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Notice 2020-29 and Active Participant Status


Christine Roberts
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Cafeteria plan permits all changes in election addressed in Notice 2020-29 including dropping deferrals towards premiums under employer sponsored group health plan (pursuant to affidavit of other coverage), and dialing health FSA deferrals down to zero.  Question - an individual who is no longer deferring under the plan in any way still a participant in the plan or does participation terminate?  Regulations re: FMLA leave are as close as existing guidance gets, but does not provide a clear answer.  Comments appreciated.

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How one reasons a finding about whether a person remains, or is no longer, a participant might turn on the purpose for which a plan’s administrator makes such a finding.

 

Just to pick two of the many purposes that might call for a finding:

 

If the purpose is a count of participants for a Form 5500 annual report, the Instructions state:  “An individual is not a participant covered under an employee welfare plan on the earliest date on which the individual (a) is ineligible to receive any benefit under the plan even if the contingency for which [the] benefit is provided should occur, and (b) is not designated by the plan as a participant.”

 

If the purpose is discerning whether someone is a participant with information rights under ERISA § 104(b)(4), one would use the statute’s definition of participant.

 

ERISA § 3(7) defines a “participant” to include someone “who is or may become eligible to receive a benefit[.]”

 

The U.S. Supreme Court held this includes an employee with “a colorable claim that” she will “in the future” fulfill eligibility requirements.  Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 10 Empl. Benefits Cas. (BL) 1873, 1881 (Feb. 21, 1989).  Justice Scalia’s concurring opinion would include “those who (by reason of current or former employment) have some potential to receive the vesting of benefits in the future[.]”

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Peter, thanks for the helpful comments.  The purpose for which the question exists is really the ability to submit claims incurred during the plan year - does dialling deferrals down to zero mean that you have a stated claims run-out period, or do you remain a participant for claims submission purposes throughout the plan year.  As you mentioned in our offline communication, that raises the issue of a "coverage period" and when it might end.  From what I can gather from quick review, the 125 regulations generally refer to the coverage period as the plan year.  Changes in employment status may result in a termination of participation, but at first look I am not seeing anything that says that ceasing deferrals brings the coverage period to a close for a given participant.  I understand "coverage period" to be a plan-wide concept and not an individual participant status.

 

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With Health FSA, if they participated with initial annual election contribution divided by payroll periods, then participant was allowed to zero down contributions, the participant and covered family members remain participants and eligible expenses are eligible to submit claims until the plan year allows including any grace period or roll over $$ benefit allowed in the Plan Document / SPD.   They amount they are eligible comes in question as the Annual Election has changed plus any Employer Contributions, unless they commit to additional plan contributions in the Plan year.  This is a question for the FSA administrator with the Plan Document and Rules.

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