MARYMM

Sure, why not ? If it is a Medical FSA, you're still on the hook for the same amount of reimbursement no matter when you start payroll deductions. For Dependent Care FSA, I used to front load deductions frequently for ee's who wanted the funds available for summer day camp deposits. I'd say as long as the Plan Doc does not specifically prohibit it, you can do it

How old are they ? Would an amendment to allow an in-service distribution for age 59.5 work ?

Once the participant is eligible for Medicare, don't they have to stop making/receiving HSA contributions ? If someone is enrolled in Medicare they cannot open a HSA account. If you are elgible, but not enrolled, you can open a HSA and you can make contributions. Thanks. So the old practice of enrolling in Part A even if you have employer provided coverage does not work if your employer coverage is an HDHP/HSA plan.

Once the participant is eligible for Medicare, don't they have to stop making/receiving HSA contributions ?

The only option the empoyee has is to try to incur eligible expenses for himself such as Lasix surgery if he wears glasses, new eyeglasses, orthodontia for the kids (if any), etc. If I were him I would be looking at a list of covered expenses to see if there was anything I or my other dependents (if any) needed to have done that I had been overlooking

I thought that the change in cost provision only applied to dependent care FSA's - not to medical reimbursement plans.

We had a similar situation where the ee elected dep. care for a calendar year plan and did not notice her error until filing her tax return in April of the following year when she questioned Box 10 on her W2 So far, we have not reimbursed the ee. My position was that if the error had been reported prior to 12/31, we could have corrected it - either reimbursed the contributions or reclassed them to Medical FSA if that was the actual intention of the election. By the time the issue was raised the claims runout period had ended, so reclassing was not a viable option. (Although I have had a TPA allow an extension to a claim period - but it had to be offered to all ee's I'm uncomfortable with the concept of reimbursing the ee in the current calendar year and issuing a W2c for the prior year. In that scenario the compensation would actually be received in the current year and therefore is being deferred - which is contrary to Sec 125 regulations.

I'm trying to reconcile these 2 contradictory pieces of info. Could it be that , per the Q&A, ex-employees are "allowed to participate" in the sense that they can elect COBRA for the FSA (if eligible) or can submit claims for services incurred prior to termination ? They can still be participants even if they are ex-employees . On the other hand, Pub. 15 B states "Current employees" are eligible to participate. Is that because the focus of that publication is on the pre-tax deduction and not the claiming of benetfit aspects of Sec. 125 Plans?

Don: I could not find the document you cited above, but I did find a tax publication that does not allow former employees to participate. It allows for three categories: 1. A current common-law employee (see section 2 in Publication 15, (Circular E), for more information). 2. A full-time life insurance agent who is a current statutory employee. 3. A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. As I mentioned in my reply, I am not 100% confident of my reply, so learning something new would be of help to me. The link is as follows: http://www.irs.gov/publications/p15b/ar02.html Thanks! That is exactly what I was looking for. Your link did not work but it did point me to Pub. 15B - maybe this one will work http://www.irs.gov/pub/irs-pdf/p15b.pdf

I appreciate everyone's comments on this. You are correct - it is a payout. I have a copy of the Severance and Settlement Agreement. There is compensation - but no service. Employment was terminated in fall 2006 but the ee has 12 months of salary continuation. The agreement discusses the continuation of medical/dental coverage and that the er will pay towards it what would be paid for an active ee's coverage. It is silent on how the term'd ee is to pay his share . Also no mention of continuing in the FSA. I also see this : "employer intends that the severance payments under subsections... constitute benefits provided under a "Welfare Plan" under ERISA..and any ambiguities in this Agreement shall be construed to effect that intent".

I was concerned about discrimination too since we have another former ee on severance pay for a protracted period and that ee was not allowed to continue FSA participation

Exec position is eliminated and the ee is to be given severance payments for a 1 year period. Exec is allowed to continue on health insurance. I don't question that part since the health ins. carrier can create a new class of eligible participants. What I am uncomfortable with is that the exec is being allowed to do 2 things thru the Sec. 125 Plan - 1. pay for the health insurance on a pre-tax basis 2. make pre-tax contributions to the FSA (medical reimbursement) plan I am reading the plan docs (POP and FSA) and see that "employees" are eligible to participate and "employee" is defined as an individual whose customary employment is at least 24 hours per week. I tend to read things literally, so I would say that a terminated person is not eligible since they are not working 24 hours per week. On the other hand, neither is someone who is on a paid LOA. Another point of view that has been expressed is that as long as the individual is receiving severance pay they are an employee. Can anyone point me to regs. that would prove/disprove my theory that this exec should not have been allowed to continue Sec. 125 participation ? Thanks

I've seen one set up with such a high deductible that it was only attractive to the owners who had to pay the full cost of their medical coverage. Using the HDHP at least they had a chance of keeping some of the money that they put into the HSA However, if an employee had wanted to enroll, they could have.

Thanks. The Treasury Dept website has a press release about the guidance http://www.treas.gov/press/releases/hp264.htm and it describes the rollover provision as applying to an FSA with a grace period I went back and re-read Notice 2007-22 and found this on page 3: <snip>The amendments in the Act do not change the requirement that unused amounts remaining at the end of a health FSA’s plan year must be forfeited in the absence of a grace period. Notice 2005-42. Thus, if a health FSA does not have a grace period, unused amounts remaining at the end of the plan year are forfeited and generally cannot be transferred through a qualified HSA distribution to an HSA after the end of the plan year. Although the unused amounts can be distributed to an HSA before the end of the plan year, because the health FSA coverage continues until the end of the plan year, an individual covered by the health FSA is not an eligible individual immediately after the qualified HSA distribution, and thus any such qualified HSA distribution is included in income and subject to an additional 10 percent tax. Similarly, an individual without HDHP coverage after a distribution is not an eligible individual after the distribution and thus the qualified HSA distribution is included in income and subject to an additional 10 percent tax. Unless a participant has a change in status as provided in Treas. Reg. § 1.125-4(a), health FSA elections may not be changed during a plan year. Prop. Treas. Reg. § 1.125-1, Q & A-15. <snip> So, since we don't have a grace period, we can't allow rollovers.

I've just read IRS Notice 2007-22 on this topic and still have a question on this. Under the special transitional relief rules, if we want to allow the rollover of 2006 FSA balances, we need to amend our FSA Plan by 3/15/07. The examples given all assume that the FSA has a grace period - which ours does not. Does the FSA have to have a grace period in order for the participants to be allowed to do the one-time rollover ?

I've just read IRS Notice 2007-22 on this topic and still have a question on this. Under the special transitional relief rules, if we want to allow the rollover of 2006 FSA balances, we need to amend our FSA Plan by 3/15/07. The examples given all assume that the FSA has a grace period - which ours does not. Does the FSA have to have a grace period in order for the participants to be allowed to do the one-time rollover ?

I'm looking for some guidance on the one-time rollver from an FSA to an HSA provision in HR 6111 We put an HDHP/HSA option in place eff. 1/1/07. Some ee's who were in the FSA for 2006 will incur forfeitures because they overestimated their expenses. Our FSA does not have a grace period. Our run-out period ends 3/31/07. Can we give employees the option to rollover any unclaimed balance in their FSA account ? If we don't do it before the end of the run-out period, do they forfeit that money ?

Kathleen uses the word "borrow" a couple of times when referring to her"hardship distribution" which leads me to wonder if it was actually a loan.

What are they ? Thanks !

This will be true once the current occupant signs the bill

I downloaded 3 times because of print formatting issues

Sounds like our Plan - same exact provisions - deposits per pay period plus a true up at year end

Under COBRA, what benefits must be covered? Qualified beneficiaries must be offered coverage identical to that available to similarly situated beneficiaries who are not receiving COBRA coverage under the plan (generally, the same coverage that the qualified beneficiary had immediately before qualifying for continuation coverage). A change in the benefits under the plan for the active employees will also apply to qualified beneficiaries. Qualified beneficiaries must be allowed to make the same choices given to non-COBRA beneficiaries under the plan, such as during periods of open enrollment by the plan http://www.dol.gov/ebsa/faqs/faq_consumer_cobra.html

Yes If an active employee participated in the FSA in 2006 but not in 2007, s/he would be able to claim reimbursement for expenses incurred during the grace period in 2007 COBRA beneficiaries have the same rights as active employees.

Don - Thanks for responding. Why are we too small to do self-funding? What is a general rule for minimum size to have a self-funded plan? What is a minimum benefits plan? I don't think he will consider combining with other businesses. Sometimes a local Chamber of Commerce or a trade association may offer a group plan that members can participate in. If that is available to your employer, he may be able to find cheaper health insurance that way. Leeveena's suggestion of a high deductilbe plan makes sense. He could offer that along with Health Savings Accounts to which he and the employees could contribute tax free money (up to certain limits) which can be used for health care or carried over if not used. What you are describing sounds like a Health Reimbursement Account. See the DOL website for more info on that type of arrangement http://www.bls.gov/opub/cwc/cm20031022ar01p1.htm