SLuskin

Doesn't the change being made have to be consistent with the status change which occurred? In other words, it does have to make sense?

The 401(k) deferrals are still subject to FICA. Being in the Section 125 Plan does not recharacterize them. There can be benefits in a Section 125 Plan which are not pretax.

Assuming that the vision plan is part of a Section 125 Plan, and if the employer has amended and restated the plan document to add the new final and proposed regs, then yes, you can enroll in the vision plan while you enroll your wife.

I think that as long as the plan document has been amended to include all of the final and proposed regs, that the employer can do this. If the employer can give a "premium holiday" then it can also add to the cost that the employees pay.

The best way to accomplish this is amend the plan prospectively. That way, you would have an 11 month plan starting 2/1 and ending 12/31. The employees would know this in advance and make an 11 month election. I do not think you should do this in the middle of a plan year and simply "cut short" a plan year for which employees originally had made a 12 month election.

Thanks for the info. We had been putting the preparer info in, but starting tomorrow we won't. Interested to know if any clients complain about leaving it blank.

You cannot change the medical fsa either up or down in this circumstance. Only the group health insurance premiun. The other thing that you can now change according to the new regs would be the daycare, if moving caused you to enroll in a different daycare center and the price was different from your previous center.

There has been a moratorium on the trust requirement for cafeteria plans for a number of years now. This holds true as long as the funds are paid from general assets and not an account called "Cafeteria Plan Account" or something of that nature. Also, the account should not be interest bearing. I have been doing 5500s for cafeteria plans for 11 years and have never had one require an audit.

The IRS has been very careful not to define significant. I think that it depends on many factors. If you are dealing with primarily minimum wage earners, significant could be $10 per week. If you are dealing with a fancy law firm where everyone makes good money, $10 a week is not. Also, the employer would have to offer other similar coverage in order for the employee to revoke that election and prospectively elect other similar coverage.

An example in change of residence which would permit a change in the daycare election under the new proposed regs - let's say that you have a kid an a certain daycare and the cost is $90/week. You move to a different area (company has locations in different states) and the weekly going rate for daycare is $75. You can change your election accordingly.

This means that if you are enrolled in your employer's HMO, and you move out of the service area - and the HMO cannot provide you with any services except for emergency care- you can revoke that election and elect on a prospective basis another health plan sponsored by your employer. Right now, it looks like if there is not an alternate plan available, no election change is permitted.

Does the document have these as one plan, with all the same people eligible? Are the costs for dependent health insurance paid on a pretax basis by the employees? If they are in the same plan, the eligibility has to be the same for all employees. The benefits have to be reasonably available to all, not just to the highly compensated. The medical reimbursement plan cannot have so high a minimum that only the highly comp can participate. The 25%concentration test is done on the plan as a whole.

If the only reason you are doing a 5500 is because the plan is a Section 125 Plan (required by code section 6039D) then do you have to have a Summary Annual Report? We have never done one of these. Assume that if there is a requirement to file for the underlying welfare plan, that it is done on a different 5500 with a different plan number.

Hi, Kelly. Yes, the employer contribution to the plan needs to be included on the Schedule F. No, the 5500 for the FSA with over 100 participants does not need a schedule A -there is no insurance company involved, right? Finally, if a dependent daycare FSA has more than 100 participants, it does not have to file an additional 5500. There is a revenue ruling to this effect, I just can't find it right now.

I think that the new regs on family status change make it clear that this person can change the election to zero for the balance of the plan year.

Do you mean that for a fully insured group medical plan you will also need to have the independent auditor report, or is that just for the pension plans? Thank you.

Does your plan document specify that the employee must notify you within 31 days? The IRS, even with the new regs which went into effect March 23, did not put a date requirement on notification. IF your document does not require a date, you should be able to make those changes as long as (1) the time period is reasonable and (2) you are internally consistent.

A number of our clients have also been approached with this MR106 Plan. We sought (and paid for) an opinion from Benefits Lawfirm of Fisher & Phillips. The opinion that we have says that such double dipping is not permissible. Aside from the attorney opinion, if the employer reimburses this expense, how does it not become part of salary for FSLA purposes, for calculation of overtime, for payment of workers comp premiums, etc.

Lisa is right, all plans need to pass several tests. some will be passed by virtue of proper plan design. Others are actual numeric tests. The IRS can impose fines and penalties on the employer, the employee, or both, in addition to collecting all back withholding and FICA if the plan is disallowed.

In addition, even though these new regs aren't required until plan years starting 1/1/2001, the IRS says we may rely on them effective 3/23/00. Is anyone amending their documents, or just applying these new changes?

I also read something about that Section 105 Plan outside of a Section 125 Plan. It looked like it could be entirely discriminatory. I didn't really understand the provisions, but they are out there.

I agree with Lisa about the family members of the sole proprietor who are bona fide employees being able to participate in the plan. However, for the S-Corp, it is 2% shareholders, not 5%

Most plan documents have some sort of provision which allows the elections of the key employees to be bumped down so that the tests will pass. Most testing is done as soon as the election forms are completed, so the correction can be made before the start of the plan year. We have made midyear corrections when necessary. You cannot correct and refund after the plan year is over.

I also agree. That is why we believe in permitting employees to choose whether or not they will pretax their premiums. The IRS does not give you a tax break without imposing restrictions. Here, the trade is a tax break on the premiums traded for losing the freedom to move in and out of the plan

What does the plan document say? Some documents allow new hires to enroll after some sort of probationary period until the end of the plan year. Some documents restrict enrollment to plan anniversary.