One of the trickiest areas in completing Form 5500 is properly tallying and reporting the number of participants in your benefit plans.
The feds don’t do a very good job of defining the term “participant”, but any benefits pro knows that there are people who fall into gray areas and it’s crucial to know whether to include them in the tally.
The following people are considered participants:
- Anyone who is explicitly covered in the plan documents.
- Someone who has made a monetary contribution to the plan (voluntarily or involuntarily).
- Someone who will become eligible to receive benefits once the “contingency for which the benefit is provided” (e.g., workers’ compensation) occurs.
- An active participant – currently in covered employment – in your retirement plan. This includes people who are eligible to defer benefits but decline the option.
- Former employees in “pay” status (i.e., not yet fully paid out), including those who elect COBRA coverage.
- Deceased employees whose beneficiaries are entitled to receive benefits (count the deceased employee only).
The following people are not considered participants:
- Dependents on the health plan.
- An alternate-payee beneficiary.
- Former employees who are fully paid out, including those who will receive money from an insurance company.
- Employees eligible for your health plan who’ve elected not to participate and aren’t making cafeteria plan deferrals to pay out-of-pocket expenses.
