Available at http://www.dol.gov/ebsa/pdf/AO2015-02A.pdf

In this advisory opinion, the DOL concluded that a stop-loss insurance policy purchased by an employer in connection with its self-insured health plan would not be a plan asset, even though part of the plan’s cost would be paid from employee contributions. The opinion—issued in response to the employer’s request describing a proposed arrangement—expands on an earlier advisory opinion, 92-02A, in which the DOL determined that a stop-loss policy purchased by another employer, in connection with its noncontributoryself-insured health plan (i.e., the plan did not allow employee contributions, and the employer paid plan benefits exclusively from its general assets), was not a plan asset. (As background, employers with self-insured health plans often purchase stop-loss insurance to help protect against the risk of unexpectedly large claims; the employer remains responsible for paying plan benefits, but the stop-loss insurance generally reimburses the employer for claims paid in excess of a stated amount or “attachment point.”)

The DOL concluded that the stop-loss policy would not be a plan asset, explaining that its conclusion was premised on four facts. First, aside from the presence of employee contributions, the proposed purchase of the policy would be identical in all material respects to those in the earlier advisory opinion (for example, the employer would have all rights of policy ownership, the policy would be subject to claims of the employer’s general creditors, and neither the plan nor any participant or beneficiary would have any beneficial interest in the policy). Second, the employer proposes to use a special accounting system—paying employee contributions into, and all health claims and plan expenses from, the employer’s general account; and paying stop-loss premiums exclusively from a parent company general account—to ensure that no employee contributions would be used to pay stop-loss premiums. Third, the stop-loss policy would not relieve the employer’s obligation to pay plan benefits, and the stop-loss insurer would have no obligation to pay plan benefits. And fourth, the stop-loss policy would “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 reimbursement from the insurer for claim amounts paid with participant contributions.”

Comment: Because an advisory opinion addresses only the fact pattern presented, we cannot tell whether the DOL considers all of these factors necessary to avoid plan-asset status for a stop-loss policy purchased in connection with a contributory plan. Indeed, it’s not clear from the opinion how the fourth factor would be applied, making it hard to reconcile how the DOL’s description of the employer’s special accounting system, under which all claims would be paid from the account to which participant contributions are deposited, could ensure that the employer never received reimbursements from the insurer for claims paid with participant contributions. In any event, self-insured employers with plans that require employee contributions (as most do) should take note and consider reviewing with counsel the advisability of documenting a methodology for paying stop-loss premiums (and any claims reimbursed from stop-loss proceeds) only from employer funds.