LRDG

It's a judgment call. Is his explanation believable? If your plan is audited, will your supporting documentation and explanation be believed by an IRS auditor? I have allowed a plan participant to do this, 3 years consecutively. The participant was elderly, with grown children my mother's age, who thought he was electing medical coverage for his dependent (spouse), when making the dependent care election. It was in the first years of the plan and each year our enrollment/election forms were a bit different from the prior year. The participant was totally believable, a spotless 30yr employment history with the company, provided a certified written request/statement. If you allow the participant to revoke the election, you must withhold payroll taxes that would have otherwise been paid on that amount, refunding the balance. Issue an amended W2. DO KEEP IT CONFIDENTIAL.

Sec. 213 describes expenses deductible from individual income tax returns due to medical necessity. It covers special diets and clothing, medically necessary home improvement/construction cost and the degree to which the cost is deductible from taxable income. Sec. 213 is referred to in Sec. 125 for purposes of defining medically necessary expenses eligible for exclusion from income under a Sec. 215 plan, as well as medically necessary and eligible for deduction from taxable income when filing individual income tax returns. One exception that comes to mind is Sec. 125 plans allow exclusion from income for medically necessary expenses described in Sec. 213 from first dollar spent on medical care. However, when filing individual income tax return for medical expense deductions, Sec 213 states expenses must exceede 7.5% of taxable income. Clothing, home improvements and food are not tax deductible. The additional cost for medically necessary diet, clothing, that exceed a regular diet or regular clothes for instance, is deductible when filing income tax returns, or excludible from taxable income under a Sec. 125 plan. Medically necessary home improvements are deductibel only to the extent that the cost exceeds capital gains.

You may need to amend the PD & SPD in order to allow this election change. Based on your description, the change to 'teleworking' qualifies as an IRS status change for this situation. However, based on the limitation in the SPD (& PD?), an employment status change that affects eligibility , the plan document & SPD may actually prohibit the change.

I'm assuming the band member is symptomatic, and treatment of symptoms is not for 'general health or well being' or 'preventative'. How much tax savings is involved, how much can ear plugs cost?

RECOMMEND THAT THE BAND MEMBER'S DOC WRITE AN RX. FOR EAR PLUGS.

Regs. allow for a 2% administration fee to be charged on the cobra election. I have written provisions in PD allowing cobra participants to conbribute pre tax all or a portion of their cobra election from final paycheck.

I wouldn't use either of the links to substiantiate(sp?) the uniform coverage rule. Thought you could do your own research based on the content. I assume you are looking for language that supports or prohibits recovery of claims that exceed contriutions from terminated employees. Neigher IRS code nor treasurary regs are going to answer your question directly, 'the plan may not acelerate the payment schedule based on claims' is the most direct example of risk shifting requirement. good luck

http://www.irs.gov/pub/irs-utl/lesson4.pdf See pages: pdf page #9, doc. page #12 also see: http://www.pbpmagazine.com/articles/UseItorLoseIt.htm

I personally don't like and am not an advocate of the type of plan design requiring post employment participation in medical FSAs. The type of plan is not participant user friendly, and ads administrative burden that I am not interested in. I am of the opinion that forfeitures and plan sponsor payroll tax savings typically offset claim payments that exceed payroll deductions. I have successfully support the opinion with end of year forfeiture reports dating back to the inception of 125 plans and the uniform coverage rule. Despite the fact that I wouldn't consider implementing such a plan option, I wouldn't consider excluding it from a presentation to a plan sponsor.

I would also correct employee payroll deduction agreements. good luck.

Issue it presents is the collection of premiums in current tax/plan year for payment of premiums in a prior tax/plan year. The IRS regs don't specifically address this situation. I would correct it via 2007 pre-tax deductions. I would document the '07 adjustment and consider it 'administrative relief' based on the '06 error in premium deductions. The correction should be well documented, and the '07 deductions considered a one-time adjustment.

Sec. 213 identifies medical expenses eligible for income tax deduction and by reference, eligible for exclusion from taxable income via FSA under a medical reimbursement account. Sec. 213 contains a defination of reasonable hotel expenses for medicaly necessary over night travel as not more than $50 per night. My interpertation of 'parent' with respect to airfare as outlined in Sec. 213, has language to the effect that expenses for both parents would be more than necessary. The defination contains an example similar to "Unless one parent is a organ doner/patient of the child/patient, in which case the non-patient parent's airfare/travel expenses would be eligible" I'm not aware of recent amendments to Sec. 213, but you may want to verify that.

Changing child care providers is a qualifying event/status change, according to IRS. Not all plans allow mid-year election changes. Refer to the plan doc to determine your plan's election change provisions.

The 125 plan document should reflect the basis for determining eligibility for EE coverage. Typically it's service based (full time, minimum # of hours) age range, etc., and also define the basis for determining how EEs w/DP coverage fail to meet eligibility otherwise met by all other EEs w/health coverage. I have very little confidence that excluding this group of EEs would be viewed as anything but discriminatory. There is no employment based classification to justify excluding the EE portion of the premium.

Requiring all terminated employees to participate post employment does not violate uniform coverage rules because it is not tied to prior claims. Employees with no prior claims continue contributions on post-employment basis, as do participants terminating with claims that exceed contributions. Terminated employees continue to file claims and receive reimbursement not to exceed annual elected amounts.

The uniform medical FSA coverage rule does not prohibit a plan from operating in a manner that requires all terminated employee participants to continue FSA contributions post-employment, irrespecitve of claims incurred. I agree with the previous poster regarding Harry Beker's comments on this issue.

While insurers and employers view dental insurance as seperate plans, (underwriting purposes), for IRS purposes, dental insurance falls under the defination of a medical procedure and is considered medical benefits.

The legal status of the business entity, Sub S Corp., disqualifies owners from participating in Sec. 125 plans, vs. a corporate entity who's "owners" are considered employee.

FINAL-REG, 2002FED ¶12,541, §1.213-1, Medical, dental, etc., expenses.— §1.213-1 Medical, dental, etc., expenses.— Caution: Reg. §1.213-1 does not reflect recent law changes. For details, see ¶12,541.01. (a) Allowance of deduction.—(1) Section 213 permits a deduction of payments for certain medical expenses (including expenses for medicine and drugs). Except as provided in paragraph (d) of this section (relating to special rule for decedents) a deduction is allowable only to individuals and only with respect to medical expenses actually paid during the taxable year, regardless of when the incident or event which occasioned the expenses occurred and regardless of the method of accounting employed by the taxpayer in making his income tax return. Thus, if the medical expenses are incurred but not paid during the taxable year, no deduction for such expenses shall be allowed for such year.

There is no IRS requirement that I'm aware of requiring extended FMLA leave be treated the same as the one-two day FMLA leave. The issue should be addressed in the plan document. If it's not already addressed in the PD, it's probably a good time to issue an amendment.

I don't think the ER must continue funding a post-employment/COBRA FSA. Similar to the Health Plan COBRA election, any employment related ER premium subsidy(sp) becomes 100% employee paid.

I'm not advocating or defending anyone manipulating the facts by implying there's a legal mandate requiring enrollment meetings on company time. That's not what i said in my post. However, it is incumbent upon benefits professionals to accurately communicate non-discrimination requirements and enrollment provisions to their clients. I'd question an employer sponsoring a 125 plan with ER payroll tax savings, who is unwilling to promote/allow enrollment on company time, and the professionalism of any benefits professional willing to meet with employees 'off the clock'. leevena, none taken.

With respect to IRC Sec. 125 non-discrimination concerns and enrollment provisions, it wouldn't be inapporpriate for the broker to refer to 'IRS rules'. Of more concern to me would be a client/employer/plan sponsor, who doesn't support the plan. The importance of benefit orientation and enrollment meetings should be fully explained, to the client/employer/plan sponsor and agreed to in writting via adoption agreements and contracts. The client as plan sponsor must have an understanding of the role employee participation plays in meeting enrollment and non-discrimination requirements. Handled properly, enrollments don't interrupt business operations, and alternatevily, can provide clients an opportunity to improve employee morale.

This is the only reference I found available on the internet. The 'services performed and paid in the same plan year' was a topic extensively reviewed at Employers Council for Flexible Compensation meetings prior to adoption of Final-Reg, 2002FED ¶12,541, §1.213-1, discussed with IRS Bureau Chief who authored Sec. 125. FINAL-REG, 2002FED ¶12,541, §1.213-1, Medical, dental, etc., expenses.— §1.213-1 Medical, dental, etc., expenses.— Caution: Reg. §1.213-1 does not reflect recent law changes. For details, see ¶12,541.01. (a) Allowance of deduction.—(1) Section 213 permits a deduction of payments for certain medical expenses (including expenses for medicine and drugs). Except as provided in paragraph (d) of this section (relating to special rule for decedents) a deduction is allowable only to individuals and only with respect to medical expenses actually paid during the taxable year, regardless of when the incident or event which occasioned the expenses occurred and regardless of the method of accounting employed by the taxpayer in making his income tax return. Thus, if the medical expenses are incurred but not paid during the taxable year, no deduction for such expenses shall be allowed for such year. WDIK, thanks for the link.

GBurns, my position on dates of service/payment within the same plan year is an issue that was settled many years ago. Until recently I maintained an extensive benefits library that included all Sec. 125 related material. I incorporated regs in proposals, plan design, implementation, administration and filing 5500s. I'm unable to substantiate the position with specific reference material at this time. I don't find IRS and DOL on line sites very reliable resources, relevant info burried in obscure technical corrections, common use of cross reference, and cumbersome amendments ('delete the word and, insert the word exclude') I'll post results of my online research. The answer I'm looking for may be in IRS notice 'Substantiation of claims' issued in early 90s', but search engines haven't turned up anything related to this particular notice. Keep in mind Prop. Treas Regs 1.125-2 Q(6), was issued nearly 20(?) yrs ago. IRS emphasis at the time it was issued has limited application today. "Incurred' is a term used by IRS through out the tax code and it's interpertation is typicall tied to the specific piece of tax legislation. In my opinion, it's continued use and interpertation with respect to Sec. 125 remains ambegious(sp). yesterday commemorated the one year 'anti-versary' of losing my benefits library, among other losses.