Joe Priselac

We had a similar question about mandating health insurance as a condition of employment. Our situation involved prospective employees who without proof of coverage elsewhere would have to enroll in the contributory company sponsored medical plan. The New York State depatment of labor replied that they do not regulate conduct regarding nonemoplyees.I think taking a "paternalistic" approach and forcing people who might otherwise act irresponsibly to take coverage is not a bad idea.

You could create a two tier credit strategy. One credit, in this case $100, could only be used for the purchase of employer sponsored health insurance. The second credit of $50 could be used for any eligible expense under the Section 125 plan or even be taken in cash as taxable income.I hope I understood your question properly.

James, You are correct in your assumption that an employer has to adopt a plan in order to reimburse employees on a tax-free basis. A 105(h) plan would sound like the appropriate type of plan since there does not seem to be employee contributions required to obtain the benefits. The plan should be in writing, reimburse employees and their dependents for "allowable" expenses, follow the nondiscrimination rules under 105(h)and not reimburse for expenses deducted by employees on their tax returns. Without following the rules the reimbursements could be construed as taxable income to the employees. The employer could be fined for not having done the proper tax witholding on those payments.It is far easier and safer to follow the rules.

Sheryl, An employer can establish a separate spending account for individual i.e. non-employer sponsored health insurance premiums.You can not use the health FSA to reimburse a participant for insurance premiums. Our documents include this separate account. The participant makes a separate election for the insurance premium account. Many people use it for college student health insurance premiums. This account is another option under the Section 125 plan that the employer sponsors. This account is not to be confused with the POP account for employer sponsored health insurance that requires an employee contribution. My comment on the mystical reimbursement plan discussed earlier is that it would not pass muster. When an employee reduces their taxable income via a Section 125 plan, they have traded dollars for benefits. The money used to pay the premiums are technically employer monies; that is why the taxability of disability benefits changes when the premiums are done pre-tax.Why should an employee be reimbursed on a tax free basis for an expense they technically did not pay? I have had this sort of idea run by me before and my argument is that you don't get tax free twice on the same item, but then again what do I know.

We currently administer just the type of plan you describe for a number of employer groups. If you would like more info, you can e-mail me or call 800-688-2611 ext.205

We have helped employers to establish parking reimbursement plans and administer the plans for those employers.

I guess I must be missing something,but why would you have a split eligibilty for a POP plan? We write our documents so that the eliligibility for the POP plan is the same as the underlying health insurance. Why make an employee contribute on an after-tax basis? The FICA savings should incent the employer to encourage participation. This is why many employers utilize negative enrolment for POP plans. There is no risk to the employer like under the health FSA; therefore, I see no reason to make any employee wait to participate in a POP plan.

Benefish is correct regarding the elilgibility under the health FSA; however, you could amend your flex plan to create a separate account that would permit reimbursement for nonemployer sponsored health insurance premiums. Many people with children in college utilize this account for student health insurance premiums and fees.

What kind of TPA are you looking for? Are you looking for some one to administer a self-insured medical/dental plan or flexible spending accounts, COBRA or a total outsourcing of benefits administration? These are very different services and require different capabilities. Once you focus on what you need you look at the capabilities that the respective candidates claim to have. Ask for a list and interview current customers.Having said all that there is always the unexpected that can happen to change the anticipated quality of service such as the departure of key personnel or a sale of the TPA. We have helped clients to "shop" for TPA services and have had both good and bad experiences. Like with everything else in life, buyer beware.

Radial Keratotomy is a deductible expense under Code Section 213 therefore it is an eligible expense under a Health FSA. The IRS view was stated in a June, 1996 private letter ruling. By the way, insurance companies are not a good indicator of what is eligible or not. There are many items that are not normaly covered by insurance that are in fact eligible for reimbursement.

Since the repeal of Section 89 there are no rules prohibiting this type of disparity for fully insured plans.

We have used Datapath for years. For FSA administration they have a good package especially when you consider the cost.

Turtle, Club dues are eligible when prescribed by a doctor for a specific medical condition. Rev. Rul. 55-261 also you could refer to IRS PLR 8326095 which describes a girl who had an arthritic condition. Facts and circumstances are critical in determining eligibility of these types of expenses.

This sounds like a Cafeteria Plan under IRC Section 125.

It isn't the city of San Francisco that allows for this but Section 132(f)(4) of the Code as amended by the Transportation Equity Act. Your company purchases the bus passes and deducts the cost of the passes from the employees' paychecks on a pre-tax basis. It works like a POP plan under Section 125. By the way, parking or transportation expenses can not be part of a Section 125 plan.

Sole proprietors are not considered elligible employees for purposes of participation in a Section 125 plan.

I forgot to add that the only cash or deferred arrangement plan allowed in a Cafeteria Plan is a 401(k) plan. Many employers avoid putting the 401(k) plan inside the Cafeteria to avoid the complications of additonal testing requirements.

Kurt, We have a nonprofit client and we used a combined enrollment form but had two separate plan documents as you outlined. The IRS audited the organization for 403(b) compliance and the employees mistakenly gave the impression that the 403(b) plan was part of the Cafeteria Plan. By the way, there is a similar prohibition for these types of plans. We had to prove that the plans were not linked. It all worked out,but it was a hassle. We now use separate election forms.People who live as close to Ravenna as you do shouldn't have to put up with needless problems.

This employee actually has two status changes in this one event. the birth of a child and a change in work status. I am assuming she is off of your payroll while she is out on maternity leave. When she returns to active employment is the trigger for a change in election. as far as how long you can go beyond the actual event, the regulations suggest a period such as 30 days. However, you could allow 45 days for example. The problem you could have if you allow too much time is linking the change in withholding with the event that supposedly triggered the change. Hope this is helpful.

NO.

look under 1.125 Q/A-7(B)2 and that talks about uniform coverage.

You can reimburse employees for individual health insurance premiums. It is true that the health care FSA can not be used for this purpose. We therefore write our plan document to create a separate account that requires a separate election. The employees turn in evidence of premium payments and get reimbursed tax-free. The uniform coverage rules pertaining to Health FSA don't apply so we operate the account analogus to a dependent care FSA.JPCMPLS is right on the mark as far as justification for this approach. We have discussed this approach with Harry Beker and he repeated his earlier position. He is as good as it gets right now.

The arrangement you describe would be covered by section 105(h)and not Section 125. There is no legal requirement to stipulate an annual maximum. Think of a self-insured medical plan with unlimited major medical benefits as an example. As long as you follow the nondiscrimination rules for these types of plans, you should be able adopt these provisions.

The regulations state that the expense must be incured during the plan year. I'm assuming from your question that your Flex plan year is a calendar year.If you had not already used up your 1998 election, most plans allow for a runout period after the plan year that allows participants to submit expenses that were incured during the plan year. It can vary from, but most commonly runs from 30 to 90 days. The runout can not be indefinite because the plan must file a 5500 form seven months after the plan year ends. Check your plan document to check the duration of your plan's runout.You can not use 1999 money to be reimbursed for a 1998 expense.

Yes, as long as the changes you did allow were permitted by the regulations.Most of the time people are trying to expand the reasions that participants should be allowed to change their elections.