth in
§§2520.104-20 and 2520.104-44 solely as a result of using participant
contributions to pay plan benefits or expenses attendant to the provision of
benefits.
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In the case of any other contributory welfare plan with
respect to which participant contributions are applied only to the payment
of premiums in a manner consistent with §§2520.104-20(b)(2)(ii) or (iii)
and 2520.104-44(b)(1)(ii) or (iii), as applicable, the Department will not
assert a violation in any enforcement proceeding or assess a civil penalty
solely because of a failure to hold participant contributions in trust.
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In the case of either of these types of plans, with
respect to which a trust is not established in reliance on this Release, the
reporting exemptions would continue to be available where participant
contributions are used within three months of receipt to pay premiums as
provided in §§2520.104-20 and 2520.104-44.
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This Release supersedes Technical Release No. 88-1. The
enforcement policy set forth in this Release shall remain in effect until
the earlier of December 31, 1993, or the adoption of final regulations
providing relief from the trust and reporting and disclosure requirements of
Title I of ERISA.
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The Department cautions that the foregoing enforcement
policy in no way relieves plan sponsors and fiduciaries of their obligation
to ensure that participant contributions are applied only to the payment of
benefits and reasonable administrative expenses of the plan. Utilization of
participant contributions for any other purpose may result not only in civil
sanctions under Title I of ERISA but also criminal sanctions under 18 U.S.C.
664. See U.S. v. Grizzle, 933 F.2d 943 (11th Cir. 1991).
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Signed at Washington, DC, this 28th day of May
1992
Alan D. Lebowitz
Deputy Assistant Secretary for Program Operations
U.S. Department of Labor
Pension and Welfare Benefits Administration
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