SPD language regarding "dependent" definition

[Guest cicday]

Must the Plan Sponsor's FSA SPD and their self-insured medical plan SPD definition of a dependent be the same as the WFTR 2004 definition of a dependent? We are working on this right now and need to know if they should match or not. The Plan Sponsor would like to keep the definition of a dependent in their medical plan "broader" than the WFTR 2004 definition. Is this ok? They don't want to put the "residency" wording nor the "income" wording in their medical plan definition of a dependent if they don't have to.

[SLuskin]

We use Fisher & Phillips to make those determinations for us. Our attorney there told us we needed to amend all the plans and SPD for the new definition, so we did.

[QDROphile]

If your plan definition of what or who is eligible is broader than what is eligible under the tax code, amounts that are ineligible for the favorable treatment under the tax code and that are paid under ther terms of the plan will be be taxable. Under certain circumstances, the bad definition could threaten the favorable treatment of other amounts because the document would be noncompliant.

If your document has a broader definition than the tax code and by operation you refuse to pay amounts that are allowed by the document but not the tax code, you have ERIAS/contract problems becuase the plan has to pay what the plan says it will pay.

So your plan document needs to say what the plan will do, and if your plan will pay ineligible amounts (e.g. benefits for ineligible persons), you will have problems.

The SPD must fairly describe material terms of the plan. Eligibility is a material term. If there are limits on eligibility, the SPD should describe them. You would want to do so anyway as a practical matter to avoid disappointment even if the omission did not have legal consequences.

[Guest cicday]

QDROphile, thank you for your detailed response. Can you provide a reference source for your response so that I may be able to research additional SPD questions?

[QDROphile]

Internal Revenue Code sections 105, 106 and 125 and related regulations. ERISA sections 102 and 402 and ERISA regulation section 2520.102-3.

[Guest cicday]

Thank you very much QDROphile. You have been of great assistance!

[jsb]

As separate plans, can't you have different definitions?

The medical FSA (section 125 cafeteria plan medical expense reimbursement account) definition must comport with IRS regulations. You cannot reimburse expenses incurred for ineligible dependents.

However, can't my self-insured medical plan permit participation by almost any dependent I want to define as eligible, as long as the taxation of employee paid premiums, or imputed income value of employer paid premiums, is handled correctly?

Example, a domestic partner who works full time or a child over age 24 working their way through college. I can define them as eligible dependents for my medical plan (many plans now do so), but they will not be eligible dependents for whom I can seek reimbursement under under a 125 medical reimbursement account. There is no conflict with the tax code here.

[QDROphile]

jsb is correct. See the first sentence in my first response. If you have the proper alignment of tax treatment with definitions, you can have a broader definition of eligibility for benefits than what is eligible for tax favored benefits. When you get mistaken tax treatment or mismatches between what the plan says and what it does, then you have trouble.