Q: My health insurance carrier(s) provided credits against premiums and/or premium holidays due to lower utilization of medical, dental and vision care by participants during the COVID-19 shut-downs. What are my fiduciary responsibilities regarding the premium credits?

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Employers who are subject to ERISA Compliance and receiving premium credits have fiduciary obligations under ERISA when determining how to apply the credits. Any credit amount that qualifies as a plan asset under ERISA must be used for the exclusive benefit of the plan’s participants. Employers cannot retain any portion of the rebate that is plan assets.

Fiduciaries who do not follow the basic standards of conduct may be personally liable for restoring any losses to the plan, or for restoring any profits made through improper use of the plan’s assets resulting from their actions. A fiduciary’s liability for a breach may also include a 20% penalty assessed by the Department of Labor, “DOL”, removal from his or her fiduciary position, and, in extreme cases, criminal penalties.

The entire credit is a plan asset if employees paid 100% of the benefit cost. If the employees paid a portion of the premium through payroll contributions, the percentage paid by employees is a plan asset.

The credit is not a plan asset if the employer paid 100% of the total premium without employee contributions.

The DOL identifies the following methods for applying the portion of credits that are plan assets:

  • The credit may be distributed to participants covered by the policy in a reasonable, fair, and objective allocation method. 
  • This may be done by offsetting future employee contributions for a specific policy, providing a premium waiver or premium holiday for a future month.
  • For a participant on COBRA, the individual should receive 100% of the credit attributable to the individual’s coverage.
  • If distributing payments or credits to participants is not cost-effective because the amounts are small or would cause tax consequences for the participants, the employer may use the rebate for other permissible plan purposes, such as applying it toward future participant premium payments or benefit enhancements.

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