papogi

"No Load" mutual funds still charge you a fee. It is part of their annual expense percentage (typically, anywhere from .20% to 1.50%). Loaded funds have this annual fee as well, however. There is a long standing debate as to whether no-loads or loaded funds are better. The loaded funds say they give more complete advice and hire the best fund managers, and they say have to get the money somewhere to do that. Concerning their returns, I have seen a study which bears this out, but the difference is infinitesimal, and gets negated by the typically higher annual expenses. While I prefer and utilize only no-loads, the difference is very minor as long as you are leaving your money in there long enough to get past any surrender charge period. If you like your advisor, that's worth something. The most important thing is to invest wisely and for the long-term, and you seem to be doing that.

John G's post is a great summary of things to look for. The only thing I would add is a clarification concerning IRA's and Roth IRA's that many beginners get confused about. A Roth IRA is simply a title given to a qualified investment. It is nothing in and of itself, and I like to explain it as a plaque on a door. What's in the door (the investment, such as a bank CD or a stock mutual fund) stands alone. For example, one person may go to a mutual fund company and put $2000 into an S&P 500 index fund, and set it up as a regular taxable account (taxes paid yearly on any distributions, taxes paid at time of fund sale), and another person may go in and buy the same fund and decide to set it up as a Roth IRA (no taxes to be paid yearly, no taxes paid at fund sale). Why wouldn't everyone just set it up as a Roth? Because of the restrictions imposed by the Feds (can't get at your money before age 59 1/2 except in special cases, etc.). The Roth IRA concept is an agreement entered into by you with the Feds. They give you tax benefits, and you give up some basic access rights to the money. Sometimes your Roth IRA gains money, sometimes it loses money, it all depends on the underlying investment. Too often, I hear, "Don't get a Roth, my friend lost money in one of those things." That's how you can speak of a financial product, such as a CD, but not a Roth. The performance of your Roth IRA depends on the underlying investment. I know this is basic stuff for some readers here, but I can't tell you the number of times I've seen this confusion.

Mary C is absolutely correct with regards to the consistency rules. An employer does not have the luxury of overriding this requirement. If the IRS ever audited your Section 125 practices and found anything out of compliance (such as a plan change when a new baby is added), they could decide to make it costly for all participating employees and the employer. They don't do it much, but it's best to be safe.

An HCE is not necessarily one defined under 414. Unfortunately, the IRS says in Section 125, "the classification of a participant as highly compensated for this purpose will be made on the basis of the facts and circumstances of each case." The 414 definition is generally more restrictive than the 105 definition. I would apply both definitions, and be sure that you pass both. With little guidance from the IRS, I would err on the side of caution. Other opinions would be appreciated...

I realize that botox can, and is, used for cosmetic reasons, and under those circumstances, should not be payable under flex. It's the hot cosmetic thing, and that gets all the publicity, but by volume, the injections are usually used for less vain reasons. The injections were originally not used for cosmetic purposes at all, and the post states that the diagnosis is MS. I assume this is multiple sclerosis (but I could be wrong), for which this drug could be used. I included something from another site which gives some info about Botox: Botulinum toxin injections -- commonly known as Botox therapy -- have become a very useful tool in the treatment of a number of neurological disorders. Botulinum toxin is a protein substance that is directly injected into muscle tissue in order to stop abnormal muscular contraction. It was first used and approved over ten years ago to treat strabismus (misalignment of the eyes). Since then, it has proven effective at treating blepharospasm and hemifacial spasm. It can also provide relief for a number of other neurological disorders characterized by abnormal muscle contraction, including spasmodic torticollis, oromandibular dystonia, and spasmodic dyphonia.

Try as I may, the only thing I can find is that medicines that are (1 ) available only by prescription (except insulin), and (2) are prescribed by what the Social Security Act considers a physician, and (3) that are not used for cosmetic reasons (botox treatment is usually not cosmetic) and treats an illness, etc. can be reimbursed through a HCFSA. I have found nothing that addresses or requires FDA approval. While that might be a provision written into an underlying health or Rx plan, it does not appear to be a requirement under Section 213 for tax deductibility or FSA reimbursement. I think it should be reimbursed, but I, too, am interested in other opinions...

Yes, it is a good question. Even though the pay is low in prison, I would think that inmates are still considered gainfully employed (they work, they receive compensation which they keep), so the spouse adding the former inmate could start or increase her FSA, but not terminate her existing FSA if she had one. I agree it's stretching things, but I think that it follows the intent of the IRS in writing the regulation and would probably hold up in court. Interesting...

The IRS states in 1.125-4 that coverage changes "include a substantial decrease in medical care providers (such as a major hospital ceasing to be a member of a preferred provider network or a substantial decrease in the physicians participating in a preferred provider network or an HMO),...". It goes on to say that "the loss of one particular physician in a network does not constitute a significant curtailment". These are the guidelines you have to determine is a significant change occurred. If you decide that a significant curtailment occurred, then the employee has a right to elect "another benefit package option providing similar coverage". If no similar package exists, only then can the employee drop coverage entirely. Simialr coverage is pretty broad-based, so the employee may have to take another medical option if one is offered, and may not be able to drop coverage completely.

I think this is essentially a moot point. Even if you could argue that the event is a change in status, the change in election must be consistent with the change in status. An election change comprised of adding the spouse would be consistent. An election change from one PPO to another, or from a high option to a low option, or the like, is not consistent with event, even if it could be argued it is a change in status as well as a HIPAA event (loss of other coverage). Consistency rules apply in all election changes, and changes of status do not give an employee free reign to change every and all elections.

I'm going to clarify something. Probationary period and waiting period are usually used interchangeably, but I know there is a difference. A probationary period is applied only once, and is used at the beginning of a policy. It is usually what people really mean when they say the term waiting period. The waiting period actually can apply more than once, as is typically seen with disablility income coverage. To answer your question, most of our clients do not have a probationary period. The usage that I am speaking of is the date when medical/dental/vision/STD etc. become effective. In some cases, clients will have the 1st of following month, 30 day wait, 60 day wait or 90 day wait, but the 60 and 90 and any longer are very uncommon. We service self-funded clients from all over the country, but mainly on the east side of the country.

I would recommend going Roth from the beginning. She can convert a regular IRA to a Roth anytime, but if the regular IRA is made entirely of deductible contributions, the full account value becomes taxable income upon the conversion. If you expect her to have greater income later, she will be in a higher tax bracket. The conversion to the Roth would then be taxed at her marginal income tax rate at that time. Keep it simple and go Roth now.

Commencements and returns from LOAs are typically considered status changes. Since you are a TPA, first check the flex plan doc for your client to see how they address LOAs. An employee going on LOA can usually term the account, then reinstate the account upon their return from LOA. They can pick up the payroll deductions as they were before the LOA. This in effect lowers the yearly election for the post-LOA period and also creates a window of time for unpaid dates of service. The original yearly election will apply for dates of service before the LOA, and the actual addition of all payroll deduction for the year will be the total election for dates of service after the LOA. As you said, the employee can also come back and pay back the employer, and it's now legal for an employer to require this. This way, the original yearly election is adhered to, and you don't have to go through the trouble of administering a decreased HCFSA. In your case, it appears the employee's account termed on midnight the day before the LOA began. The yearly election remains as it was, but the employee only has access to that annual election with dates of service before the LOA. Let me know if this does not address your specific question, since LOA rules run deeper depending on differing circumstances.

In response to Jeanine, I will tell you that all of our clients are self-funded, and state laws concerning any waiting periods generally do not apply to any of them. The waiting periods in their documents are designed by each respective employer. I will guess that about half have no waiting period, and again, they are usually blue collar industries where there is a history of unions, a fear of unions, or a lack of desire on the HR department's part to explain complicated benefits with waiting periods. Very, very few of our self-insured clients have a waiting period as long as 90 days.

Very true. I went on the assumption that this was in light of a flex plan. If there is no flex plan in place, then the document of the underlying plan will dictate.

The IRS considers this a status change, but check your flex plan doc to see if it lists this as a possible status change. Remember that flex plans are not required to observe any status changes if they wish, although most do. The court decree requires that the mother provide medical coverage, although it can't require that the mother provide it with pre-tax payroll deductions. If your flex plan does not recognize "judgments, decrees, or orders", then the child can only be added via post-tax payroll deductions. The mom can definitely add the child, the question is in what manner the payroll deductions will be taken.

I don't know an average waiting period for all of our clients, but I can tell you that it depends largely on the industry group. "Hire date" waiting periods are quite common in blue collar, manual labor, and trade businesses. Longer waiting periods are more common as you move into service industries, such as banking and other office jobs. Hope this helps.

My thinking is no. Adding a baby to the plan is consistent with having a baby. Changing plans is not consistent with having the baby. Even if the employee has single coverage right now, and the baby will push him/her in to a higher payroll deduction, that would not allow a change to a low option.

You have up to April 15 of the following year to make a contribution in an IRA for a particular year. For a 2002 IRA, you have up to April 15, 2003 to contribute. For 2001, the deadline has already passed.

There is no pretty statement in the regs which says in one line exactly what you need (big surprise). The IRS spells out the rules for participants in FSA's and pretty much assumes an employee knows if he/she is participating or not. Here's a potential response to your employee: Prop. Treas. Reg. 1.125-2, Q&A-7(B)(6) says that "medical expenses reimbursed under a health FSA must be incurred during the participant's period of coverage under the FSA". What is the last day the employee is participating in the FSA? If the employee has paychecks which are a result of hours worked while covered under an FSA, then the employee has to pay for the benefit. If the employee does not want an FSA deduction from the last pay, then the FSA must have ceased on a date prior to his/her termination. Was there a status change or any qualifying event that would allow him/her to cease participation in the FSA prior to termination? Probably not. He participated past that date, so must pay for the benefit past that date. Payroll deductions should reflect amounts paid for benefits of all types (medical, dental, life insurance, FSA) up to the termination date, the last date of eligibility for benefits.

I agree with mbozek and John G. Even current 5 year CD's have rates below 5.83%. If you like something very safe, does not have a rule against adding to the account if it is designated a Roth IRA, invests in non-equities, and will respond more quickly when interest rates inevitably begin to rise, look into Vanguard's Short-Term Corporate Bond Fund. While it is not FDIC insured, it is a safe, well run fund. I know there'll be lots of differing investment opinions out there, but if you are looking for non-equities that are close and usually beat CD rates, this is a fund to look at. My own personal opinion is more along the lines of John G, especially if we're talking about a long time horizon.

Once you find a new institution in which to place your money (and, as an aside, I would be taking my money elsewhere in this case, as well), you can do that through a direct custodian to custodian rollover. The new institution should have all the paperwork necessary, and they usually handle it for you from beginning to end, but procedures do vary. Before you jump, double-check to see if there are any surrender charges that your existing bank might levy you when closing out your Roth with them.

Based on my understanding of Section 125, you can do this. You would have a flex plan set up for all of your non-FSA benefits (premium conversion, as you said), then a separate plan for the FSA portion. They can be separate.

The concept is the same as a new benefit package option becoming available, that's why the change is allowed. It can be found in the 2001 Change to Final Section 125 Regulations, issued January 10, 2001 [(1.125-4(f)(6)EXAMPLE 5]. You can find it here:

There are time limits to status changes, but they should be specified in your Section 125/Flex plan doc or SPD. They are typically 30 days, and usually no more than 60 days. According to the IRS, flex plan changes need to be "on account of and correspond with" the status change. They would frown upon an employee getting married, for instance, then only trying to add the spouse 5 months later. This would stand out as an obvious possibility of adverse selection (the employee's only now adding the spouse because now the spouse needs some treatment). Also, status changes such as marriage become effective under the 125 plan on the date the change form is filled out. Allowing such a change so long after the qualifying event means that the employee has avoided payroll deductions up until he/she actually needs the coverage. This is why a specified time frame is important. The fact that the coverage is paid for by pre-tax dollars makes the plan subject to Section 125 rules concerning any mid-year changes to elections. Allowing a drop of coverage outside the 125 rules sets up the plan to potentially be declared out of compliance by the IRS. Not only are there penalties attached to this, but all employees under the plan could be then in constructive receipt of all benefits that were otherwise available in cash. This would mean that all pre-tax deductions for all employees would have to be taxed in arrears, and the employer would be required to pay FICA and unemployment tax on the entire pre-taxed amount. Does the IRS enforce this? Mostly no, for obvious reasons. But, they can, and do on occasion.

This is an allowable reason to cease a DCFSA. The regs don't want to allow employees to change their DCFSA election if they are using a family member as a provider and the family member changes the fees. Your case involves an employee whose DC provider has changed, and this is the qualifying reason for the change to the DC election.