A newly established private retirement plan for a small business has been designed to provide benefits solely through the purchase of insurance contracts. The plan's administrator is seeking clarification on whether this type of plan is exempt from certain reporting and disclosure requirements under ERISA. Under which specific ERISA exemption might this plan fall?
- AThe 'fully insured plan' exemption for certain welfare benefit plans.
- BThe 'governmental plan' exemption.
- CThe 'top hat' plan exemption for highly compensated employees.
- DThe 'church plan' exemption.
Show answer & explanationAnswer & explanation
Correct answer: A. The 'fully insured plan' exemption for certain welfare benefit plans.
ERISA provides an exemption from certain reporting and disclosure requirements for welfare benefit plans (such as health insurance) that are 'fully insured,' meaning benefits are provided exclusively through insurance contracts. While this question focuses on a retirement plan, fully insured plans are generally subject to less stringent ERISA reporting requirements than self-funded plans, and the phrasing 'benefits solely through the purchase of insurance contracts' points to this specific, less common exemption concept within ERISA.
Why the other options are wrong
- B. Governmental plans are generally exempt from ERISA entirely, which doesn't fit a 'private retirement plan for a small business'.
- C. Top hat plans are for a select group of management or highly compensated employees and have specific exemptions, but not solely based on being fully insured.
- D. Church plans are generally exempt from ERISA, which doesn't fit a 'private retirement plan for a small business'.
ERISA Fully Insured Plan Exemption
Certain welfare benefit plans that are 'fully insured,' meaning all benefits are provided exclusively through insurance contracts, may be exempt from some ERISA reporting and disclosure requirements.
- Applies to welfare benefit plans, not typically retirement plans for full exemption.
- Reduces administrative burden for employers.
- Still subject to other ERISA provisions like fiduciary duty.
Memory trick: ERISA's rules are for most, but some plans don't boast the full host.