Joe Priselac

As long as the credit strategy is implementedon a nondiscriminatory basis, there is no problem. You should have no problems with your approach if everyone gets the same credits.

Dependent group life insurance is not an allowable pre-tax benefit under a Section 125 plan. Many employers offer such options on an after-tax basis in conjunction with the standard Section 125 offerings.

Since it is a core benefit there is no choice. You can include a description of the benefit on a customized enrollment form, but as long as the employer paid premium is included in the employee's taxable income the benefit will be rceived tax-free.

Basharat, You can set up a spending account arrangement to be reimbursed for qualifying individual health insurance premiums. You can not be reimbursed through a conventional health flexible spending account which is for unreimbursed medical expenses. The Cafeteria Plan document should be written to create a separate account with its own election and eligibility requirements. Individual policies must be in the employee's or the employer's name. The policy can not have a deferred cash value element if it is to qualify.

Carole, JWK is correct when he stated that there is no statutory requirement to offer health benefits on an after-tax basis. You do not need people to elect into a POP plan if you operate it on a negative enrollment basis. They only "elect" not be in the plan after they have received proper notification, usually when they become eligible for the health plan. Their initial decision does not need to be redone each year. This scenario only applies to POP plans and should not be used with Flexible Speding Account type plans. Just to add my two cents to the earlier discussion. From an employee relations point of view it placates what I call "the Rasputins", which every company seems to have, to make the plan "voluntary". I have had employees tell me they felt it was their moral obligation to pay the maximum tax possible. These are arguments that are not won by logic. Negative enrollment solves 99% of the problem and still allows for "choice.

I agree with PJK's analysis. Remember that the nondiscrimination tests exist to protect the "little" people. The rich and powerful who control these companies don't need protection. You can always discriminate against the HCEs. If there are no HCEs in a plan, there is nothing to test regarding discrimination. In fact it is a useful design technique.

IRC 401, That is the best plain English description of the concept as I understand it. I am afraid we lost sight of Becky Ray's original question. In the "real world" my description of the "standard" operation of a FSA plan still stands and nothing I have read subsequently changes my answer. The proposed Section 125 regulations have a timeliness of reimburement provision that should govern Becky's situation. By the way, I have a question conserning Becky's situation. If her employer is sending funds to a TPA who is holding those funds and issuing checks from their own account, could that make the plan lose its "unfunded" status and require the adoption of a trust?

I guess all this talk about segregation has me confused.Technical Release 92-01 states that the DOL will not enforce the normal requirements of a separate trust for participant contributions under a cafeteria plan, if it is operated on an "unfunded" basis i.e. reimbursements made from employer's account from the general assets of the company. The typical arrangement would be for the employer to provide the TPA check writing authority on an account of the employer. When participants submit claims to the TPA the TPA issues reimbursement checks written on the employers account. There is no transfering of funds. The participant contributions are kept by the employer to fund the benefits. In essence these plans are operated like a self-funded medical plan. There requirements under Section 125 that reimbursement of eligible expenses must be made on a timely basis. Without looking it up, I think that 30 days is the safe-harbor time frame. However, most "progressive" FSA plans reimburse employees no less frequently than the pay cycle of the employer.

There is no DOL rule for 125 plans similar to 401(k) because there is no transfer of funds. The benefits ARE paid out of the general assets of the employer.

The spouse of a more than 2% stock owner of a Sub S corp can not participate in a Section 125 plan because of the attribution rules under Section 318.

Mam, I assume you are referring to your health FSA account. Any eligible expense incured while your were still employed would be eligible for reimbursement up to the original amount you had elected in December minus any previous reimbursements. A plan can limit the time allowed to submit expenses after termination to a period like 60 or 90 days, but the plan could allow former participants to submit claims incurred before termination all the way to the standard runout after the plan year end. Expenses incurred after June 30th in your case would not be eligible for reimbursement unless you exercised your right to continue participation under COBRA. They are going to give you a proper COBRA notification spelling out your rights, I assume??? I hope this clarifies things a little for you.

Carole, The answer to your first question is no. The answer to the second question is yes. I am making the assumption that you are using a Section 125 plan. I hope this is helpfull. Joe Priselac

I assume you are referring to the taxable reimbursements. If so, then yes, they should be included on the W-2.

You can reimburse the employee on a tax free basis for the cost of the health insurance. I can't remember exactly when, but I know this very subject has been discussed earlier. Just a few points to keep in mind: there is no going back and giving the employee tax free reimbursement for past premiums; tell the employee that he/she can not deduct the premiums on their individual tax return because double dipping is not allowed.

It is OK for the employees to deduct the premiums on their individual tax returns if they received a taxable reimbursement. I agree that it would be better for the employee to receive a tax-free reimbursement.

Qualifying expenses incured outside the United States are eligible for reimbursement.

Bob, Some of the options that you have described are commonly negotiated items in governmental employer labor agreements. We work with many governmental employer groups and have encountered these types of options. Governmental employers subject to collective bargaining are exempt from many rules that normaly apply to private sector employers.This has spawned some fairly creative benefit options. If you want additional information, feel free to contact me.

The regulations will tell you the what happens if a plan "fails" to meet all the necessary requirements. The penalty depends on the plan flaw. For most discrimination testing failures the key employees have to be taxed, but not the rank and file. If the plan reimburses anyone for a non qualified expense then that individual has to be taxed on the amount received. What exactly occured in your example? With more information I could give you a more difinitve answer.

The short answer to your question is yes provided the health insurance plan is fully insured. You don't really have to design the HCEs out of the POP plan. Since they don't have payroll deductions, they would not participate even though they were eligible.

A public sector employer i.e. a governmental instrumentality doesn't need a VEBA to set up a "fund" to pe-pay retiree health benefits. Many school districts in New York already have negotiated a variety of programs along these lines with their unionized employees. You can e-mail me with any specific questions you might have.

It sounds like you are describing a Health FSA under a Section 125 plan. Since elections are made prior to the start of the plan year and the enrollment process should be completed prior to the start of the plan year for the payroll people to input participants' elections, the TPA should be able to perform the concentration test prior to the start of the plan year and communicate any necessary changes. I agree with you that if you correct the situation on timely basis there is no need to tax the key employees.

Wisindixie, Your reading should have included the Internal Revenue Code because under Section 105(h) there are several paragraphs that describe the nondiscrimination rules that govern these self-insured plans. All self-insured medical, dental, vision plans are enabled by Section 105 and must comply with the nondiscrimination rules of that code section. As an example, I had a large medical group(300 employees) with a self-insured dental plan that covered all full time employees. The doctors wanted to change the eligibility to only themselves(56 doctors). We canceled the self-insured dental plan and installed a fully insured plan for the doctors only because a fully insured plan can discriminate in ways that Section 105 would not permit. If you would like a copy of the relevant code sections, e-mail your fax number to me.

nb, You're fine. Collectively bargained flex plans do not have to follow the normal nondiscrimination rules.

myvettee, There is no list of approved prescriptions.IRC section 213 governs what can be reimbursed through a flexible spending account for medical expenses. The IRS publishes a guide. It is called Publication 502. It states that "You can include in medical expenses amounts you pay for prescribed medicines and drugs. A prescribed drug is one that requires a prescription by a doctor for its use by an individual." Oral contraceptives are eligible because they are obtainable by prescription only. Many might argue that most women do not take them for a "medical reason", in fact the drug company is advertising that they clear up your complexion. Many drugs have multiple uses. If you stick to the IRS guidelins you wont have to play doctor as much.

Are you questioning whether the visits actually occurred or if the medically related travel expense is elligible? The mileage is a permitted expense. Is this woman getting reimbursed by Medicaid for her travel costs? If not, then why would you question the travel costs? If my HMO fully covers all my medical expenses, I can still submit my medically related travel expenses to the health FSA. Where the employee gets her medical coverage should not matter.