Employer Increase in Deferral Limit, Mid-Year

[Christine Roberts]

Can an employer that sponsors a Sec. 125 plan (including medical expense and dependent care expense reimbursement features) increase the maximum deferral amount mid-year, and permit participants to increase deferrals, without running afoul of the prohibition on mid-year election changes? I would think the answer is "no" but since the mid year election change prohibition is generally geared to employee changes am wondering if there's an exception for this kind of case.

[Kirk Maldonado]

Christine:

Have you checked thought about changing the plan year? That technique can be used to solve a lot of problems with a cafeteria plan.

[Christine Roberts]

Kirk, I agree that a plan year change would probably work - but need to know if it would be workable absent a plan year change. I note, pessimistically, that the proposed cafeteria plan regulations permit mid year election changes due to a change in coverage under or cost of group health and (I think) life insurance benefits, but that this exception does NOT apply to elections under flexible spending arrangements, which is what was at issue in my situation.