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Passive enrollment


tsrl01
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Answer to your 1st question:  https://www.irs.gov/newsroom/irs-plan-now-to-use-health-flexible-spending-arrangements-in-2019

"Interested employees wishing to contribute during the new year must make this choice again for 2019, even if they contributed in 2018. Self-employed individuals are not eligible."

Have no clue on your other two questions though.

 

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Caveat - I am not a Section 125 expert.

I would respectfully disagree. Prop. Reg. 1.125-2 regarding cafeteria plan elections, and Revenue Ruling 2002-27,  provide for automatic elections and carryover (I've also seen the carryover elections referred to as "Rolling" or "Evergreen" elections. Although the regulation gives an example utilizing health insurance, it doesn't preclude using this for FSA's. The phrase in the IRS wording, "...must make this choice again for 2019..." is misleading, I think. The employer must certainly allow for the employee to REVOKE the otherwise automatic election, and simply not revoking it also constitutes a "choice."

Having said that, I would not think that utilizing it for an FSA is a good idea. It isn't that hard to get a new election, and FSA usage is FAR more likely to change year by year, and it seems to me to create an enormous potential for problems. In addition, STATE payroll deduction laws may require an annual written election. So again, I wouldn't do it...

And I have no idea on the other two questions, either.

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I wish I could find a better source, but from every FSA vendor and benefit broker I've ever dealt with, I've always been told FSA/DCA is an annual election with no rolling or evergreen election available -- that could be a plan document or vendor requirement versus written in the law itself though...... I've never seen an FSA administered with a rolling/evergreen election in my 20+ years of HR/Benefits. 

Problem is that in my google searches all I am getting are the 125 changes from COVID.....    If I use the word "evergreen" as you suggested, I do come up with a post here in 2006 in Cafeteria Plans by Guestjjr12 (10/24/06)  that talks about it being possible, but goes on to list the reasons it's a very bad idea.  One poster did state that they do it..... (benefitslink.com/boards/index.php?/topic/33694-passive-fsa-elections/ )   And you get into the situation  of "clearly informed"....especially since the funds are generally forfeitable unlike other benefits.

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Belgarth and Chaz are correct.  Surveys have shown upwards of 70% of large groups have utilized passive enrollments, for all benefits.  This number has dropped over recent years, somewhere around 50%.  That being said, it is up to the employer to decide how they will handle this, and place it in plan docs.

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Tobacco Use Surcharge - ACA allows 1.5 - 1 Ratio Tobacco Surcharge, however Wellness Incentives used to be up to 50%, then dropped to 30%, see attached as 30% was vacated by a Court, so I have not seen a final ruling in 2020.  Best to get a legal opinion and state based Tobacco Cessation Program or Local Wellness Vendor to walk you through the program rules and acknowledgement form requirements as they have to allow for no surcharge if agreeing to enrolling in or enrolled in a tobacco cessation program, not just have quick using tobacco, including chewing tobacco, but can still use tobacco under agreeing to enroll in or enrolled on a tobacco cessation program.

 

 

Wellness-Plan-Compliance-Checklist-COWDEN Associates, Inc. 12.2019.pdf

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I have incorporated in plan documents, spd's perennial elections in various cafeteria and welfare benefit plans, life insurance, medical, dental, vision, LTD and yes, health and dependent day care flexible spending accounts.  Health FSA elections are always, except in short year situations, annual, cafeteria plan elections that "fund", generally on a notational basis, a self-insured health care plan.  That's how coverage is determined - based on that annual election.  Note that proposed treasury regulation §1.125-2 – Elections in cafeteria plans specifically provides:  "...  Making, revoking and changing elections.  Generally, a cafeteria plan must require employees to elect annually between taxable benefits and qualified benefits. ..."

Most employers deploy passive annual enrollment for all but the Health FSA election.  That is, your election at hire, or during an annual election period is, per the plan provisions, allowed to remain in effect until you make a change.  That is, for example, if you have opted out of health coverage, most plan documents don't provide for a default to enroll you for coverage for the next plan year.  Similarly, if you elected the single tier of medical coverage, most plans don't provide for a default to include your spouse in coverage for the subsequent year. 

In my plans, where individuals waived health FSA coverage, I don't enroll them unless they make an election.  Similarly, in years where my plans used evergreen elections, if you enrolled in health FSA coverage, I didn't drop your coverage.  At hire, I always positioned the election as an "annual" election, regardless of the month in which you were hired.  So, elections individuals made remain in effect, until the time where the plan is amended to require a full positive, affirmative enrollment or a participant elects a change.  It depends on the plan documents, SPD's, SBC's, etc. and plan administration/operation.  

In terms of your plan documents, and contribution structures, I believe the spousal surcharge applies where a participant elects coverage and to pay the surcharge where the spouse has access to coverage where he/she works, and that, despite that, the individual has decided to enroll the spouse.  We typically treat that as the equivalent of a "tier" election, so, an evergreen / perennial election, until further notice, seems permissible if your plan document and other required disclosures so provide.    

Same when it comes to the tobacco surcharge, it too is a function of your plan provisions.  Slightly different, of course, is that (similar to a change in status), a change from smoker to non-smoker contribution rates or vice versa, should prompt a concurrent change in the surcharge (generally because the total premium rate varies for smokers and non-smokers while the employer contribution is the same).  The tobacco surcharge could be part of the cafeteria plan (pre-tax) or not (after-tax).  

Always review plan documents and other required disclosures with counsel. 

 

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