Employer Compliance Tip - Handling Level Funded Plan Surplus Returns

Employer Compliance Tip - Handling Level Funded Plan Surplus Returns

March 2024

Question

How would an employer handle surplus returns from a Level Funded plan?

Answer

It is recommend to treat these surpluses/refunds similar to how MLR rebates are handled for fully insured group health plans.

If there is plan document language specifically permitting the employer to keep any surplus/refund, which carriers are including more often in contracts, or if the plan document indicates that employee contributions will be used first to pay claims and claims exceed employee contributions for the plan year, then the employer may simply keep the surplus and use it as desired for any business expenses.

On the other hand, if plan document language doesn't clearly permit the employer to keep the surplus, it would be best to treat at least a percentage of the surplus (equal to the percentage of employee contributions to total premiums) as plan assets. The plan assets must be used solely for the benefit of plan participants, which may require a distribution to plan participants as a premium holiday or taxable cash within 90 days of receipt.

Level Funded information

MLR information

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