LRDG

I am not a fan of default elections that automatically enroll EEs each subsequent plan year, without annual open enrollments. ERs' and plan administrators want the tax advantages of Sec. 125 without annual open enrollment, but either doing nothing or the default election will inevitabely lead to just the scenerio posted here. Default elections eventually lead to a hard luck story, true or fabricated, from an EE that puts the plan sponsor/administrator in the very position this ER/administrator is protected from by virtue of EEs signed waiver. I'd suggest explaining to this participant you can't reverse her signed statement without putting not only her election in jeopardy, but the entire plan, with taxes of all participants and matching ER taxes due plus sanctions and penalties. It's an IRS plan and the penalties are as much as $25k? per participant per day, if the plan is found out of compliance and subject to penalties, accumulate each day until IRS determines the plan has returned to compliance status. Again, this plan has the protection of the signed waiver and if you allow this participant to reverse the waiver, you should adopt a default annual enrollment for the POP plan, save yourself the burden of open enrollment and wait for EEs who would have been entitled to change an election but didn't because there was no open enrollment. Consider how the plan will manage employee's who mid year want to drop dependent coverage because they decided a spouse would carry coverage for the child or a family can no longer afford premiums because of temporary financial hardship, without qualifying status change. The plan will be in a position of making these decision, subject to IRS scruitny. If every employee allowed to make a change in election is not treated the same, and any of the elections are not in compliance, the plan will be in a position to plead for mercy from IRS officials. I have reviewed IRS letters (one client for not filing 5500 for 5yrs, $98k IRS penalty), and plead ignorence on my clients behalf 10yrs ago. I'm not sure IRS is in as a forgiving mood considering 125s have been around for 20+yrs. Stepping off my soap box now.

Auditors by training target items such as the re-calculated medical plan claim to identify potential audit exceptions=tax problems, and follow HRA and MFSA transactions to verify the proper adjustments were made and that compliance with respective IRS regs was maintained. These types of transactions are obvious/easy targets for IRS auditors. If the medical insurance plan re-considered a prior claim payment and recalculated the medical insurance plan payment at a higher rate, the HRA and MFSA must both be adjusted to reflect the higher insurance payment amount. The original transactions should be reversed and credited back to the participant's 2009 HRA and MFSA accounts. The HRA and MFSA claim should be re-calculated based on the higher medical insurance payment. If because there were no 2009 MFSA forfeitures and by extension no need for the participant to continue filing additional 2009 MFSA claims before the re-calculation, the participant should be allowed to present qualified 2009 claims w/service dates no later than 12/31/09, (the last day of the plan year) to avoid forfeiting MFSA funds that become available as a result of the recalculated medical insurance payment. Not making the appropriate adjustments could jeopordize the compliance status of the MFSA at the plan level as well as the participant level. Create an audit trail that clearly outlines adjustments made and why, document, document, document. Auditors by training target items such as the re-calculated medical plan claim to identify tax problems, and will follow HRA and MFSA transactions to verify the proper adjustments were made.

I think your ER's requirement for proof of coverage might be the result of some confusion at a time when HIPAA was adopted, implementation of IRS Sec. 89 and simultanious amendments to IRS Sec. 125 non-discrimination requirements. It was suspected by some that EEs who did not have or want coverage would simply opt out. Some confusion resulted and the proof of credible coverage that applies to HIPAA was in error assumed to apply to health plan coverage. The confusion to require proof of other credible coverage extended to insurers, administrators and plan sponsors. It lasted for a short period of time and I thought had all but disappeared over the years. I believe eventually a compromise was arrived at. In lieu? of demanding EEs provide proof of coverage, (which BTW, had no legal enforcement anyway), ERs redesigned enrollment forms to include in addition to all their benefit options, included a provision in the form of a certified statement allowing EEs to decline coverage either because of existing coverage through a spouse or individual coverage. If I remember, it relates to the passage of Sec. 89 that became effective in 1989 and was repealed within 30? or 60 days. It was an attempt to mandate coverage with the appearence of a mandate. After Sec. 89 was repealed, because it was so far reaching, many were unsure of what was actually repealed and what legislation remained through oversight.

With respect to the initial weight loss, it's possible a doc would have perscribed weight loss to treat onset diabetes, or heart disease or another medical condition. But that is not known and if I understand your comments, it doesn't really mattter because there is no claim for the cost of weight loss treatment. IRC Sec. 213 describes medical expenses that are eligible for reimbursement from health insurance plans, eligible as a medical expense that is deductible from an individual tax returns, and expenses eligible for reimbursement from a Medical FSA under a Sec. 125 plan. Expenses must be medically necessary; can not be purely cosmetic in nature or for the improvement of general health and well being; must be for treatment of illness, injury, diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. If as a result of un-Dx, un-Rx'ed weight loss, her doc is rx-ing corrective surgery because the patient will develope or has developed a medical condition resulting from excessive skin, it would meet requirements of 'medically necessary' and would be more than 'for general health and well being', nor would it be considered purely cosmetic in nature. Cosmetic surgery is in some cases an eligible expense if it is to treat an underlying illness or to correct defect or deformity, congenital or the result of trama. IRS eligible medical expenses are described in Sec. 213 of the IRC.

There is potential for compliance problems if the ER accepts EEs return of paid eligible claims. IRS prohibits the Medical FSA from 'opperating in a manner' that limits payments to the available balance vs. IRS requirement that payments be based on the annual elected amount. Allowing the EE to return funds results in the plan 'opperating in a manner' that is not compliant with IRS requirements for the payment of Medical FSA claims.

Who in their right mind ever suggested she contribute to DCFSA prior to the birth? It's just not done. It's not something i've ever ever heard of anyone doing in the course of enrollment or administration. After birth, a qualifying event, is the only time I would recommend anyone begin funding DCFSA. Too much changes during that time and the cost is too high to put at risk. Electing DCFSA prior to the birth of the child is not something I've ever heard of anyone doing in the course of enrollment or administration. It's always an election deferred until after the birth, a qualifying event allowing the election change. The more I think about it, there would be problems with dates of service and claims if the funding and effective dates are also prior to the birth. I don't understand how such an election is possible, or how it would be possible administratively. If I were the participant, I would argue that someone was deficient in their administrative duties, and I'd say it often and loud until something was done to provide me with administrative reliefe. In fact the birth of the child is a qualifying event allowing the participant to make an election change, no need to be creative.

If I were responsible for correcting this problem I would choose the easiest and most compliant approach. Assuming the plan document does not specify how "Sabbatical leave w/partial pay' is treated for purposes of your Sec. 125 plan, and also due to the fact that for the one semester period of the sabbatical the participant did not make an election change or sign authorization to change her prior made election, I would treat all deductions as pre tax, and issue an ammended W-2 for the 2009 plan year. Calculate the tax savings owed to the participant for the 2009 plan year, in addition to any necessary corrections/ammendments to LOA provisions in your plan document, and the plan's 5500 Form if one is required by your plan. Assuming your sabbatical leave policy qualifies as a status change under Sec. 125, (I believe most sabbatical leave does, however I have not reviewed your sabbatical policy to determine that it meets IRS status change regs) and assuming your plan provisions/plan document recognizes sabbatical leave, the participant's election change should be documented with a signed election change form for the period of the leave, particularly if a change is made to the participant's prior made election/deduction for the 2009 plan year. Arbitrary changes by payroll or the plan administrator are not allowed unless they meet IRS regs. Election changes should only be made with the participant's authorization via a signed election change form, assuring the election change is compliant with both the plan and the IRS election/status change regs. With respect to this participant's 2010 premium deductions, I assume premium elections for the Sec. 125 plan are default elections, and not via annual open enrollment each plan year. My guess is that when the participant was hired and eligible to participate, a one time election form was signed authorizing premium deductions on a pre tax basis, and this election by default automatically rolles over from one plan year to the next. By 'default' this election remains in effect untill the participant resigns or otherwise specifies a qualified change in status and election change via a signed election change form. But for the sabbatical leave and the payroll change from pre tax to post tax deduction by the payroll department, the participant's 'default' pre tax election for premium payments would have continued on a pre tax basis for the 2010 plan year. If this is the case, and if you choose to correct your plan's compliance problem as outlined, I would treat the default election as the legitimate election. Calculate and reimburse participant's tax savings for the period thus far for the 2010 plan. You may want to verify that any payroll system/tax withholding corrections made will result in corrections to the 2010 plan year W-2 form as well. Create a clear well documented audit trail of the actions taken to correct the problem in the event of an IRS audit. Consult with an authority authorized by your organization to verify that you fully understand the problem and have made the necessary corrections to bring both 2009 and 2010 plans into compliance. You may want to consider addressing sabbatical leave and any other LOA issues in the plan document, for future reference. Good luck finding IRS guidence or documentation concerning correcting this or any other problem, as it does not exist. However, to do nothing does violate the provisions of the Sec. 125 plan and the legal requirements of IRS Sec. 125.

I have reversed both Medical and Depencent FSA elections due to participant error. I would only consider reversing the transactions if both participant and spouse each agreed to provide a sworn statement certifying an error was made that includes a credible explenation that substantiates the error. I would be curious about claims paid to each by the respective plans, curious if the same claims were filed and paid by both plans. If a certified statement is provided and credible, I would reverse the $5k DCFSA deduction from the payroll system. Also reverse $5k paid claims from DCFSA claim system. Collect withholding taxes from the participant on the $5k, representing FICA, Fed, State and Municipal if applicable. For example, collect $1250 based on total withholding tax rate of 25% on previously pre-taxed payroll deduction of $5k. Issue corrected W-2. I corrected elections two years consecutively for an elderly participant who confused dependent care expenses with dependent insurance coverage for his spouse the first *2* years the plan was in effect. He was working twenty years past retirement age with *dependents* preparing for their own retirements, obviously no infant care expenses, it was a mistake. Form 2441 is the equivelant of the DC provider's W-2, is issued by the participants to the DC provider as their statement of income. DC providers typically expect to report the full $10k income on form 2441 in order to fully fund their own future SS retirement benefits. Box 10 of form W-2 is for reporting 100% of DC benefits deducted by the plan. Boxes 1,3, and 5 on W-2 is for reporting amounts over the IRS maximum of $5k. This is what concerns me, one would assume plan sponsor is aware of the IRS max of $5k for DCFSA. Never the less, assume Box 10 reflects the plan withheld $10k, Boxes 1,3 or 5 would be used to report the IRS excess of $5k, which is taxable to the employee-participant when filing tax returns. Most employers are aware of the $5k max for DCFSA elections, and one would assume or at least hope most ERs wouldn't deduct amounts over $5k. Why would IRS form and instructions include provisions for amounts over IRS max? Also, claim systems are not required to account for amounts paid, yet the potential for exceeding the $5k maximum exists as it does for Payroll deductions. Payroll deduction amounts and paid claim amounts aren't mutually exclusive. In this particular case, neither plan exceeded $5k deductions or reimbursements, yet each participant received $5k tax free income and reimbursements. The W-2 works if for instance a participant elected and received $10k, the $10k is reported in Box 10, in which case Box 1, 3 or 5 reflects the amount that exceeds IRS maximum or $5k. I'm somewhat baffled with IRS use of Box 10 on form W-2 to attempt DC corrections. W2 is a payroll system based form, and not representative of claims paid, yet the W-2 instructions refer to 'amounts paid'. In addition to the fact that ER is prohibited by IRS regs from exceeding the $5k DC max. Maybe it's used when DC services are provided on site by the employer. Although I don't understand how that has any baring unless on site ER DC services are provided below fair market or free to EE and paid by the ER, with full FMV value of services reported in Box 10, FMV in excess of $5k max reported in Box 1,3,5, triggering amount taxable on individual return. This is beginning to sound like the most plausible explanation. Although it would seem 100% of Free DC is 100% taxable regardless of IRS max.

Disabled parents are addressed in the Dependent care expense regulations. Employment related dependent daycare expenses the result of one employed parent/custodian and one disabled parent/custodian meet the IRS regs for qualified dependent daycare expenses for the qualified dependent grand/child. If the disabled parent required care the result of a disability, the cost could qualify for reimbursement from a medical and/or dependent care FSA, in addition to the child's Dependent daycare expenses.

Cobra exempt Plans (with fewer than 20 employees) that include Medical FSAs are required to offer Cobra for any employee funded portion of an FSA that involves forfeiture or potential of forfeiture upon termination of an employee's employment. Cobra exempt organizations who's Employee's Medical FSA claims exeede contributions or will exceede their contributions upon termination of employment are exempt from offering FSA Cobra to only those employees who's claims exceede contributions. If the organization offers a group health plan and an FSA, the Cobra exception for fewer than 20 employees applies to the group health plan, but not to the portion of of the FSA at risk of forfeiture upon termination of employment. Organizations that do no meet the Cobra exception must comply with FSA Cobra provisions and Medical Plan Cobra provisions.

That's correct, IRS wrote regs to automatically recognize medical insurance plan premium changes in a Sec. 125 plan without the necessity of participants having to make new elections. However, according to IRS regs the plan is prohibited from allowing Medical FSA election changes that are on account of deductible or co-pay changes under the insurance plan.

"Thanks for verfiying for me what I thought was the correct response. I think the software issue made me second guess myself...and I should have properly termed "employment" in my comment as "period of coverage"...you guys are tough!! Thanks for keeping me straight! " Not trying to be tough on you at all, just trying my best to keep you straight. I am curious about the system glitch, and what you uncovered as being responsible for the problem.

achloe81, "I know that you cannot recover any $$ if the account is overspent, and I know that a participant can utilize the full election at any time during employment--but what happens after termination of employment?" Medical FSA participants can received reimbursement of claims that exceede their available/accumulated Medical FSA balance. Not only can they receive more in claim reimbursements than the amount of their contributions at any point in the plan year, but the plan can not in any way tie their reimbursements to their available/accumulated balance. "I have used several different software packages to manage these accounts and all reduces an employees election to contributions less reimbursements at time of termination. The software will not pay out anything over the contribution amount." You should verify that the software is programed correctly. There is no reasonable explanation for the software to reduce EE elections to contributions less reimbursements at time of termination. Administration programs I'm familiar with do allow the administrator/user to override system functions and allows administrator to establish plan limits and function at the Group level for each organization administered on the system, resulting in an override of admin system default program settings. Even limits established at the Group level could inadvertently be overwriden at the individual employee level under certain circumstances. Each program has it's own 'glitches', for instance one administration system required each group's plan year dates and FSA plan maximums to be set up on the system by the system administrator. However, when employee elections were imported on to the system, the Group level FSA maximum amounts were overridden during the EE election data import function. Through a process of trial and error, or as we affectionately referred to it, system testing performed for the Vendor, it was revealed that the system override did not happen when EE elections were hand keyed onto the system, only when the EE election data was import onto the system. There may be something similar responsible for what you are experiencing.

The following refers only to the Medical FSA. Sieve, not exactly. Tres. Reg. Section 1.125-5(d)(1) relates to available balance for purposes of the Uniform Coverage rule. That is to say claim payments may not be limited to contributions, but must relate to the annual elected amount, reduced by prior claims, not limited to available balance. For a non-cobra Medical FSA participant, the date/s of service for Medical claims can be no later than the last day/date of employment. Services can be provided=performed no later than the date of termination=last day worked in order for the claim to be honored. Within 30 days of the date of termination, the terminated Medical FSA participant can claim up to the annual elected amount reduced by prior claims, for dates of service not later than the termination date, submitted within the 30 day period as described in the PD for submitting claims. For example, during a calendar plan year, employee A terminates employment on July 1, the plan year for employee A is 01/01/09 through 07/01/09. Assuming employee A made an annual election of $1200 for the 01/01/09 through 12/31/09 plan year and contributed $100 per month with no prior claims, employee A would have $600 available balance, No more than 30 days following A's July 1 date of termination, A submitts a claim for $1200, with a service date/s of March 5, 2009. In order to comply with IRS regs, the plan is obligated to reimburse A's claim/s in the amount of $1200. That is also an example of the Uniform Coverage Rule. I know that you cannot recover any $$ if the account is overspent, and I know that a participant can utilize the full election at any time during employment--but what happens after termination of employment? Your comment about utilizing the full election amount at any time during employment is not exactly as stated in the Regs. The Regs refer to the term Period of Coverage for clarity or in an attempt to distinguish terms that have more than a single interpretation.

Early termination of a POP Plan, (Premium Only Plan), effective 04/31/09? versus 12/31/09, is possible. If the plan includes FSAs, (Flexible Spending Accounts), early termination is more complicated. An announcement that the POP plan will be terminated effective 04/31/09? with a new effective date and 12 month plan year beginning 05/01/09 through 04/31/10. A brief explanation that the new plan year is necessary because of newely aquiried subsidiary companies has made the change necessary. Include information about the new benefits that will be offered for the 05/01/09-04/31/10 plan year, including necessary info about benefits you would for Open Enrollment. Ammending the existing plan might be possible, but because in addition to plan year you will be offering new benefit options and new subsidiary companies and participans, it's cleaner to terminate. Unless there are other compelling reasons for amending the existing plan, termination might be the best option. If you choose open enrollment for a new plan year you would want to allow new coverage of spouses, and any election change you would normaly allow for a new plan and open enrollment. edited to add: The plan document will need to be amended to reflect plan year changes, new benefit options and new corp., entities.

I'll agree to disagree with you on the due dillegence of a plan sponsor imposing a pro rated maximum on a DCFSA with a short plan year and leave it at that. I do think it's interesting how income limits and tax rates I quoted appear in your post to argue your point in support of incorrect statments contained in your comments, more than the incorrect use of terminolgy. I appreciate the exchange of information and a fair argument on a discussion board, the advantages of such debates and exchange of info improves all of our understanding. But I'm surprised when an adult, professional lowers themselfes by presenting info supplied by others without acknowledgment, presenting it as their own to support an argument that is based on a false statement, to begin with.

"There are EEs that do not qualify for the IRC 21 credit, but may use a day care flex account and benefit from it." Who are these EEs? It's unlikely if not impossible for someone who does not qualify under Sec. 21 to qualify under a Sec. 129 plan. "Otherwise, why would the ER get involved in setting up and operating a day care flex account benefit if all EEs could benefit equally from the IRC 21 credit?" The ER becomes involved because under Sec. 129 the ER receives FICA payroll tax reduction/benefit that the ER does not receive the benefit of under Sec. 21. "If IRC 21 provided the same benefit for all EEs as a day care flex account option does, it would be much simpler for ERs not to offer that option and merely have the EEs claim it on their 1040s." I have no clue who said IRS code sec. 21 provides the same benefit for all EEs as a DCFSA option. When and if I have commented, it was to make clear that Sec. 129 is more benefitial in terms of providing a greater tax benefit, particularly for those in higher tax bracket. The exclusion from income is more benefitial, produces more value than the income tax credit. Lower paid EEs benefit more under Sec. 21, while higher paid EEs benefit more under Sec. 129. The break even is for those earning approx. $25k, with one dependent and DC expenses in excess of the $3k limit under Sec. 21. Who are these individuals who qualify for Sec. 129 dependent care expenses but do not qualify under Sec. 21 for the dependent care tax credit? Sec. 129 may be more benefitial for those in higher tax bracket, but as far as I am aware, it is simply not ture that there are individuals who do not qualify under Sec. 21, but will qualify under a Sec. 129. It's unlikely that anyone who does not qualify under Sec. 21 will qualify under a Sec. 129 plan. "Exactly the reason that an ER ought not to limit the $5k limit pro rata for the first, short plan year. There are EEs that do not qualify for the IRC 21 credit and have plenty of day care expenses during that short plan year to use the entire $5k. More prudent for the ER not to limit it pro rata." Again, it's simply not accurate that there are EEs who qualify under Sec. 129, who do not qualify under Sec. 21. I'd like to know who these individuals are, because as far as I'm aware that statement is untrue. If you can provide a convincing arugment or justification for ER/plan sponsor to reimburse in 6 mons what IRS only allows over 12 months, I might be persuaded that it's indeed a great idea. The obvious advantage of due dillegence by imposing the pro rate max is, well, obvious. The potential for the ER/plan sponsor to 'expose' the plan to ethicaly challenged EEs or honest EE error, that it's possible will be explained to IRS auditors by the short plan year allowing $5k reimbursed in the short 6 mo. plan year, caused EE confusion, or the possibility of an actual oversight by the ER. It may be just too tempting for some EE who feel they won't get enough with Sec. 21 tax credit or they will lose out if they claim balance of the DC expenses as a DC credit under Sec. 21. I've made it clear I do not believe there is IRS requirement for the partial plan year to impose a pro rata maximum, but as I've also said, doing so is due diligence, particularly when there is the possibility for EEs to claim the difference under Sec. 21. The temptation for some EEs to get the most they can get away with pushing legal bounds, at the expense of the ER/Plan Sponsor. It may be in the ERs interest to minimize that opportunity and inconvenience caused when ethically challanged EE is audited and points to the short plan year to explain away their 'confusion' for claiming $7-8k because of 6 month DCFSA. Not to mention the flawless procedure open enrollment process is, we know there's never an error, never one ER could be responsible for communicating tax issues under limited time span to distracted EE at best, confused EEs, typical. I see no credible reason or not a strong enough reason to not impose a pro rata max for a short DCFSA plan year. That is only my opinion, not an IRS requirement.

Assuming she is working custodial parent, unlikely there will be a problem later if spouse gets the dependent tax deduction. Probably not in the job description to ask, but if it's a hostile divorce with ugly property, custody battle, I'd be mildly cautions.

If you want to correct the $800 amount in excess of the $5k max., elected and reimbursed inadvertently, you will need to add $800 back to taxable income. Box 10 will then be reduced by the $800 to the $5k max. The TPA may have to reverse $800 in claims paid in excess of the $5k max. Withhold tax on the $800, issue any corrected W-2s if necessary.

I'm with EBIA on this one. However if your plan includes this benefit for domestic, non-expat population, I don't know of any reason why the plan would not cover the Brizalian expat policy. I'm not going so far as to say it's IRS eligible, the regs are not there yet with respect to wether premium reimbursement plans for individually owned policies are eligible, IMO.

There is no IRS requirement for a DCFSA with a short plan year to establish pro-rata maximum for elections or benefit reimbursement. There is onus or obligation on the plan sponsor establishing a 6 month plan that permits the IRS annual $5k maximum to be elected and reimbursed over a 6 month short plan year. No money is 'left on the table'. Imposing a pro rated maximum in no way requires DCFSA participans to 'leave money on the table'. The balance not elected and claimed from the FSA can be claimed as a DC tax credit when filing individual tax return. Plan sponsors may want to consider the pro-rated method for establishing DCFSA maximum for a short plan year to avoid confusion by participants and any liability, perceived or actual liability in the event their communication of IRS limits is lacking in any way. For instance participants enrolling later in the plan year may not get the level of enrollment material/info that's routinely available during annual open enrollment. But that's typically the case even when there isn't a short plan year involved. Imposing a pro rated limit on IRS regulated maximum does not prevent the individual DCFSA participant from filing for DC tax credit for the balance of their child care expenses from individual income tax returns, and protects the plan sponsor from any perceived or actual liability. Consider imposing a pro rated limit due diligence on the plan sponsor's part. The plan sponsor is protected, the dependent care participant is allowed to claim the balance when filing individual income return. Litigation even when favorable to the plan sponsor, is avoidable and expensive. On the other hand, there are a fair number of Dependent Care participants with annual DC expenses that exceed IRS $5k maximum. If not imposing pro rated limit on the DCFSA in any way benefits these individuals, and that benefit does not come at potential cost to plan sponsor, don't use the pro rated maximum. The bottom line is the participant has the opportunity to claim difference between their DCFSA election/reimbursement and the $5k limit when filing individual tax return, with no liability on the plan sponsor by doing so. There is onus or obligation on the plan sponsor, that permits the IRS annual $5k maximum to be elected and reimbursed over 6 month short plan year.

Keep in mind that DCFSA maximum amount reimbursable under the Sec. 129 plan may need to be adjusted for the partial plan year. If the DCFSA is for 1/2 calander year, the IRS maximum $5,000 should be adjusted accordingly to maximum of $2,500. The primary reason is to avoid problem if plan allows $5,000 for July 01, through Dec. 31st expenses, individuals may claim January 01 through June 30th expenses when filing individual income tax returns, exceeding IRS max. of $5,000 annual amount allowed. When DCFSA returns to full 12 month plan in 2010, the plan doc may need to be amended and enrollment materials reflect the full 12 month plan and maximum $5k.

Expat employees are not considered in-eligible according to IRS regs. If the individual is an ex-pat employee who otherwise meets eligibelity to participate there should not be a problem. I'd suggest becoming familiar with the Hearth and Dependent care systems in the DR to determine they don't include procedures or cost not routine under the US systems, procedures not eligible under IRS Secs. 125, 213, 129 and 152. The restrictions on types of expenses eligible for reimbursement from Medical FSA's, for instance expenses covered by insurance or otherwise reimbursable or paid, or an ineligible procedure under Sec. 213. Dependent care where there may be limitations or requirements for local licensed providers, or K level care provided in a grade school or educational institution. In the case of child care center, that for instance may provide meals or require insurance coverage/permiums for the child, if invoiced seperately, food/meals are not child care, same with insurance. While these may be required, provided and necessary to nurish and protect the child while attending the child care center, it is not child care and therefore not eligible under tax code. There is some tollerence for items not invoiced seperately, or not itemized by institution on receipts. FYI Sec. 213 is a list of eligible Medical procedures and circumstances for receipt of eligible medical care, eligible for deduction from individuals income tax return or for exclusion from taxable income under a Sec. 125 plan. Sec. 129 addresses rules for eligible child/elder care expenses from individual income tax return for child care tax credit or for exclusion from income through a Sec. 125 plan that include a Sec. 129 Dependent/Child/elder Care FSA, allowed under the tax code. Sec. 152 describes eligible dependents, for instance, child/ren, grand-child/ren, elderly dependents who qualify as dependents for individual income tax filing status, and thereby qualify under Sec. 125 & 129 plans. IRS requirements for qualifying elderly dependent, you must provide/contribute no less than 50% to their support to claim MIL as a dependent on individual tax returns. If MIL meets IRS dependent status requirements for income tax filing purposes, expenses qualify under the Sec. 125 and 129 plans. See IRS Sec. 129 & 152 for defination of qualifying individuals for dependent status for elderly & child expenses. For elder care expenses in a care facility, it is not always possible to seperate cost of custodial care provided from the cost of medical care provided. In general, the care is typically eligible under Medical FSA because the custodial care is required due to medical condition. However, care consist of primarily costodial care which is often provided in addition to the underlying medical necessity for providing it. It might be advantageous to allocate expenses between both the Medical FSA and the DCFSA if possible to achieve 100% of the cost included in the plan without exceeding maximums imposed under the respective spending accounts. I mentioned only what I recall from memory, it's been some time since I had occasion to research/use elderly care provisions, I suggest you review the respective secions of the code. edited multiple times: addition of elderly dependent & elder care; clarity; general corrections

Does anymore have a link to the Federal Register where I can find this explanation as to when an employer must offer FSA through COBRA? J Simmons reply includes a link to the Federal Registar. The cut n' past i tried to link didn't work. The link in the original posting does. Try the URL address here: http://www.gpoaccess.gov/fr/index.html

I wouldn't consider allowing a client to BYOPD. Not without a full legal review, which in all likelyhood would be at much greater cost to the client than using our PD, one I know complies with regs and with our administrative procedures, systems, etc. There could be significient risk involved in using an existing PD. Particularly if I'm unfamilar with the PD provider, or the possibility that the PD is not compliant, either because regs have been amended without updating the PD or because the prior PD provider was unqualified or incompetent. I would only allow the client to bring an existing PD with some type of release of liability, hold harmless agreement or similar document in the event it's needed. There is a legal format that as far as I know is fairly standard for restating plan docs. In addition, restatement of the plan is declared on the 5500 form, including reference to the prior plan numbers, dates, etc. I'm not familiar with a 'wrap document', so I don't know how that would impact plan numbers.