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FAQs

FAQ: Which mid-year election change requests are still impacted by the extension of certain timeframes?

November 09, 2021

Mid-year election change requests due to the exercise of HIPAA special enrollment rights (SERs) remain subject to the temporary relief provided by the extension of certain timeframes. Accordingly, certain requests that are made after the plan’s notification deadline may still need to be administered.

Generally, under IRC Section 125, elections are irrevocable for the plan year and once a participant makes an election, the participant generally may not change that election for the duration of the coverage period (usually the plan year) until the following open enrollment. There are two exceptions to this rule – HIPAA SERs, (which arise due to birth, adoption/placement for adoption, marriage, loss of eligibility for other group coverage, loss of Medicaid or CHIP and gain of eligibility for Medicaid or CHIP premium assistance program), and IRS permissible qualifying events.

 In 2020, the DOL published temporary guidance allowing an extension of certain notice requirements due to the ongoing COVID-19 public health crisis, including an extension for HIPAA SERs. While generally, a HIPAA SER should be administered within plan deadlines (with HIPAA requiring a minimum of 30-days to make the enrollment request, and 60-days in the event of loss of eligibility under Medicaid or CHIP), this guidance requires that plans toll these deadlines until the earlier of one year from the date the individual is eligible for relief or 60 days following the declared end of the COVID-19 national emergency. However, only HIPAA SER requests are subject to the extension of certain timeframes; the permissible qualifying events are not. (For further information on the extensions, see our March 2, 2021, Compliance Corner article.)

This means that enrollment requests due to a HIPAA SER should be considered even if they are made after the timeline permitted by the plan is over. For example, an employee has a baby on 8/20/2021. The birth of a child gives rise to a HIPAA SER, and the plan normally allows 30 days from the date of birth for the employee to request mid-year enrollment. However, the 30-day deadline does not begin until the earlier of the 60 days after the end of the national emergency or 8/19/2022.

Keep in mind that HIPAA SERs are only enrollment requests. An election change request to drop coverage due to marriage would not involve a HIPAA SER, but rather an IRS permissible qualifying event that is not subject to the extension of certain timeframes.

Lastly, while the HIPAA special enrollment period allows retroactive enrollment for births (and adoption/placement for adoption), for all other special enrollment events (e.g., marriage) it only requires plans to make the enrollment effective no later than the first day of the first calendar month following notification of the event. As such, while the request may be made after the timeline permitted by the plan, it generally will be administered prospectively (other than due to birth/adoption/placement for adoption). However, if the plan document permits enrollment as of the date of the event (rather than first of the month following notification of the event), employers should discuss with counsel how the application of the extension of time would apply to the plan’s provisions. Also keep in mind that the extension of certain timeframes would not require an employee to elect and pay coverage for the baby back to the date of birth, but could be elected prospectively.

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FAQ: If an employee declines coverage while on FMLA leave, and does not return to work, is that employee entitled to COBRA? If so, then when does the COBRA maximum coverage period begin?

October 26, 2021

There are three things that must happen in order for a COBRA qualifying event to occur under these circumstances. First, the employee must have been covered under the employer’s group health plan on the day before the first day of the FMLA leave. Second, the employee does not return to employment with the employer at the end of the FMLA leave. Finally, in the absence of COBRA coverage, the employee would lose coverage under the group health plan before the end of the maximum coverage period when they fail to return to work.

In most cases, the COBRA maximum coverage period will begin on the last day of the period of leave to which the employee is entitled. The maximum coverage period may begin earlier if the employee notifies the employer that they are not returning to work. Any lapse of coverage under a group health plan during the FMLA leave, either due to the failure to pay premiums or due to the employee’s choice, is not considered when determining when the maximum coverage period begins.

For example, Wiley is covered under Acme, Inc.’s group health plan on July 15, 2021. Wiley takes FMLA leave beginning July 16, 2021, and declines group coverage for the duration of the leave. On August 28, 2021, Wiley tells Acme that he will not be returning to work. According to FMLA regulations, his last day of FMLA leave is August 28, 2021. Accordingly, Wiley experiences a qualifying event on August 28, 2021, and the maximum coverage period (which is generally 18 months) begins on that date.

Note that the COBRA election notice must be “furnished” (i.e., as of the date of mailing, if mailed by first class mail, certified mail or Express Mail; or as of the date of electronic transmission, if transmitted electronically) within 14 days after receipt of notice of the qualifying event (or 44 days after the qualifying event, if the employer is also the plan administrator, for qualifying events requiring notice from the employer to the plan). Since the failure to return to work after FMLA leave is a qualifying event that triggers an offer of coverage under COBRA, the notice should be furnished within 14 days (or 44 days) from either the last day of the FMLA leave, or the date the employer is informed that the employee will not return to work.

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FAQ: Will the COVID-19 relief options for telehealth services continue to be available for the upcoming plan year?

October 12, 2021

The CARES Act and subsequent guidance provided plan sponsors with additional flexibility to offer telehealth services to participants. Generally, the relief was intended to ensure that healthcare services remained accessible to participants while minimizing the potential spread of COVID-19. Although some of the telehealth relief provisions have a set expiration date, others continue until the declared end of the COVID-19 public health emergency.

For example, the CARES Act allowed a high deductible health plan (HDHP) to cover telehealth services without a deductible or with a deductible below the minimum deductible normally required for an HSA-qualified HDHP. Importantly, such coverage could be provided even if the telehealth services were not related to COVID-19. Accordingly, plan sponsors could amend their plans to permit coverage of telehealth services before the statutory deductible was met, without these services being considered “impermissible” coverage for HSA eligibility purposes. As a result, participants of such amended HDHPs could continue to make HSA contributions while using the telehealth services.

Unfortunately, this temporary HDHP relief allowing for broad coverage of telehealth services is only available for plan years beginning on or before December 31, 2021. (Despite the immense popularity of this particular provision, no regulatory announcement has yet been made to extend the relief further.) Accordingly, the provision currently expires for calendar year plans on December 31, 2021. For non-calendar year plans, the relief would continue for the remainder of the plan year that ends in 2022. For example, the relief would extend through June 30, 2022, for a plan year beginning July 1, 2021.

The CARES Act also requires that group health plans cover COVID-19 testing without cost-sharing, whether provided via telehealth or otherwise. The plans must cover items and services provided to participants that result in administration of a COVID-19 diagnostic test for individual evaluation purposes. However, this requirement does not extend to testing for workplace surveillance purposes.

In separate guidance, the IRS stated that coverage of COVID-19 testing and treatment could be provided by a qualified HDHP prior to satisfaction of the statutory deductible, without such coverage being considered impermissible coverage. Therefore, participants could continue to contribute to HSAs while receiving such services. This relief was intended to reduce financial and administrative barriers to COVID-19 testing and treatment, whether provided through an in-person or telehealth visit.

The Cares Act requirement for coverage of COVID-19 testing without cost-sharing and the IRS relief (referenced in the preceding paragraph) remain in effect as the COVID-19 public health emergency continues. However, it is unclear if this IRS relief could apply to coverage for testing provided for other than individual diagnostic purposes; additional guidance would be welcome. Employers that sponsor HDHPs and wish to provide COVID-19 testing coverage without cost-sharing for workplace safety purposes should consult with counsel for guidance.

Additionally, COVID-19 relief was provided for a telehealth arrangement sponsored by a large employer (generally defined as an employer with over 50 employees) and offered only to employees or their dependents not eligible for coverage under any other group health plan offered by the employer (e.g., part-time employees). Under this relief, the telehealth arrangement is exempt from certain (but not all) ACA requirements, such as the prohibition on annual and lifetime limits and the preventive services mandate.

This relief extending telehealth services to otherwise ineligible employees is in effect for the duration of any plan year beginning before the end of the COVID-19 public health emergency. For example, if the emergency ends in June 2022, the relief would extend through the end of 2022 for a calendar year plan.

We will continue to monitor the regulatory guidance for further telehealth updates.

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FAQ: If a new employee takes leave during their waiting period, are they still eligible to begin coverage on their original effective date?

September 28, 2021

This will depend on the reason the employee took leave. HIPAA prohibits discrimination based on a health factor. Before HIPAA was implemented, many plans had provisions stating that employees had to be actively-at-work on the day their coverage would otherwise begin. However, one of the implications of HIPAA is that any plan that has an actively-at-work clause must treat an employee who is absent because of a health problem as being at work.

This would mean that medical-related leave taken during an employee’s waiting period would be counted in the days needed for the employee to meet the waiting period. Likewise, plans that don’t allow for coverage to begin unless the employee is at work on the first effective date of the coverage would have to have a carve out for those who are absent due to a medical condition.

Consider the following example:

An employee begins work on October 1 and has a 30-day waiting period. Coverage under the plan would become effective on the first day of the month following that waiting period (November 1). On October 20, the employee takes leave to have surgery and is unable to return to work until November 12.

Because the employee was out for a medical reason, the employee’s leave is disregarded for waiting period and effective date purposes. The employee would be eligible to begin coverage on November 1.

If the leave is a nonmedical leave, the plan terms will dictate whether the employee has met their waiting period requirement and is eligible to begin coverage. If there is an actively-at-work clause, then employees taking nonmedical leave may not be eligible to begin coverage if they take leave during their waiting period or on the first day that coverage should be effective. Employers should ensure that they ultimately follow plan terms.

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FAQ: What is a MERP, and what are the compliance obligations associated with one?

September 14, 2021

A medical expense reimbursement plan, or MERP, is a type of HRA meant to assist employees with their medical expenses. While specially named, for all compliance-related purposes, a MERP functions and should be treated like an HRA. Specifically, a MERP (like an HRA) is a 100% employer-funded account that reimburses employees (and their spouses/dependents) for incurred medical expenses on a tax-advantaged basis (the MERP reimbursements are not included in the gross income of the employees). There are no employee pre-tax contributions towards MERPs, so there are no related Section 125 compliance issues. Employers sometimes offer MERPs alongside a medical plan or to a specific group of employees.

Generally, compliance issues posed by a MERP will depend on the structure of the MERP itself, including the group of employees eligible for the MERP, the types of expenses that qualify for reimbursement, the maximum reimbursement amount, and the types of plans it is coupled with (including an HDHP/HSA plan). Below are a few of the compliance considerations when offering a MERP.

First, the Section 105 nondiscrimination rules apply directly to self-insured plans, and MERPs are considered a type of self-insured plan. Generally, the nondiscrimination rules prohibit plan designs from favoring highly compensated individuals (HCIs, defined very generally as the top-25% of all employees with respect to compensation, although it also includes a top-five-paid officer and a more-than-10% shareholder/owner). If a MERP is offered to a classification of employees that consists primarily of HCIs, the MERP would likely be viewed as favoring HCIs. The general consequence is that the HCIs would lose the tax benefits associated with the plan (the reimbursements, or a portion thereof, would become taxable to the HCI). So, if the MERP is offered only to a group of executives or managers (which is a common MERP design), then it is likely to have trouble with the nondiscrimination rules.

Second, if the MERP is offered alongside an HDHP/HSA plan, then the MERP will likely cause employees in those plans to lose HSA eligibility. This is because a MERP is generally considered “first dollar” (impermissible) coverage, since it is reimbursing coverage under the statutory minimum deductible for HSA-qualifying HDHP plans. So, employers should consider offering a MERP alongside a non-HDHP plan so that there's no HSA issue, and then make it available to anyone that enrolls in that non-HDHP plan so that there's no nondiscrimination issue. Another possibility is to offer a MERP in lieu of the HSA option, as the primary way to assist employees with the cost-shifting burden of a low deductible.

A third issue is the ACA. The ACA’s employer mandate requires an offer of coverage to any employee working 30 hours or more per week, and a MERP will not generally constitute an offer of coverage. So, a stand-alone MERP offering (in lieu of major coverage) may not meet the employer mandate offer requirement. Further, the ACA requires HRAs to be integrated with a group health plan — so the MERP should be offered alongside an employer plan (integrated) anyway. If it is not integrated, then the MERP on its own (considered a group health plan subject to ACA) would violate at least two of the ACA's requirements: coverage of preventive services without cost-sharing and prohibition on annual dollar limits for essential health benefits. So, the MERP should be offered alongside the employer's major medical plan rather than as a stand-alone MERP, as a way to avoid these ACA issues.

Lastly, a MERP would generally be considered a group health plan, and that means it must comply with ERISA, COBRA, and other benefit laws and regulations. The best approach is to build the MERP in as a component benefit of the group health plan itself. If it is integrated, then the plan as a whole (bundled together) will satisfy ERISA, COBRA and other compliance requirements. If it's offered on its own, the MERP would have to meet those requirements independently (e.g., the MERP must have its own plan docs). In addition, wherever the MERP benefits are described, it is important to clearly outline eligibility, MERP reimbursement limits, and the types of medical expenses that could potentially be reimbursed. Some MERPs limit the types of expenses to dental and vision only, which would create a limited purpose type of HRA, and that could eliminate the HSA and some ACA issues above. Regardless, a clear description and communication of MERP benefits will help employees clearly understand what they are getting with the MERP. 

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FAQ: How does an individual qualify for the 11-month extension under COBRA for a total of 29 months maximum coverage period?

August 31, 2021

There are three conditions that must be satisfied for an individual to qualify for the 11-month COBRA coverage extension for a total maximum coverage period of 29 months.

The first condition is that the qualified beneficiary’s (QB’s) initial COBRA triggering event must be the employee’s termination of employment or reduction of hours.

The second condition is that the Social Security Administration must determine that the QB is disabled during the first 60 days of COBRA coverage. The QB can be the employee, spouse or child. The QB’s disability determination may have occurred before the COBRA effective date.

The third condition is that the QB or the employee must notify the plan administrator in a timely manner of their disability determination. They must do so within 60 days of any one or more of the following, whichever is later:

  • The date of the disability determination.
  • The COBRA triggering event date.
  • The date that the QB lost coverage under the group plan due to the triggering event.
  • The date in which the employee was notified of their obligation to provide notice either through a COBRA Initial Notice or SPD- whichever date is later. Note that the COBRA Initial Notice and SPD should have been provided to the employee when they were initially enrolled in coverage under the employer's plan. The COBRA Initial Notice must also be provided to covered spouses upon enrollment. This is one reason why the COBRA Initial Notice is so important.

Keep in mind, though, that the third condition is currently impacted by the extension of certain time frames relief that was provided due to the COVID-19 pandemic. Specifically, recent IRS guidance on the ARPA COBRA premium assistance clarifies that individuals who received a disability determination from March 2020 through now (and ongoing) will be entitled to a year and 60 days to notify the employer of their disability determination.

If all of these conditions are met, the maximum coverage period extends to 29 months. The extension applies to all QB family members. The employer may charge up to 150% of the premium or premium equivalent during the 11-month extension as opposed to the normal 102%.

The ARPA does not extend a QB’s maximum coverage period, but does provide a subsidy for the premiums if they lost coverage due to reduction of hours or involuntary termination of employment. You can find more information about this in our article in the May 25, 2021, edition of Compliance Corner.

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FAQ: What happens to health FSA balances when an employer acquires another entity?

August 17, 2021

Business reorganizations are complex transactions that can impact benefit administration in a variety of ways. One common issue concerns handling health FSA balances of acquired employees.

If health FSA terms are not negotiated during the transaction, certain default rules apply depending upon whether an asset or stock purchase occurred. An asset purchase occurs when the buyer purchases some or all of the seller’s assets (and may also be assuming certain liabilities). Employees of the purchased entity would normally be considered terminated employees of the seller. However, these employees will often be rehired by the buyer. In contrast, a stock purchase occurs when a buyer purchases all of the stock or ownership in the seller’s business (or a unit thereof). Employees of the purchased business would continue to be employed by the same legal entity; however, the ownership of that entity is transferred from seller to buyer.

With an asset purchase, this typically results in termination of the former employee’s participation in the seller's health FSA and the possibility of a health FSA forfeiture (and COBRA rights). However, the IRS provides two ways the existing balances under the seller’s plan can transfer following the closing date of the transaction. One option allows the buyer to cover the rehired employees under its health FSA for the remainder of the plan year. The employees' account balances (whether underspent or overspent) under the seller's health FSA are rolled over to the buyer's health FSA. The other option is that the parties could agree to have the rehired employees continue to participate in the seller’s health FSA plan for a period of time, such as the end of the plan year.

If the transaction is a stock purchase, then the default rules are a little different. In the instance where the acquired business maintains its own cafeteria plan and the plan is continued following the transaction, the acquired employees' health FSA elections would continue uninterrupted. Alternatively, the plan could be terminated prior to the transaction closing. In this event, acquired employees should be given as much advance notice as possible so that they have an opportunity to use account balance and avoid forfeitures. Generally, there will be no COBRA rights in this instance because there is no termination of employment and therefore no COBRA qualifying event.

Additionally, informal guidance from the IRS indicates that employees of the acquired business are permitted to be brought into the buyer's cafeteria plan midyear (at the time of the closing) with the same level of health FSA coverage and the same salary reduction elections as they had under the acquired company’s cafeteria plan at the time of the sale. In this situation, the buyer would have to make appropriate amendments to its plan.

The agreed upon approach for the transition should be incorporated in the purchase agreement, so each party’s obligations are clearly defined. Cafeteria plan amendments will likely also be necessary, as will clear communication with employees. Importantly, while the IRS provides default rules for health FSAs and business reorganizations, employers should consult with counsel on this matter.

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FAQ: How should an employer claim a tax credit for ARPA premium assistance during a quarter when they did not learn about a qualified beneficiary’s eligibility until a subsequent quarter?

August 03, 2021

ARPA’s premium subsidy period begins on April 1, 2021, and ends on September 30, 2021, so it covers the entire second and third quarters of the calendar year. Since individuals have up to 60 days to notify employers that they are assistance eligible individuals (AEIs), it is possible that they would not provide that notice of premium assistance for the second quarter until after the third quarter has already begun. For instance, an individual might be laid off on May 31, 2021, but not notify the plan of the need for assistance beginning on June 1, 2021 (during the second quarter) until July 15, 2021 (during the third quarter).

Employers claim their credit for providing premium assistance on Form 941, which is filed on a quarterly basis. If the employer provided COBRA subsidies to eligible beneficiaries in April, May and June, the ARPA tax credit for these amounts should be claimed on the second quarter Form 941 due August 2. Under normal circumstances, any corrections to information provided in a Form 941 must be made by filing Form 941-X. However, IRS guidance indicates that the employer becomes eligible to claim the credit once they become aware of the AEI's eligibility and the qualified beneficiaries' premiums are paid for them. So, if an employer is notified in the third quarter of an employee's eligibility for the second quarter, they can claim the credit for the third quarter by filing in the fourth quarter. To continue with the example above, the employer could claim the credit for the month of June, as well as any months in the third quarter during which the AEI received premium assistance, on the Form 941 filed for the third quarter (which is due on October 31).

Employers should consult with their tax or payroll advisors concerning any specific issues with filing Form 941.

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FAQ: If an employee is on a leave of absence, can they still contribute to a health FSA, dependent care FSA or HSA? Also, must employer HSA contributions continue during the leave period?

July 20, 2021

The handling of health FSA contributions while an employee is on a leave of absence depends upon the type of leave and the employer’s leave policies.

For FMLA leave, the employer must maintain the same group medical benefits, which include health FSA benefits, during the leave as if the employee was still working. So, the employee must be allowed to continue contributing to the health FSA for the leave period.

In such an event, arrangements should be made for the employee on FMLA leave to pay the health FSA contribution. The three options permitted are pre-payment (prior to the leave), pay-as-you-go (meaning at regular intervals during the leave, which would be post-tax for an unpaid leave) and catch-up (i.e., upon return from leave). The employer cannot offer pre-payment as the only option.

However, the employee is not required to make contributions during FMLA leave. If the employer requires the health FSA coverage to continue during the leave, the employee could cease contributions during the leave period (and then make catch-up contributions upon return). But an employer cannot require continuation of coverage during FMLA leave, unless also required for a non-FMLA leave of absence.

Alternatively, the employer could permit the employee to revoke the health FSA coverage during the leave (and be reinstated upon return). If the employee revokes the coverage, the employee is not entitled to reimbursement for health FSA claims incurred during the period the coverage was not in place.

USERRA also provides certain benefit rights for employees on a leave of absence for military service. Employees on USERRA leave must have the right to continue the health FSA coverage during the leave and are generally offered the same three payment options as those on FMLA leave (noted above). The employee may also be permitted to revoke coverage during the leave, subject to reinstatement upon return.

For other types of leave, the employer should review their cafeteria plan terms and leave policies to determine how the health FSA benefits should be addressed during the leave. These terms and policies should be clearly communicated and consistently applied to all similarly situated employees.

With respect to dependent care FSAs, an employer is not required to allow contributions to continue during the leave. The employee could be permitted to continue such contributions and, as with health FSA contributions, be offered the options of pre-payment, pay-as-you-go or catch-up contributions.

However, the employee may instead prefer to revoke or decrease the dependent care FSA contribution during the leave period because the employee will not have dependent care expenses that are eligible for reimbursement. Under IRS rules, dependent care expenses are generally only reimbursable if for the purpose of enabling the employee (or spouse) to be gainfully employed, (although there is an exception for short absences of two consecutive weeks or less). Additionally, the applicable qualifying event rules allow an employee to change a dependent care FSA election because of any change in daycare use, provider or cost. So, the employee should be made aware of the option to stop the contributions for the leave period (and make a new election upon return).

An HSA is not coverage under a group medical plan that must be continued during FMLA, USERRA or other types of leave. Rather, an HSA is a trust or custodial account owned by the employee. If permitted under the terms of the HSA program, an employee on a leave of absence may continue to contribute to the HSA, provided that the HDHP coverage is maintained during the leave period. If the leave is unpaid, the employee may prefer to cease HSA contributions for the leave period and then make a new election to resume HSA contributions upon return. Under a cafeteria plan, an employee must be permitted to change HSA elections at least monthly, for any reason. 

Employers are not required to make employer HSA contributions for employees on a leave of absence, even if the leave is protected leave (such as FMLA). So, an employer may discontinue employer HSA contributions for an employee on leave (with no catch-up upon return).  However, if the employer chooses to make HSA contributions for employees on non-protected leave, the contributions must be made for those on protected leave. The employer’s policy with respect to HSA contributions should be clearly defined in their leave policies and HSA program.

Accordingly, whether health FSA, dependent care FSA and HSA contributions continue during a leave period depends upon the type of leave, employer policy and, as applicable, options elected by the employee. Therefore, it is imperative that the employer’s cafeteria plan document, leave policies and other benefit materials clearly reflect how the health FSA, dependent care FSA and HSA contributions and benefits will be addressed during the leave period. This information should be clearly communicated to affected employees, so they are aware of their options and obligations for the leave period.

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FAQ: When do small health and welfare plans become subject to the Form 5500 filing requirement?

July 07, 2021

The annual Form 5500 filing must be filed by plan sponsors that are subject to ERISA, unless there is an exception. One such exception is the small plan exception that applies to small unfunded, fully insured or combination unfunded and fully insured health and welfare plans that cover fewer than 100 participants on the first day of the plan year. In other words, an employer only needs to file a Form 5500 for a given plan year if there were 100 or more participants on the first day of the plan year; exceeding that threshold mid-year is of no consequence until the following plan year. (For calendar year plans, the plan would have to have 100 participants on January 1 to be subject to the Form 5500 requirement for that year.)

Importantly, when counting participants for this purpose, employers must count all participants who are enrolled in the plan. Benefits that are wrapped together for plan document purposes (i.e., established with a single plan document) would need to have all distinct participants counted when determining whether the small plan exception applies. As an example of this, an employer with a wrapped plan consisting of medical, dental and vision benefits would need to file a Form 5500 if there were 75 medical participants, 40 dental participants (20 of whom are not on the medical plan), and 35 vision participants (10 of whom are not on the medical or dental plan); this is because the distinct participants in each group equal more than 100 participants in the wrapped plan (75+20+10=105).

Plan sponsors should work with their service providers to ensure their compliance with the Form 5500 annual filing requirements. Employers who have engaged in compliance failures with regards to the Form 5500 can explore the DOL’s delinquent filer voluntary compliance program.

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