papogi

It can be argued that the spouse should be able to drop coverage at her employer based on the cost changes provisions in Section 125. This would be an increase resulting from an action taken by the spouse (the IRS says that switching between full-time and part-time is an example, but it is not limited to this). If the change is significant, certainly if it is over 20%, the spouse's employer may allow the spouse to drop coverage, if they allow mid-year changes to their elections. They are not required to allow mid-year changes to 125 elections, but most 125 plans do allow them. Unfortunately, the only way the spouse can come on your employee's coverage is if the underlying health plan (not the 125 plan) has a provision allowing spouses on in circumstances like this. If it does, Section 125 has no provision which would allow any increased payroll deductions related to the addition of the spouse to be taken pre-tax. They would have to be taken post-tax, assuming the underlying plan allows the change. Section 125 requires that there be a change in eligibility on the spouse's part in order to come on the employee's plan. Since there is no eligibility change, just a cost change, 125 can't help here as far as adding coverage. Keep in mind that HIPAA can't help, either. A voluntary drop of coverage by the spouse is not a HIPAA event which could force your employee to allow the spouse on the coverage.

If you had said any amount over $50,000, that difference would have to have been funded by post-tax dollars if you want 125 protection.

There's no way around it. I wish there were, as it would affect me, as well.

The fair cross-section test for eligibility says that the plan must be provided to at least some employees in each compensation segment over the entire compensation range, and can’t be provided to a disproportionate number of highly compensated employees. The test applies to 125 plans and dependent care assistance plans, among others. First, job classifications must be bona fide business classifications or job categories. Second, coverage ratios are determined. The point of the second part of the test is that if you have a high concentration of highly compensated employees, then you need a relatively higher participation rate by non highly compensated employees. Conversely, if you have a low concentration of highly compensated employees, then the participation rates by non highly compensated employees can be lower.

If he funds an IRA for himself and a Spousal IRA for her, that $3500 can be doubled to $7000.

Yes, the $50,000 cap is correct. Anything above that cannot be offered through the 125 plan, so premiums should be post-tax. Concerning spouse/dependent life, this cannot be offered through a 125 plan. Premiums should be post-tax, and death benefits will be tax-free.

Paying forward and paying directly to you is fine.

Even though a POP is the simplest form of 125 plan, it still has to follow all the same guidelines. Nondiscrimination tests (fair cross-section/eligibility) and key concentration tests will apply.

Since you apparently have no rehire provision (she will have to satisfy the 90 day waiting period again), you stand to save her lots of money based on this COBRA decision. If she goes on COBRA she'll have to pay for three months of additional coverage in order to get through the waiting period. Conversely, she will simply come back on the coverage as an active employee once she returns if you are able to keep her off COBRA. As far as this particular employee, you'll have to make that call. Do you believe this employee will come back 8/1? Has she always been trustworthy? You could let her know that you will maintain this agreement until 8/1, then COBRA will have to begin at that point. That gives her some warning. I would be inclined to continue as is since it stands to save her a fair amount of money, thereby maintaining good employee relations. How the carrier might think, I'll leave that open to another person. I deal directly only with self-funded clients, so my experience with carriers is second hand.

Being that the IRS has recently made comments loosening their allowances for reimbursements related to diagnostic tests, I think this would be allowed. I know it's more of a mental disorder rather than physical, but I would allow it based on the intent of the recent comments.

This is the solution, but it should be done next year. Since employees made elections based on 12 months, you will run into all kinds of problems because of when employees expected to incur claims. Example: Employee elected $1000 and expects a $1000 bill in December. If you cut it off at 6/30/02, they can't get anything out of the account. For 1/1/03, employees should be made aware that their elections are for 6 months only. Then new elections can be amde on 7/1/03.

This is a tough one. From the outside, it’s easy to see the objective reasons for putting this person on COBRA. They won’t be happy that their payments will go up by 2%, and they will be limited to the next 18 months (that may not be an issue if she plans to return before that time is up). In the interest of employee relations, especially since you are a small employer, you will have to look at this employee’s track record, as well. If she has always been a trusted employee, and she is telling you a specific date which is not too distant on which she plans to return, I would be inclined to go with that and forego COBRA. If the info you have is too loose, however, terming and offering COBRA may be best. Tell her the truth that you are doing this to make sure that your long-term relationship with your carrier is maintained. As time goes by, the carrier could get more and more unhappy with giving an employee on non-FMLA LOA benefits as if she were fulltime, albeit paid by the employee. Also, remember that other employees will watch whatever it is you do, and expect the same treatment if they are in a similar situation. A precedent will be set.

Interesting. I was not aware of that, but I now see it in the regs. Would a pre-nup really provide a bullet-proof protection?

IRA's are always individually owned. If they divorce, they keep the IRA's in their name.

Nothing should be taxable in that case.

It is my understanding that protections afforded by Sections 105 (amounts received from a health plan) and 106 (contributions by the employer to the health coverage) would still be available to him. Those amounts should not be taxable income. Anyone with other thoughts?

Here are some excerpts I found while looking into this issue earlier: To date, the IRS has not equated a same-sex domestic partner with that of a spouse, although the IRS has recognized that a domestic partner may be a dependent for tax purposes. If a domestic partner is a dependent, domestic partner benefits may be considered non-taxable. See IRC § 152 (dependent defined as person who resides in the employee’s household and who receives at least 50% of support from employee). If an employee's domestic partner is not the employee's dependent, an employee must pay premiums for domestic partner coverage with after-tax dollars, and any employer-paid premium for such coverage will constitute taxable income for the employee (and be subject to employment taxes). Employees have asked their companies to offer health benefits to their domestic partners, and many companies have agreed. But while approximately 3,500 U.S.-based companies now offer benefits to cohabiting domestic partners, employees should be aware that those extra benefits might be considered taxable income. Company-paid health benefits for the employee and the employee's spouse and dependents are not taxable income. But because the federal government does not consider a domestic partner to be a spouse, the difference between what the employer pays for a partner's benefits and what comes out of the employee's paycheck on the partner's behalf is taxable income. Your employer will report that extra income for your partner's benefits on your Form W-2 -- Wage and Tax Statement. Because that extra money comes through on your W-2, not only will you owe federal and possibly state taxes on that money, but FICA tax also will be withheld. There may be some options to help lessen your state tax bill. If your partner qualifies as your dependent or is recognized under state law as your spouse, then those medical benefits may be state tax-free. Your domestic partner qualifies as a dependent only if you provide more than one-half of that person's support for the year. In addition, that person must reside at your home and be a member of the household. There's a quirk in the tax law that says that even if your partner meets the other dependency tests, he or she won't be considered a member of your household if your "relationship" isn't recognized under the law. That's why this won't work on the federal front: Uncle Sam does not recognize same-sex marriages. According to the 1996 Defense of Marriage Act, the word "marriage" means a legal union between one man and one woman as husband and wife, and the word "spouse" refers only to a person of the opposite sex who is a husband or a wife. Thus, a taxpayer and a same-sex domestic partner aren't married for federal tax purposes. So this won't help you on the federal level. But you may be able to avoid paying state taxes on those benefits if your state recognizes your union.

FSA's are not subject to the cost and coverage rules. No change is allowed.

Spouses and dependents of employees who are any of the following: an officer, a 5% owner, or an HCE are also not eligible.

No. The fact that the husband's payroll deductions are post-tax is not relevant. FSA's cannot be used to pay insurance premiums except in particular COBRA situations.

The new regs only indicate what is allowable under a 125 plan that would not compromise the qualified status of the 125 plan. They do not supercede HIPAA rules, or the rules of an underlying plan. HIPAA does not require that a plan allow a spouse onto the underlying health plan of an employee if the spouse voluntarily drops coverage at open enrollment. If a plan is more generous and does allow this in its plan doc, however, the new 125 regs say that a corresponding change to pre-tax payroll deductions can be made to accomodate any increased payroll deductions associated with the spouse. Section 125 regs do not specify how an underlying health plan operates with respect to eligibility, and do not, as 125 rules say, "attempt to reinterpret HIPAA."

A premium conversion plan (POP) only takes the health premiums paid by an employee through through their own payroll deductions and allows then to be taken pre-tax. The husband may have one where he works for any premiums deducted from his pay, and the wife may have one where she works for any of premiums deducted from her pay. A POP of one company is completely independent of a POP of another company. There is nothing to submit for reimbursement in a POP. If your company has a POP, but you have not elected any coverage at all, then you aren't participating in the POP (Section 125 plan). If the husband is the only one with payroll deductions (family health coverage), then his premiums are being taken pre-tax if there is a POP in place at his employer. If the wife has an FSA at her employer, she can't submit for reimbursement any amounts for any health insurance for her or her husband, whether the premiums were deducted pre-tax or post-tax. I hope I'm clarifying the difference between a POP and an FSA here. Please post again if you have any other questions.

No. Their effective date in the DCFSA is the deciding date. Expenses in their waiting period/probationary period are not reimbursable.

Group legal services can be offered in a cafeteria plan, but only as a taxable banefit (can't be pre-tax).

This is an old thread, but I figured I'd throw a response out anyway. Catch up contributions can be made pre-tax and /or post-tax. I don't see anywhere that it has to be all or none. You should be able to use a combination of the two.