papogi

Yes. Not a problem.

Hi, Ginny, yes all is well. In fact, I recently learned that my wife is pregnant with our second child. Now on to the drab stuff: If an employee goes on FMLA, it is easy to say that once the 12 weeks go by, coverage will terminate. At that point, the employer can offer COBRA, and the employee can then decide whether or not they want to continue coverage. I remember that you are small enough that FMLA does not apply. If I am correct, your employee went on LOA with the understanding that she would pay for coverage until she returned. You exhausted all pay and pay substitutes from which to take pre-tax payroll deductions, so now the employee has been paying you with after-tax dollars. You don't have to put the employee on COBRA, but I agree with mroberts' warning. Without this policy in writing, you will be in a guessing game until she returns. If she returns as promised, no problem. If she does not return, the day you learn this you can terminate her and offer her COBRA, and then she can continue for another 18 months. In that case you may have wished you had tried to terminate her earlier. The potential problem is that if you put her on COBRA now, and start counting the 18 months, what if in the 17 month she decides not to return and she now has serious medical bills. She only has 1 more month on COBRA. She can then argue why you put her on COBRA way back when there was an "agreement" between you and her that she would pay her premiums while she was out, with no mention of COBRA.

The maximum you could contribute in 2001 to a Roth IRA was the lesser of $2000 or your taxable compensation. For purposes of IRA’s, compensation includes wages and salaries from box 1 on your W-2 (this is a gross amount), commissions, and net self-employment earnings. Interest/dividends are not compensation. There is no line on your 1040 for the compensation for IRA purposes. It is not the total income line, and it is not the adjusted gross income line. The deductions you take for half of your SE tax don’t come into play. Compensation for IRA purposes is something you have to calculate separately. If you previously thought that the upper limit was your net compensation, this is lower than gross compensation. Remember that you do use net amounts for self-employment, but gross amounts for wages and salaries. It sounds like you only have self-employment income. Since you made less than $2000, the most you could contribute in 2001 to your Roth is your NET self-employment compensation. You will find that on your SE form, whether you filed the long or short SE form. There is a line for net self-employment income. Based on your previous posts, I think you’re fine.

Good point. I don't think you could require that the payment be in the same year as the services, however. Since dates of service rule, a reimbursable registration fee paid in year 1 will be reimbursed in the FSA of year 2 if services are rendered in year 2. True, it is a known cost, and the employee has an unfair advantage when it comes to filling out the year 2 flex election form, but I see no way around it. The FSA for adoption has a similar loophole and works very much the same. There are known amounts from one year that the employee can legally use in deciding on an amount to set aside for a later year (the year the adoption is finalized).

You are right that registration fees have always been a source of confusion, and the IRS gives little guidance. The IRS says that reimbursable amounts are those that are for the care of the child. If the registration fee is an upfront charge for actual services to be rendered (basically, reimbursed to the parent once daycare begins), then you know this is reimbursable, and you only have to wait for the services to be rendered. If the registration fee is purely administrative, and will not eventually be applied as payment for care services, it can be viewed as ineligible. One argument for this is that the IRS says that expenses not for care (usually food, clothing, etc.) can be reimbursed if the charges are "small" and "incident to" and cannot be separated from the overall charges. The problem is that the registration fee is a separate charge, and easy to identify. I would err on the side of caution and not reimburse registration fees in this category.

I agree with SLuskin. I just want to reiterate the fact that this can only be done in a Cafeteria Plan/Section 125 plan. Whether the plan is funded by employee contributions or nonelective employer contributions does not really matter. If you tried to do this outside a Cafeteria Plan, you would run into constructive receipt issues.

I second the opinion on Thompson's manuals.

DC limit is still $5000. There is no fed limit for HC, but there are concerns for the employer in setting their own limit. Among them, the company doesn't want the limit to be so high that discrimination testing and risk of loss go up (employee may clear out account and terminate employment). $1000 to $2500 is typical for HCFSA's.

Agreed. Good point.

Under FMLA, an employee may take up to 12 weeks off "Because of the birth of a son or daughter of the employee and in order to care for such son or daughter." If the son or daughter is stillborn, there will be no "care" involved. This employee, while tragic the circumstances, has no claim under FMLA. It was the intent of FMLA in cases of birth to allow time for parents to take care of the new child, not to simply grant a 12-week vacation.

I have been in the "Section 125 world" for many years, and have never seen the IRS audit the Section 125 plan of any of my company's clients. In mid-2000, the IRS issued a draft of 125 audit procedures to its agents, a first. This raised the concern that the IRS may finally be ready to begin auditing 125 plans. The IRS has since been trying to improve its image, as we all know, so the frequency of audits has gone down. That is likely to change over the next couple years, however. In any event, you are correct that in a practical sense, you can probably conduct your 125 plan any way you want without much worry of an audit. As members of a democracy regulated by rules and laws passed down by officials elected by ourselves, we have a responsibility to adhere to the rules regardless of the likelihood or unlikelihood of being caught. The rules are not arbitrary hurdles set up by the IRS to make our jobs harder. They are based on a goal of fairness, and their complexity is understandable given the many influences the rulemakers have to try to balance. I'm not trying to preach here, believe me, but the rules still exist even without an audit. While their rules are sometimes ambiguous (the lack of audits has caused a lack of court guidance), you can usually come to a comfortable interpretation when you look at each case individually, and use resources such as this message board for other interpretations.

In September 2000, the IRS issued a letter reversing its view concerning kindergarten. Previously, it allowed reimbursement. The letter indicated that the IRS saw kindergarten expenses more as education expenses rather than daycare expenses. For this reason, it should not be reimbursed, whether the school is private or public.

I was not clear with respect to EAP's. EAP's are usually subject to HIPAA, however this never comes into play if you also offer comprehensive group health coverage. You would issue one certificate in this case, referencing the more complete coverage (the group health plan), in effect encompassing the group health coverage as well as the EAP. If a company's FSA's are subject to HIPAA, the certificate would only reference the FSA. If the company offers comprehensive group health coverage, the FSA's are exempt, even if an employee opts out of coverage but has an FSA. A cert would not even need to be provided to that individual. Unless you misunderstood your lawyers, they are wrong in regards to the FSA's.

If you have a group health plan which is a comprehensive plan and not limited scope, your FSA's should not be subject to HIPAA. I'm curious why you think it is subject to HIPAA. Without knowing more details, you should probably be providing HIPAA certs for your group health plan and for your retiree group health plan. The EAP and FSA should be exempt.

I have not seen anything where the IRS addresses much at all concerning run-off, so this seems to indicate that either is allowed as long as the rule is applied uniformly. Since administering different run-off periods for different employees with various termination dates is difficult, most employers find it easier to allow terminated employees so submit FSA claims up to the regular cut-off period for active employees.

Health Care FSA's operate under the Uniform Reimbursement Requirement, whereby the entire annual election must be made available at any point within the plan year. If the employee elects $1000 on 1/1 and submits an eligible claim for the entire amount later that same month, you've got to send out the entire $1000. This is the employer's risk in offering the benefit. Conversely, any unused amounts leftover in employees' accounts at the end of the year are forfeited to the employer. This is the risk the employee takes. Dependent Care FSA's do not have this basic requirement. Employees are only eligible for the amount actually deducted so far year to date. End of plan year forfeiture rules still apply, however.

Only birth and adoption are events where flex elections are retro to the status change date. Marriage is an event where the new flex election (health coverage as well as FSA) should be effective on the day the form is returned.

Keeping the original contribution rate for the rest of the 12-month period is the best way to go, then have them make new lower elections for next year. With the absense of clear guidance from the IRS, I can't think of any current problems with this approach, as long as HCE's are not favored.

1.125-4(f)(2) goes on to say in (iii) that “a cost increase or decrease refers to an increase or decrease in the amount of the elective contributions under the cafeteria plan, whether that increase or decrease results from an action taken by the employee (such as switching between full-time and part-time status) or from an action taken by an employer (such as reducing the amount of employer contributions for a class of employees)." My thinking is that this would fall under an action taken by an employer. Not the best way to do things, since open enrollment would be best, but apparently not illegal.

Definitely nothing final, and probably nothing very soon.

Those notices aren't "waivers" per se, but maybe we're just talking about semantics here. The notices that the IRS speaks of in 2002-27 are required in this case because they are describing a plan in which new hires, and all employees in the first year that auto enrollment is effective, are automatically enrolled in a default plan unless they make another election. Ongoing, they tell existing employees what they currently have, if anything, and tell them briefly what benefits are available from their employer, at what costs, and that they have a right to opt-out. You don't really have to provide the annual notices to ongoing employees as long as they understand that their elections stand until they make a change. They are very useful, however, in communicating changes from year to year, and for reminding employees how much their employer pays for (any employer-paid STD, employer contributions to benefits, etc.). FSA's will require annual election, however, so many employers find it easier to just open the door for any other changes, even though most people will keep last year's election.

Per account. If you have two accounts, you are allowed one rollover per account. Keep in mind that there are no limits to the number of trustee to trustee transfers you make each year.

You're going to have to go back to the employee for further documentation on this claim, even if that means the employee has to get more information from the provider. It is the employee's responsibility to provide claim substantiation, and there simply isn't enough here to reimburse. Whatever the dollars are for, nothing can be reimbursed at all until actual services are provided, so you have time to get further documentation from the employee.

If the registration fee is actually an upfront deposit that pre-pays for services that will be rendered, it is reimbursable, but only after the services are rendered. If the fee is not for actual services, it will never be reimbursable.

Selecting an effective date other than that listed in the plan doc is going against the plan, but so is allowing this person on the plan outside the time frame to enroll. Either way, you are making an exception. Going back to 2/1/02 with pre-tax deductions is definitely not allowed under 125. It appears you could take no deductions or post-tax deductions for the time period from 2/1/02 to the date the employee turned in the form (Can anyone else think of a legal reason you couldn't? Please reply.) Doing so would potentially open yourself up to stop-loss problems, although you might not have reinsurance. Also, that particular precedent might not be one you will want to make. What if the next person that comes to you in a situation like this actually has $50,000 worth of claims during that window of time. I recommend sticking with the date the forms were returned.