Employers with insured health plans may have received a Medical Loss Ratio (MLR) rebate from their health insurance carrier this year. Rebates were required for plans not meeting the 2024 MLR standards and had to be issued by September 30, 2025, either as premium credits or lump-sum payments.
If any part of the rebate qualifies as a plan asset under ERISA, it must benefit plan participants and beneficiaries exclusively. Employers can fulfill this requirement by distributing the plan asset portion using a fair and reasonable allocation method. Alternatively, if direct payments aren’t practical, the rebate can be used for other allowable plan purposes, such as future premium reductions or benefit enhancements.
ERISA generally requires that plan assets be kept in trust, but this is waived if any rebate amount considered a plan asset is used within three months of receipt, so employers must pay careful attention to the timeline. For example, rebates received on September 30, 2025, must be used by December 30, 2025.
Key points:
- Under the Affordable Care Act, health insurers must spend a minimum percentage of premiums on medical care and quality improvements; if not, rebates are required.
- Employers must determine if any rebate portion qualifies as a plan asset under ERISA.
- Plan assets must only benefit plan participants and beneficiaries and generally must be used within three months of receiving the rebate to remain ERISA-compliant.
Employers should review current obligations to ensure any rebate qualifying as a plan asset is properly allocated and used in accordance with federal requirements.
