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Life Premium Increase Mid Year & Plan Doc Correction?


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Apologies if this has already been discussed, I searched and could not find anything on point...

Employer offers voluntary life insurance with premiums based on age bands. Without realizing it, they have been administering the plan such that premiums automatically increased mid year when a participant reached a new age band (i.e. 40th birthday).  A couple questions -

1) Is this practice consistent with 26 CFR 1.125-4(f)(2)(i) below (if plan document allows)?  

(i)Automatic changes. If the cost of a qualified benefits plan increases (or decreases) during a period of coverage and, under the terms of the plan, employees are required to make a corresponding change in their payments, the cafeteria plan may, on a reasonable and consistent basis, automatically make a prospective increase (or decrease) in affected employees' elective contributions for the plan.

2) If it is permissible under the regs (if plan document allows), but plan document does not currently allow, can the plan document be amended retroactively to correct?


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1) This is consistent; all my plans simply say that the ee will pay whatever premium is then being charged (rather than a certain dollar amount);  that way, as it changes, it is automatically OK no matter when that happens.

2) Are you sure it doesn't allow?  Look at the participant election form (that is where our language is; it's in the election by the participant).  If the plan DOESN'T allow, I think you do have a problem, and a bad drafter of plan language.  Frankly, there is no reason for such a problem since it would happen all the time. For that reason, I wonder if you plan doesn't actually already deal with it.  I hope it does.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089

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