Yes, Some Small Employers Must File 5500 and Pay PCORI

It’s no wonder small businesses are confused when they are told they need to file Form 5500 with the Internal Revenue Service (IRS) and pay PCORI fees. For instance, if you look up 5500 filing requirements on the Internet, most sites say something like, “Form 5500 is required on behalf of any welfare benefit plan that has 100 or more participants as of the beginning of the plan year or is funded through a trust, regardless of participant count.”

Clear as mud to the average employer, right? WRONG! Let’s break it down.

5500
Small employers under 100 lives have a general exemption from filing the 5500 if their plan is fully insured or unfunded. However, small employers lose this exemption if the health plan is considered “funded”. This is because they are withholding employee funds and these contributions are held in trust by a third party (other than an insurance company), such as a Third-Party Administrator in an account to pay claims benefits.  This means groups as small as two people are responsible for filing a 5500 if their benefit plan is considered funded.

What exactly is the 5500, and why was it created? IRS Form 5500 is an annual report filed with the U.S. Department of Labor (DOL). This report requires employers to indicate the number of employees covered on each company’s benefit plans such as medical, dental, vision, life insurance, disability, accidental death and dismemberment, severance pay, vacation, etc. Any or all of these benefits are considered “welfare benefit plans.” This is part of the Employee Retirement Income Security Act’s (ERISA) reporting and disclosure law intended to ensure that employee benefit plans are operated and managed properly. It is meant to ensure that participants and beneficiaries, as well as regulators, are provided or have access to sufficient information to protect their rights and benefits under the covered employees benefit plans.

PCORI
Patient-Centered Outcomes Research Institute (PCORI) was created by the U.S. Congress. It is not a federal agency; instead, it is an independent, non-profit organization authorized by the Patient Protection and Affordable Care Act of 2010. It was created to assist patients, caregivers, clinicians in deciding which treatment or other care option is best for them.

In part PCORI is funded by a fee on health insurance policies and plan sponsors of applicable self-insured health plans. Self-insured employers pay the annual PCORI fee directly to the IRS. For fully insured employers, the fee is paid by the insurance provider.

The amount of PCORI fee owed each year is calculated by the average number of enrolled employee lives covered during the policy year or plan year multiplied by the applicable dollar amount for the year. The number of participants reported on Form 5500 is used to calculate the amount of PCORI fee owed by an employer.

For more information about Form 5500 and PCORI, you can visit our website or visit the DOL Form 5500 Series and the About PCORI website.

We hope this explanation of why some employers have to file 5500 and pay PCORI is a little clearer than mud.

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Allied National

Founded in 1970, Allied is one of the nation's oldest and most experienced third-party administrators. As the small group benefit experts, Allied works with small business employers to provide unique and affordable group health benefits.