papogi

There is no 5500 requirement for the cafeteria plan. If there are over 100 participants in the underlying plan, however, there is a 5500 requirement under ERISA for the underlying group health plan (unless they are a gov't or church plan). To clarify, you can't have premium payment withheld though the FSA plan. Those monies are being withheld pre-tax under the protection of Section 125. If fewer than 100 participate in the FSA portion of the plan, no 5500 is required for the FSA as a group health plan either as long as it is not considered funded.

You're right, you can't verify that. The DC claim submission form should have language stating that these expenses are eligible under the plan, etc. Even for an active employee submitting DC claims, do you currently call the suspected place of employment of the spouse to obtain confirmation that the spouse is actually working? You just have to draw the line somewhere and rely on the signed affidavit.

It can. Sandra Pearce is correct that there is no legislation which requires that COBRA be offered for a DC account since it is not considered a health plan.

The regs allow an employer to have participation in the plan cease upon termination (most common), but they also allow an employer to allow expenses past the termination date. This is up to the employer, and as long as the rule is applied uniformly, the employee will have to live with it.

I have read 2002-27. I don't think that the wording in the Rev Rul goes against the prospective requirement of 125. GBurns' point about "is currently available" is well taken, and I agree. The rev ruling doesn't say when the coverage is actually effective.

I think there is a problem with retroactivity. Retro is only allowed in the cases of births and adoptions. Allowing enrollment up to 5 days before the end of the month (with the effective date being the beginning of that month) is a problem.

Here's what I THINK regarding the two questions: An individually covered QB could stay on the plan since they are paying a single rate as any single employee would. As long as their claims are mixed in when arriving at a single COBRA rate (they would be), I would think that person can stay on. An employer can reduce the continuation period at any time, as long as it is done uniformly, and does not undercut the Federal minimums.

MaryC is right. You can add someone to a cafe plan if they lose coverage under SCHIP. You can't drop someone from a cafe plan if they start coverage under SCHIP.

My understanding of COBRA regs has always been that they are there to make sure that former employees and dependents are treated as if they were still active participants for a set period of time. If dependent coverage is no longer allowed, and active employees no longer have the luxury of having their deps covered, then the same goes for COBRA participants. If a benefit is being eliminated, there is no way to pay to continue it. These dependents simply drop off the plan, with no continuation rights. An employer is only obligated to continue coverage to qualified individuals if that coverage is even available in the first place.

In this case, you can't include the FSA with the 501 plan since the IRS wants you to continue using the number assigned to it going forward. Once you have filed under 502, you should continue to file using 502 (just the main 5500). Putting it under 501 would have been a possibility from day one. Schedule A is not necessary for the FSA. The unreimbursed portion is general assets, and no accounting on the 5500 needs to be made. There is no 5500 requirement for Dependent Care.

Normally, no additional schedules are required. I see nothing wrong with including the FSA in with the 501 filing.

Although no 5500 is required for the Cafe Plan, a 5500 is required under ERISA since the FSA is a welfare benefit (unless you are a gov't or church group). T section 6039D suspension does not affect requirements to file under ERISA, so this plan must file.

Even though OTC drugs are allowed under flex, the overriding principle that the item must be used for medical reasons (diagnosis, cure, mitigation, etc of disease, or to improve function of the body, etc.) still applies. OTC cosmetics and hair regrowth products would not be covered.

Because of the uniform reimbursement requirement for FSA's, if she can produce claims for $2400.06 with dates of service prior to the disability, she can get that amount.

If she had $92.31 per pay bi-weekly, that comes to $2400.06. This is the amount she is entitled to with dates of service from the start of the plan year up to the day before she changed the election. As of the day she changed her election, the new amount she has available is $92.31 times the number of pays deducted at that old rate plus $20.00 times the number of pays she will have deducted at that amount. She has access to that amount with any dates of service in the plan year, even prior to the disability. Understand that the total amount she can possibly get cannot be greater than $2400.06 (i.e., she doesn't get $2400.06 pus more when she changed her election).

I think she can re-enroll based on the cost changes rule in 125-4 (any significant cost change or change in DC provider consitutes a status change, allowing a change to the election). The new election should be based on the fees associated with this new DC provider.

One growing method to reduce the number of dependents for whom your plan is primary is to allow spouses on the coverage as primary only if they are not eligible for coverage elsewhere. If the spouse has a job somewhere else, they must take that coverage in order to come on your plan, making your plan secondary. This approach eliminates those spouses who select your coverage solely because it is richer than their employer’s plan.

A change to the election can only happen if there is a change with regards to eligibility. Is this a geographic move? This might allow the spouse to drop current coverage, thereby possibly able to come on your employee’s coverage. This move by itself is not enough to allow the change in election. There will have to be some other concurrent event addressed under Section 125 to allow the change to the election.

Pre-school expenses (prior to kindergarten) are allowable, as long as the claim follows the other usual DC rules (e.g., allows the parent(s) to be gainfully employed or to look for work, etc.).

You seem to be asking if it is possible to have one spouse at their employer (employer A) set up a HC FSA at that company’s maximum, then have the other spouse set up a HC FSA at that their employer (employer B) at that company’s maximum. If that is the case, this can be done. There simply is no mention of maximums for HC FSA’s in the 125 regs. As long as there is no double-dipping, this is fine. In other words, if the husband submits a claim for Aspirin bought on 8/30/04 to his FSA, the wife can’t submit that same bill to her FSA. Incidentally, even though the IRS has set no limits for HC FSA’s, there are still controls which employers should exercise when setting up FSA's. For instance, the entire balance in a HC FSA is available at all times to employees. If an employer has a $10,000 limit, an employee could incur a huge charge in January, submit the full bill to his/her FSA, get the $10,000, then quit, leaving the employer in the hole. Setting a lower limit, such as $1K to $3K, limits this exposure that the employer might otherwise have. Secondly, if an employer has a high limit, such as $10,000, it is likely that only the highly compensated employees could put that much money in the FSA. When the employer runs the 25% Concentration test as part of non-discrimination testing, they may find that more than 25% of non-taxable benefits are being given to “key” employees, thus failing the test. Keeping the limit a little lower helps to prevent this.

I'm here, but the other Wonder Twin beat me to the correct answer. "Wonder Twin powers...activate! The shape of...a stack of Section 125 regulations!"

If these flex credits have a cash option, then there is effectively salary reduction. Even though the credits are initially from the employer, the ability to receive the credits as cash turns them into potential salary. The question is whether or not these dollars are subject to all the rules and regs surrounding Section 125, and I think they are. Remove the fact that these HC accounts are based on employer credits, and assume that we are talking about a typical “employee” funded HC account. If an employee goes from family to single coverage, the consistency rules would not allow the participant to increase the amount in a HC account. They could only reduce or stop the account. The employee has less deducted from his/her pay for regular health coverage, and no one assumes that this increased salary can now automatically beef up a HC account. I think that a person who is going from family to single coverage cannot raise the HC amount, whether the funds come from the employee or from the employer (that is, if the credits from the employer have a cash option, and not all of them do). If the employee goes from family to single coverage, thereby freeing up some employer credits, those can be given to the employee as increased salary, just like if there were no employer credits in the first place.

Yes. The participant must pay the premiums in order to keep the flex COBRA in force.

I never let 60 days pass without seeing my mom (yes, she shows me mail such as this to get my opinion on things), and she’s not incapacitated. If this woman is truly incapacitated, why is she being left alone for 2 months at a time, or having no one read her mail on a regular basis? Just a comment on the side...

I can’t think of anywhere this might have been addressed. I would not allow new elections on 9/1/04, but would allow employees to submit claims with dates of service falling after 9/1/04. For those people who made elections too high and did not incur enough expenses, this is great. They now have another 4 months (if this is a calendar year plan) to incur charges. For those people who cleared their accounts, they have still come out ahead. They just won’t be getting as much of a benefit from the FSA as they might have gotten. That’s my opinion about how to handle this, but I think you have an argument as to why you would allow new elections on 9/1/04. With no guidance (that I’m aware of anyway), I would opt for the conservative approach.