papogi

First, you have to determine if the health care FSA is exempt from HIPAA (most are). If it is not exempt from HIPAA, then COBRA must be offered in all the typical scenarios and for the usual time frame (18, 29 or 36 months). An FSA is exempt from HIPAA if (1) the health FSA benefit does not exceed either two times the employee’s salary reduction election or, if greater, the employee’s salary reduction election plus $500. That will always be true in an FSA which is funded completely by the employee, and true when an employer kicks in money, as long as they don't kick in too much, and (2) the employee has other group health plan coverage for the year available from his/her employer, and the other coverage is not limited to benefits that are HIPAA excepted benefits. Basically, as long as the employer also offers typical mainstream health coverage, then this part is covered. If you determine that the health FSA is exempt from HIPAA (again, most are), there are two special exemptions from COBRA: (1) COBRA need not be offered after the plan year in which the termination occurs. This applies if the amount paid in would exceed the benefit. The 2% administrative fee guarantees this, and (2) COBRA need not be offered at all if the remaining balance available is less than the premiums required to continue the account. Basically (as someone else mentioned above), if the employee has already gotten out of the account more than he/she has put in, then COBRA need not be offered. In most situations, COBRA almost never needs to be offered past the end of the current plan year, and only needs to be offered within the current plan year if the employee has not gotten out of the account more than what he/she has put in.

You won't find #2 explicitly in the regs. See this recent thread for a good recap of the confusion around this issue: http://benefitslink.com/boards/index.php?showtopic=33977

See Pub 502. The patient's transportation expenses are reimbursable. If the patient is a minor and needs a travel companion, Pub 502 says that expenses are reimbursable for "a" parent. That could mean one parent, but if you ask each parent separately, "Are you a parent of the child?", each would answer Yes. That would mean that both parents are allowed. Certainly no brothers/sisters. Kind of depends how you look at it...

If form 8889 line 2 is $0 (no post-tax HSA contributions), and all HSA contributions were by the employer or pre-tax from you, then form 1040 line 25 should be $0. HSA amounts in box 12 should have no bearing on your refund, unless they exceed your deductible (then some of that becomes taxable) or if some of your distributions are deemed taxable in Part II of 8889.

I agree with QDROphile. Jorge, If your contributions are pre-tax, then you realized some benefit right there. You did not pay Federal (and laybe state and/or local) income tax on the amount that you contributed. you don't pay taxes on it at the end of the year, because the taxable amount listed on your W-2 is reduced by your contribution amount. You don't pay taxes on it through the year, and you don't at the end of the year. Box 12 is supposed to show employer contributions to the HSA. If your contributions are pre-tax, then the amount in box 12 should be the total of employer contributions plus your pre-tax contributions (again, by pre-taxing the contributions, they become employer contributions). You then enter this on line 9 of form 8889 as employer contributions. You should leave line 2 blank (those employee contributions are post-tax ones, which you did not make). This does not increase your taxable income. Form 8889 Part 1 is simply there to determine how much of any HSA contributions should get a tax break on your 1040. In your case, none should get a tax break on your 1040 filing. Why? Because you already got your tax break when you made the contribution pre-tax. Getting another tax break on your 1040 filing would be double-dipping. Now, if your employee contributions are post-tax, that changes everything above. In that case, box 12 should only show the true employer contribution. You would enter that true employer contribution on line 9 Form 8889, then put your post-tax contribution on line 2. Entering your post-tax contribution on line 2 will then get the tax break for that amount on your 1040 filing. You either get the tax break on your annual 1040 filing (for post-tax contributions) or at the time of the payroll contribution (for pre-tax contributions). You can't get it twice.

I have seen plan designs where mid-year terminated employees have been required through provisions in the plan document to contribute the rest of the year’s FSA election, and the Thompson manuals that I have clearly show it as a viable plan design option, with care. Let it be it known that I am firmly of the school of thought that this eliminates risk to the employer, and does not abide by the intent of the IRS regulations. With that said, the fact that this thread has continued on shows the reason for the two camps on this issue. The confusion lies on two points already raised. First, 125 regs allow flex plans to apply to former employees. Second, it can be argued that forcing all terminated employees to contribute the full annual election does not run afoul of the rule preventing repayment based on claims experience. Again, I absolutely believe that employers should not force terminated employees to contribute their annual FSA elections, and I believe that this goes along with IRS intent in the regs. Even if you are of the other school of thought, however, and are twisting the IRS regs (I think) to allow employers to recoup, we at least know that this must be in the plan doc and must applied without discrimination. For the original poster, it seems that the provision is not in the plan doc, and it appears to be discriminatory, as well.

Take a close look at your W-2 and confirm whether or not your HSA contributions were pre-tax. If they were pre-tax, then this income is essentially given back to the employer and then considered employer contributions. That would explain why box 12 has the total of the employer contribution plus what you are seeing as your own contributions. That grand total would then be reported on line 9 of Part 1 (form 8889). If, however, the amount you contributed was after-tax, then that amount goes on line 2 in Part 1.

No penalties, but you would have tax to pay. Based on a chart if Pfizer going back to 1982 (didn't go back as far as 1979), it would appear that your total account value of about $3200 is made up of about $3000 in capital gains. Taxed at 15%, that comes to about $450 in taxes to pay in order to make the $3200 available to you for a Roth contribution. I won't advise about the future investment prospects of Pfizer specifically. Its chart shows that it has either slowly fell or languished for about 5 years (along with many individual stocks since the late 90's run-up). There's little doubt that over that time frame, you would have done better in a well-diversified mutual fund. If I were you, I would probably be willing to pay the tax and sell the stock, then add money to my Roth. Again, that's if I were in your position, knowing as much as we know based on your post.

Section 125 says that flex plans are for employees, but proposed regs say that “employees” can include former employees. It is partially due to this ambiguity that some employers collect FSA monies from terminated employees. It can be argued that an employer has no right to collect these monies, since it reduces the employer’s risk in the deal, and could disqualify the plan in the eyes of some courts. I am of this opinion. Either way, this is ultimately a matter of plan design, and should be spelled out in the plan. Note that if an employer decides to collect money from mid-year terminated employees, they must collect FSA money from all of those terminated people. They aren’t allowed to collect it only from those people who have “overspent” their FSA’s, and forget about those people who have underspent. Under no circumstances can the provision (which needs to be in the plan document for the employer to enforce) be applied in a manner which is dependent upon individual claims histories of terminated employees (i.e., discriminatory). The fact that your letter says that you have overspent your account (and pointed that out to you) indicates that they might not have sent the letter to you if you had underspent. That is a real problem, and suggests discrimination.

There was a similar post a couple months ago that happens to have been resurrected recently. Remember that status changes typically apply to cafeteria plans/flex plans/125 plan, whatever you want to call it. In other words, the pre-tax payroll deductions that the employee might be subject to in order to help pay for the benefits. If you are talking about a plan that has pre-tax payroll deductions, then you have a 125 plan. The IRS only allows mid-year changes to 125 plan elections when an employee has a status change. The underlying health plan (that the 125 plan payroll deductions are helping to fund) may have its own set of rules as to when someone can drop the coverage. If the underlying health plan syas that an employee can drop the coverage at any time, then this employee can drop the coverage at any time. They will not, however, be able to stop the pre-tax payroll deductions without a status change (until the next open enrollment). The end result is that the employee will be paying for coverage that he/she no longer has.

TXCafe, I also agree with your review. While it is OK to have "OTC" in the document, it does appear that very little will fall under that definition that would also satisfy the definition of preventive care or dental, vision, etc. that a "limited-purpose" FSA must abide by (one that pays for certain expenses even before the HDHP deductible has been met). You are absolutely correct.

OTC can be reimbursable under a limited-purpose FSA. They typically cover dental, vision, preventive care, out of pocket amounts for covered items after the deductible has been met, and OTC drugs.

I think you are right. A change should be allowed based on those circumstances.

The regs clearly allow someone to come on a group plan if they lose government coverage, but they don't allow the opposite. The change will have to be made at open enrollment. The IRS doesn't want to do anything that makes it easy for government sponsored coverage to replace private coverage.

You got it right. The IRS got tax on your contributions by the fact that you cannot deduct them when you contributed them (they are after-tax dollars), and they won't double tax them upon withdrawal. The earnings also come to you tax-free. that's the government trying to incentivize people to save for their retirement.

The Harry Beker of the IRS clarified ortho several years ago via an Information Letter and said that a plan can reimburse the whole amount at once, or in smaller chunks based on a payment plan. The type of reimbursement was entriely up to the plan.

Section 125 is based partly on regulations that are still technically "proposed," and many employers take the stance you mentioned because of that, and they bend the rules to benefit themselves. It goes against what most people (including courts, in my view) would think the intent and spirit of the IRS language is, however. The Plan Sponsor is ultimately responsible for the plan, and the TPA would certainly take that stance if the IRS ever audited this plan. The TPA's opinion on this has no more value than the opinion of the Plan Sponsor, and the TPA may be wrong here (I'm one who thinks so). The employer is banking on you not being willing to spend the money to take them to court. My feeling is that you would win, however. Of course, my disclaimer: I am not suggesting you take them to court, but am expessing only my own opinion

I've not seen it specified, but the term "reasonable" is used. I seem to remember "monthly" being used in the regs, so your timeframe would likely pass the test if the issue were pushed to a court.

Yes, as long and the plan allows changes to elections, and the change satisfies the consistency rules, it can be done. Actually, the participant still has access to $1000 with dates of service prior to the status change, so the plan could get stuck with as much as -$500. That's how it goes.

It's worth checking out Steward Funds. I was in the same boat as you with having a daughter that could have a Roth IRA. I got into the Domestic All-Cap Equity Fund (they offer others, but this one tends to mirror the overall market). While it would not be my first choice as a mutual fund, it fit my requirements of needing to have a low minimum, needing to allow Roth IRAs for minors, needing to be no-load, and having reasonable (slightly high, but not terrible) expense ratios. http://www.stewardmutualfunds.com/ME2/Audiences/splash.asp

Just to clear up one point that I think is hidden within some posts on this thread, and I'm not sure all are on board. As John G pointed out, there might be confusion about brokerage fees with regard to buying stocks or mutual funds. If you contact Vanguard and want to invest in one of their mutual funds, there is no brokerage fee. If you contact Vanguard and want to use their brokerage services to buy individual stocks, their brokerage fee will apply, and as someone else pointed out, their brokerage fees are not the lowest in the industry. If you go to an on-line broker (e-trade, etc.) you have broker fees whenever you buy individual stocks. You may or may not have any broker fees if you use an on-line broker to access a fund from a mutual fund company, however. You will have to check the fee structure of that particular on-line broker. Understand that on-line brokers and mutual fund companies are two different things. You can buy directly from no-load mutual fund companies, and use and pay for their brokerage services to purchase individual stocks if you want. You use on-line brokers to buy individual stocks, and you can use them to access an array of mutual funds from many mutual fund families (most, if not all, of which you could go directly to instead). Again, going directly to Vanguard to invest on one of their mutual funds, either by one lump-sum or by monthly deductions from your checking/savings account, will not have any broker fees.

Yes, I do. Prop. Treas. Reg 1.125-2 has examples that indirectly address this [A-7 (b)(2) and (3)]. In cases like this, the employer should return a prorated amount back to the terminated participant. Otherwise, the employer has removed too much risk for there to be true risk-sharing. If, however, the employer's plan calls for terminated participants to have access to their FSAs up to the end of the plan year (since they paid the premium for the entire year up front), then it could be argued that the employer is OK. It's a "no-no" for the employer to keep the annual premium yet terminate the FSA mid-year. It's a "maybe" if the employer keeps the annual premium but allows terminated participants to access the FSA up to the end of the plan year. It's definitely OK if the employer returns a prorated amount back to terminated participants.

They would have to elect the FSA COBRA (extension of health FSA coverage past the termination date) during the normal COBRA election time frame. If they elect it, they can only keep it up to the end of the current flex plan year. They can extend their other health benefits for a total of 18 or 36 months, but the FSA only up to the end of the plan year.

Depends. You'll just have to ask to see who will do it. I've seen times where TPA's won't calculate them unless they are contracted to perform COBRA services, since arriving at COBRA rates is essentially what you are talking about. In almost all cases, I would think that the broker would do this for you. As Plan Sponsor, the client/employer should ultimately sign off on the rates if they are to be used as COBRA rates. Regardless who does it, COBRA rates are typically be based on claims utilization by enrollment category (single, EE +Sp, EE + Child, etc.) over the past 12 months, then trend added, then often blended with previous year rates so as to soften the blow of any spikes.

Tres Reg 1.125-4(f) deals with significant cost changes and coverage changes (reduction of benefits and decrease in number of available physicians). These rules apply to pre-tax elections to fund health benefits, but FSAs are specifically exempt from these provisions. No FSA changes should be allowed, increases or decreases.