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Changing plan Year


Guest HR Analyst
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Guest HR Analyst

Currently, our organization has a medical plan year that spans two calender years (07/01 - 06/30). We're in the process of considering to reverting back to a calender year plan year and have two questions....

1. Has anybody done this in the past and how did you implement it? A 18-month plan year? One six-month plan year?

2. Can an HDHP minimum deductible be pro-rated if we choose the half-year plan cycle?

Thanks!

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Guest taxesquire

A couple of comments:

You'll need to have 1 short year (i.e., 7/1/07-12/31/07) before you formally switch, as opposed to an extra long year. If your plan files annual returns, you'll need to file 1 for the PYE 6/30/07 and another for the PYE 12/31/07.

As for implementing the change, a plan amendment, SMM, and corporate resolution (or the equivalent) will be needed.

As for the impact on your plan's deductible, you'll need to discuss that with your insurance carrier - I imagine that if you are switching carriers, they will be less flexible.

There are other issues of which you need to be aware and should probably have examined by your legal counsel:

  1. if a single deductible will apply for 18 months, how will that affect HSA eligibility? If you don't have an HSA, you can ignore this one.
  2. Cafeteria plan elections generally may not be changed after only 6 months. How will the short plan year impact this?

Good luck with the change!

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Does your organization have a 125 plan, and/or do ERISA filings? If so, you are stuck with a short plan year (6 months)--there are no 18 month plan years. (Even though your insurance carrier could conceivably give you an 18 month rate guarantee, if fully insured).

As best as I can tell, you can't pro-rate the deductible, at least, not to the point that it pulls the annualized total deductible down below the limits of the current definition of an HDHP. In other words, if implemented 7/1, you are stuck with the 2007 minimum deductibles of 1100 or 2200 between 7/1 and 12/31.

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