Mid-year Increase in Dollar Limit for FSA

[chris]

Employer to set up cafeteria plan with FSA for Health Care Reimbursement as well as Dependent Care Assistance. Employer initially going to cap the Dep. Care at 1,200, but possibly will change it later. If said change is made effective for the next plan year then it's a no-brainer. BUT what if employer wants to change the limit mid-year 2000? Employer to make contributions to the caf Plan on a quarterly basis so would it be possible for employer to notify e/ee's that the limit will be increased by $x effective next quarter and have all eligible employees make an election prior to that quarter??

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[Lisa Hand]

What possible rational does the employer have for capping the DCA benefit at $1,200 when the regulatory cap is $5,000 ($5,000 married, filing jointly & head of household; $2,500 for married, filing separately)? Since there is NO risk to the employer, it seems short sighted to not extend the full benefit allowed by law.

Also please clarify your explaination of "quarterly contributions". Are the employees making salary reduction elections? or is it only employer benefit dollars?

[chris]

I apologize with respect to the info provided in my question. The $1,200 cap is on the health care reimbursement account and not the dependent care assistance account as it is limited by statute as you stated. No salary reductions by employees; all employer contributions.

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[Joe Priselac]

If there are no employee salary reductions then you do not need a Section 125 Plan. The $1200 account is a 105(h) medical reimbursement plan. The employer can make additional contributions to the plan any time as long as the plan is not structured in a discriminatory manner. The employer can also fund a Section 129 plan i.e. dependent care as long as the statuatory limit that Lisa Hand described is not exceded.Of course any increases in benefits need to be communicated in writing and the plan needs to be ammended. Too many changes will lead to confusion and that is why most employers limit changes to once per year.