LRDG

Stagered open enrollment under Sec. 125 is permitted. Sec. 125 regs limit mid-year rate changes resulting in higher Sec. 125 medical premiums to plans that are 100% insured. A self insured plan is prohibited from passing on mid-year rate increases to affected Sec. 125 participants. A mid-year rate increase to self insured Sec. 125 participants would be after tax until the next open enrollment. The self insured limitation aside, the plan appears to be under unnecessary admin burden with multiple open enrollments. Considering the typical mishaps involved in open enrollment it seems higher risk and an admin burden.

https://www.conexis.org/pdfs/Treas.%20Reg.%...n%20Changes.pdf From IRC Section 1.125-4, Permitted election changes under Sec. 125 with respect to accident, or health coverage, group-term life insurance coverage, dependent care assistance and adoption assistance during the plan year, Page 23-24: Effective 01/10/2001 (e) Entitlement to Medicare or Medicaid. If an employee, spouse, or dependent who is enrolled in an accident or health plan of the employer becomes entitled to coverage (i.e., becomes enrolled) under Part A or Part B of Title XVIII of the Social Security Act (Medicare)(Public Law 89-97 (79 Stat. 291)) or Title XIX of the Social 24 Security Act (Medicaid)(Public Law 89-97 (79 Stat. 343)), other than coverage consisting solely of benefits under section 1928 of the Social Security Act (the program for distribution of pediatric vaccines), a cafeteria plan may permit the employee to make a prospective election change to cancel or reduce coverage of that employee, spouse, or dependent under the accident or health plan. In addition, if an employee, spouse, or dependent who has been entitled to such coverage under Medicare or Medicaid loses eligibility for such coverage, the cafeteria plan may permit the employee to make a prospective election to commence or increase coverage of that employee, spouse, or dependent under the accident or health plan.

American Family Mutual Ins. Co. v. U.S. , DC W Wis. 12/3/92, 16 EBC 1332, 815 F. Supp. 1206 I don't know if this answers your question, but this particular case was covered in WSJ and a number of other financial publications. It no longer appears in google search, although it did for a long time. Benefitslink search provides few details. I remember the case well. It involved retrospective Sec. 125 elections, IRS penalties and taxes assessed on ER and EE contributions. My experience is IRS became willing to negotiate under certain circumstances, possibly to be more Corporate friendly. Substantial penalites are typically outlined in IRS notice, but depending on the nature of the violation, if 3rd party administrator failure is involved, how contrite the plan sponsor and their willingness to correct violations, do impact IRS willingness to reduce or in some cases waive penalties. Most Sec. 125 violations result from IRS payroll audits, with the plan sponsor negotiating directly with IRS. These references are dated, late 1990 to early 2000 and not an indication of possible recent settled/negotiated cases.

Will the plan be newly available or the children newly eligible April 11, 2011? If so, allowing the EE?parents to change their election to two seperate EE only premiums follows long standing 125 provisions for qualified status/election changes.

Sec. 125 salary reduction election amounts are considered ER contributions, one of the principles of Sec. 125. Your comment does bring up an interesting point for plan with ER Flex credits and what effect ER credits would have on the HFSA $2500 limit effective 1/1/13. I assume the total ER and EE contributions may not be more than the $2500, but the regs as written are not clear. I'm also curious about plans with non-elective ER credits.

This type of retroactive amendment from IRS has been limited but not unheard of with respect to Sec. 125. It would not be the first time IRS issued a change in Sec. 125 to take effect for a date irrespective of the plan year, along with a provision that plan docs be amended not later than the next anniversiary date of the plan. Retroactive Sec. 125 amendments are prohibited unless otherwise directed by IRS under specific circumstances. If I remember correctly, the most recent similar event involved IRS revoking eligibility of OTC drugs under Sec. 125, effective ?? May 2010?, w/plan documents amended no later than the next plan year anniversiary date. What was particularly unusual with the change in OTCs is it involved potential Medical FSA forfeitures for every participant who elected OTCs in a plan w/anniversiary dates later than May 2010?. Never before had IRS issued a similar amendment w/the potential for participant forfeiture, nor have plan sponsors been in a position to inform MFSA participants that OTCs would become ineligible, subject to forfeiture mid year if not claimed before the mid-plan-year effective date. I would guess complience is much higher than 5%, primarily due to the high number of plans administered by 3rd party administrators. Even for small self administered 125 plans, compliance is likely higher than anticipated due to overlap w/insured Medical plan compliance. Edited to add: Prohibiting retroactive 125 amendments applies to plans amended at direction of the plan sponsor, vs IRS amendments due to changes in legal requirements in plan administration and plan document.

Assuming the Medicare Supplement policy qualifies, w/no bundled benefits that would otherwise disqualify the policy under Sec. 125, it appears the pre-tax premium deduction and check to reimburse the premium would qualify if reimbursement is properly substantiated. One 'kink' to considered is that the bank draft for the policy premium payment must be substantiated prior to issuing the premium reimbursement check to the EE. Also, how the automated payroll deduction for pre-tax premium will interface w/manual processes involved, one for substantiating the monthly? bank draft payment for the policy; second, manual reimbursement of the bank draft premium payment. It is not sufficient substantiation to establish that the policy exist and monthly? bank draft payment arrangement exists. Each monthly? bank draft payment would have to be presented as a 'claim' in order to properly substantiate payment in order for the manual check to be issued to the EE. Substantiating the bank draft premium payment on a payment frequency basis would avoid the potential of paying premiums in the event of a policy termination or mid-year coverage change involving premiums or ineligible coverage. Will the monthly premium bank draft be deducted on payroll system as monthly deduction or payroll frequency basis deduction? Ammending the Plan Doc., and updating Sec. 125 enrollment material for all eligible EE participants in the Teacher's Medicare Supplemental policy? Potential backlash from those opposed to teachers' union or unions in general, for example? or other EEs w/individual policies not included? If premium reimbursement for all individually owned policies is opened up to all EEs/participants, it will need to be determined that none provide ineligible benefits, for example 'bundled' benefits such as education benefits for those who become disabled or for a surviving spouse? There was a trend in supplemental policy product development to include 'bundled' benefits that do not necessarily qualify under Sec. 125, regardless if there is premium that could be segregated for the ineligible coverage or rider premium segregated and paid after tax for the ineligible coverage.

Sec. 125 eligible premiums are paid pre-tax via payroll deduction. It is referred to as Premium Conversion or when a Sec. 125 plan does not include FSAs, it is referred to a Premium Only Plan, aka a POP plan. Eligible deductibles, co-pays, and other eligible out of pocket medical expenses are elected prior to the beginning of the plan year via pre-tax payroll deduction and funded into EEs Medical FSA for claims to be filed/paid as expenses are rendered/incurred within the plan year. Eligible medical expenses that exceed EEs annual Medical FSA election amount are eligible for deduction when filing individual income tax returns, to the extent medical expenses exceed 7.5% of AGI threshold. Expenses claimed from a MFSA can not be used toward the medical expense threshold of 7.5% of AGI, when filing income tax returns or vise versa. The 7.5% of AGI threshold has been unchanged since the '60's?, when it was 3.6%? or 6.3%?, it has not changed for approximately the past 50yrs. A link or citation to substantiate the threshold increase to 10% of AGI in 2013 would be helpful. There is also a Sec. 129 Dependent/Child Care FSA or DCFSA, for eligible employment related dependent/child care expenses that can be included in a Sec. 125 plan. It covers eligible employment related expenses for day care for infants and pre-school age children, before/after school expenses for care of children attending school, and summer day camp for eligible children no more than 12yoa; elderely and/or disabled dependents 13yoa or older who meet Sec. 152 defination of eligible dependents who qualify for income tax purposes. The DCFSA maximum amount is $5,000 per year regardless of the number of eligible dependents. Expenses are not limited to $2400 for one eligible dependent, or $4800. for 2 or more eligible dependents for the dependent care tax credit when filing individual income tax returns.

I'm curious about opinions/practices of other 125 admins interpertation of Mandated provisions involving election changes. For example, my interpertation of mandates involving Employment Status in Sec. 1.125-4, the regs mandate that while the Plan document may prohibit election changes, the regs mandate ERs take certain actions when EEs take unpaid leave and ER/plan may not simply rely on a PD that prohibits election changes resulting from employment or family status changes. I reached this conclusion because although a PD may prohibit election changes, in reality when EEs lose income, ER/plan must make decisions and take actions regarding continued Premium payments and coverage in medical and other insured plans, status of funding of FSAs, and status of the FSAs for post loss of income claim payments, in addition to ERISA mandated compliance. Does anyone interpert that when a ER/plan prohibits election changes, Sec. 1.125-4 and ERISA mandates are complied with? If so how are funding and claims for Premiums and FSAs handled when there is loss of income?

What type of STD, ER paid, EE paid or a combination? Is there waiver of premium rider or clause during disability? If the policy is entirely EE paid/owned, ER A and B during disability are immaterial. Determine if the policy contains waiver of premium rider or clause. She has been covered since LOA began, if there is no waiver of premium rider/clause, who is currently paying her premiums? If there is no waiver of premium rider/clause and she owns the policy, she is likely responsible for premium payment since her LOA began.

MikeRPG, if the plan doc includes election changes for unpaid leave and if the participant had requested an election change due to the LOA status change, it would have made a difference. http://www.irs.gov/pub/irs-regs/td8921.pdf: Sec. 1.125-4, page 15 & 16: (iii) Employment status. Any of the following events that change the employment status of the employee, the employee’s spouse, or the employee’s dependent: a termination or commencement of employment; a strike or lockout; a commencement of or return from an unpaid leave of absence; and a change in worksite. In this case no election change was made, although claims were paid during the unpaid LOA. An alternative would be to suspend both FSA funding and claim payments during the unpaid period of time until there is a return to work, at which time funding and claim payments resume. I would pay claims with service dates prior to the start of LOA. For example if the LOA was effective 05/15/2010, pre-LOA claims would be honored with service dates through 05/14/2010. Upon return to employment from unpaid LOA, for example 10/15/2010, both funding and claim payments resume, including claims w/service date during LOA. This is consistent with COBRA, which HFSAs are required to comply with. It could be argued that claims should not be interrupted during unpaid LOA, however COBRA regs do not require claims to be paid during the period premiums are unpaid, in this case the HFSA funding is the premium equivelant, according to HFSA COBRA regs.

Was the agreement to reduce salary for the year or a certain amount per pay period? Payroll frequency is incidental to the annual elected amount both within the scope of this discussion and within the scope of the regs.

Sec. 125 regulations specifically prohibits elections for a shorter period than 12 months regardless of the funding mechanism be it monthly deductions, annual, bi-annual, 12, 24 or 26, 52, 1 or 2 deductions per year or if the deduction frequency changes during the year. Exception for 1st plan year which can be less than 12 months, renewing annually there after. Salary reduction agreement wouldn't supersede the terms in the plan document, nor should a salary reduction agreement be drawn up in a manner that would be open to conflict with the doc or the administrative requirements. Salary reduction agreements should disclose to participant that the Sec. 125 election is irrevocable, elections can only be changed in event of qualified status change, funds are forfeited if unused, the plan year begin and end dates, and the plan is subject to Sec. 125. Edited to add: Sec. 125 prohibits the plan from 'collecting' claim amounts that exceed deductions. For instance assume this participant did not return to work but instead terminated employment and particpation in the plan, the plan is prohibited from collecting amount claimed that exceeded the amount funded at last payroll deduction. Claims are paid based on the annual elected amount regardless of funding frequency. It is referred to as 'uniform coverage' and only applies to Medical FSA, not the Dependent Care FSA. Because this participant returned to work with a balance due to fulfill her $2,900.00 irrevocable annual election, $1785 over remaining 8 pay frequencies according to your figures, or $142.80 per pay period is due.

Driver training is not medical care described in IRC Sec. 213. While a court order doesn't meet IRS description of medical care, if Sec. 213 medical care is provided in the course of complying with court ordered substance abuse treatment, the care is eligible. Edited: My only concern might be with any applicable exclusions for medical services rendered as a result of criminal activity.

The HFSA election is irrevocable. In order to comply with the irrevocable election requirement the unfunded amount of EEs anual election should be deducted over the remaining payroll periods for the plan year. This is true regardless if the leave is protected FMLA leave or unprotected leave. If the leave is paid, there may be additional MFSA funding considerations.

The risk associated with overlooking or mis-handling a POP election status change increases exponentialy when paper work is reduced and plans are combined, particularly via a self admin POP. That which the plan is attempting to achieve, reduce paper work, is exactly what will likely lead to overlooking or mis-handling a self admin POP. The possibility of keeping a self admin POP in compliance w/respect to election status change could work well if there is a payroll-clerk-for-life who is also conscientious of the POP. A payroll administrator has many competing and conflicting priorities with those required for benefits admin and compliance. Compliance with a self admin POP with the objective to combine with the GHP and reduce the POPs presence is in many ways in conflice with compliance priorities. Depending on turnover, imagine 5-6yrs, and 2 or 3 payroll clerks later, there's a strong possibility that when asked about the Sec. 125 POP, it may sound vagely familiar, but chances are no one will recall exactly what it is, what a change in status is or what the rules are. Few will recall a time when the premiums on the payroll system were not withheld pre-tax or why they are now. I don't see that adding to awarness of compliance. Particularly when combined w/GHP. Less so when self administration is involved. A sudo-combination plan consisting of a GHP and self admin POP does nothing to improve the possibility for POP compliance, over the long term a plan is in effect. Based on my experience, it's not adding up to a good compliance outcome for most organizations. Not that there aren't organizations highly capable w/specialized awarness of complience, but I would not recommend it to many organizations. There may be a select few that are capable of combining, and administering with great deal of efficiency. Those that are capable I would not expect to see posting this type of question here. Are there other premiums in addition to GHP premiums to be paid pre tax, or will there be in the future, and if so will all plans be 'combined'? For example, is there Dental, Vision, DI, or GTL and what are the consequences on the combo GHP + self-admin-POP?

I worked for a few of the big players in the insurance industry. One organization in particular administered all benefits by their HR and Payroll departments. Several colleagues confided that they had a single EOB paid multiple times throughout the year from their Medical FSA; one of those same participants elected $10.5k in DCFSA benefits for several years. They realized something was up after I came on board w/my own enrollment material and after working on cases together that the IRS DCFSA maximum was $5k. The DCFSA participant was also an officer of the Co. In addition to the Sec. 125 issues, the payroll dept., had a practice of 'hard coding' as much data as possible. Hard coding is programing repeditive data entry to a single key stroke, for exampe disability premium deduction of $25.92 accomplished with the lower case 'w' key stroke, eliminating 5 key strokes in the process, or 50k fewer key strokes for 10k participant employees. The problem was that $25.92 represented DI premium with a rider that included spouse coverage, applied for during open enrollment. The spouse rider was denied because it did not meet underwriting. Excluding the spouse from coverage resulted in a reduction in premium, and lower payroll deduction. HR/payroll chose to not make DI premium adjustments for the excluded spouse because doing so violated their practice of 'hard coding'. One would think HR/Payroll was managed by Joe's Bait Shop, (no insult to Joe intended), not one of the top insurers in the country, covered heavily in media for their inovations in insurance such as medical tourism, who one would think had some levle of awarness of IRS and existence of state insurance law. But that was not the case. This large organization had a rogue HR/PR/Benefits departent. Most organizations obey the law and maintain compliance than what is reflected in the info I posted. There are some who despite their large EE population, fit the example I provided.

bcspace, it seems easy enough to meet the medically necessary criteria via an OV with a GP or other provider for a DX and referral for appropriate medical treatment inpatient/outpatient facility. I'm not an expert on the extent to which alcoholism treatment is 'medical care', but it has been my understanding that such treatment requires a license to practice and to provide specialized medical treatment, the necessary addiction and human behavioral training expertise. I'm sure there are ICD treatment codes. I'm not aware of anything in the regs that states a court order, or that criminal activity? would override the medical necessity for treating the underlying condition.

I considered Credible Coverage and pre-ex, completely overlooking privacy and security related issues. Link to HIPAA Final Regs., issued December 30, 2004 in Federal Register: http://www.dol.gov/ebsa/regs/fedreg/final/2004028112.pdf

Medical and Dependent Care FSAs are not subject to HIPAA. Medical FSA is subject to COBRA, most often for EEs terminating employment w/available Medical FSA funds. A qualified beneficiary the result of divorce eligible for Medical FSA participation, in practical terms doesn't have benefit of a salary reduction arrangement for funding their Medical FSA. Therefore the COBRA Medical FSA is funded with after tax contributuions, reimbursements subject to claims substantiation, no W-2 form reduction in income, and are in addition subject to the 2% administration fee. In this example there is little incentive for a COBRA beneficiary to participate in a Medical FSA. HIPAA and COBRA relate to protection of rights to medical coverage and do not apply to Dependent Care FSAs.

According to Sec. 125(d), a Cafeteria plan is a written plan: (d) Cafeteria plan defined For purposes of this section— (1) In general The term “cafeteria plan” means a written plan under which— (A) all participants are employees, and (B) the participants may choose among 2 or more benefits consisting of cash and qualified benefits. According to Treasury Regulations/page 32: §1.125-1 Cafeteria plans; general rules. (a) Definitions. The definitions set forth in this paragraph (a) apply for purposes of section 125 and the regulations. (1) The term cafeteria plan means a separate written plan that complies with the requirements of Section 125 and the regulations, that is maintained by an employer for the benefit of its employees and that is operated in compliance with the requirements of section 125 and the regulations. The plan document must meet the standards of a legal document that describes and discloses to participants the provisions of Sec. 125 as it pertains to the benefits the plan provides. For example, it must include a defination of Sec. 125 non-discrimination requirements, HC and Key EEs; eligible EEs and dependents and IRS defination of dependents, cross referenced by code section; election provisions; possibility of forfeiture; and allocation of experience gains. If the Sec. 125 plan includes GTL, Dental, and Medical and Dependent Care FSAs, or other eligible benefits, the plan document must include a legal description of these benefits as well. Provided the Sec. 125 enrollment forms meet the legal standard of disclosure, that for example, the election is irrevocable and funds are subject to forfeiture; funds can't be applied toward individual income tax deductions or credits, and funds are not otherwise reimbursed or reimbursable, combining it with the GHP enrollment form for purposes of reducing paperwork might be acceptable. Much of Sec. 125 is unrelated to the GHP and it's operation, and considering the emphasis by IRS & Treasury that it's a seperate plan in writing, using a single enrollment form for both GHP & Sec. 125 could be interperted as combining plans if two seperate signatures are not required, for example. A seperate enrollment form may be a better example of maintaining the standard of seperate plans that's emphasized. http://www.law.cornell.edu/uscode/html/usc...25----000-.html http://www.ustreas.gov/press/releases/reports/section125.pdf

Premium for dependent coverage in a spouse's ER sponsored plan is not individually owned policy. Oops, seems you got that part, right? That would cover the eligibility issue. If spouse's dependent premiums are paid via Sec. 125, then also paid by dependent's ER via PRA, could get a bit complicated.

BCBS affiliates routinely recruite and cover their IT expat EE population. Several affiliates have a Short Term Health product marketed through group clients to domestic newly hired EEs required to meet the group policy waiting period, available to their own expat EEs. Many affiliates have a portfolio of Group Voluntary Life, AD&D and LTD products available to their expat EEs too.

If the Cobra covered participants are former Stockholders who's plan will terminate immediately before the sale, the Plan is terminated and therefore no 'plan' from which to continue coverage for this class of EEs. If the Cobra covered participants are former EEs for whom there will be replacement coverage w/no laps in coverage, Cobra coverage is required to continue as it will for their currently working/employed counterparts.This group follows the requirement that Cobra eligibles are required to be treated as they would if the qualifying event had not occurred with respect to health plan coverage. Your situation is not specifically illustrated in the COBRA regs., however because there are 2 classes of EEs, coverage for one class being terminated, but a replacement plan provided for the non-Stockholder class of currently employed. Cobra does illustrate that former EE covered by COBRA are treated as they would if there had been no qualifying event. http://www.dol.gov/dol/topic/health-plans/cobra.htm

Is the election you signed irrevociable because benefits are provided under IRS Sec. 125 that requires a qualifying event status change? If the election change is made before the first day of the plan year you should not have a problem. If your plan effective date is 10/07/2010 or later, and you request the election change to later than TODAY, you should be allowed to change your election because it's made before the plan effective date. IRS rules allow election changes but do not require they be included in your plan. Your ER may prohibit election changes, but only after the effective date of the plan, aka the first day of the plan year.