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Conflicting Documents - ERISA SPD v. Sec. 125 SPD


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The client's Section 125 SPD says the effective date of a QLE (in this case, marriage) will be on a prospective basis whereas the ERISA SPD says the effective date of the new spouse's coverage would be based on the date of the event.  The employee submitted the necessary enrollment paperwork 10 days after the event.  I did some research and found that in these cases the employee is entitled to the benefit of the more generous of the 2 documents.  So, the ERISA SPD would govern in this case.  Then I was discussing with a coworker and their thought is the cafeteria plan document is the more accurate, unless it is the QLE is birth or adoption.   Does anyone have any thoughts on this?   

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The effective date of coverage when experiencing a mid-year permitted election change event is generally a matter of plan design.  I recommend making coverage effective the first of the month following the date of the election change request (as opposed to the event) to avoid retroactive payment issues.  The exception of course is for birth, adoption, and placement for adoption--which must be effective date of event.

Here's an overview:

https://www.newfront.com/blog/hipaa-special-enrollment-events-2

Section 125 Permitted Election Change Events: Paying for Retroactive Coverage

Employee pre-tax premium payments are made through the company’s Section 125 cafeteria plan.  Section 125 does not permit retroactive elections except where the event is birth, adoption, or placement for adoption.  (There could also be a retroactive mid-year election for a new hire for elections made within 30 days after date of hire.)

In all other cases, the election must be prospective.  This means that the employee cannot pay for an election change on a pre-tax basis for any period prior to the date of the election.

Example 1: First of the Month Following Election Change Request

For example, assume again that Jack marries Jill on January 19, and submits the election to enroll Jill on February 14.  As described above, the standard approach would be for coverage to be effective as of March 1 (first on the month following the date of the election change request).

Example 2: Date of Election Change Request

Some employers may choose to be more generous and permit Jill’s enrollment as of February 14 (the date of the election change request).  If coverage is effective as of February 14 (the date of the election change request), there is no issue (assuming the carrier or stop-loss provider approves of the more generous practice) because coverage is not retroactive from the date of the election change request.

Example 3: Date of Event

On the other hand, if coverage is effective as of January 19 (the date of the marriage), there would be an issue because coverage is retroactive from the date of the election change request (February 14).  In that case, there is no basis for permitting Jack to pay for Jill’s coverage on pre-tax basis for the period prior to the date of the election (from January 19 through February 13).   That would mean that either a) the company must pay the full cost of coverage for the period from the date of the event to the date of the election, or b) the employee must pay for the coverage on an after-tax basis for the period from the date of the event to the date of the election.  Needless to say, neither of those options are ideal.

Many companies avoid this issue by providing coverage as of the first of the month following the date of the election change request (except for birth, adoption, and placement for adoption, and mid-year new hire elections made within 30 days of hire).  That will always permit the employee to pay pre-tax for the employee-share of the premium for the entire period of coverage.

As a reminder, employers should seek insurance carrier (or stop-loss provider) approval for coverage to be effective as of the date of the event because that is only required for newborns and children newly adopted or placed for adoption with the employee.

Slide summary:

2023 Newfront Section 125 Cafeteria Plans Guide

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I imagine the conflict between the ERISA SPD and the 125 SPD arose because the ERISA SPD is addressing when benefits are effective whereas the 125 SPD is addressing when elected benefits can be paid on a pre-tax basis. I think many employers go back to the date of the event when choosing an effective date of coverage, but technically  any retroactive coverage should be paid on an after-tax basis (other than in the cases Brian described; birth/adoption). It sounds like this person would have a claim to coverage as of the date of the event, just not a claim that such benefits could be paid on a pre-tax basis.

Agree with Jack that it should be confirmed with insurer/stop loss insurer!

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