papogi

I can’t think of any, but don’t be misguided by the fact that these are “proposed regulations.” The very nature of insurance is that expenses shouldn’t be known, and backdating allows known expenses to be reimbursed. Since the IRS has been clear that HC flex accounts act as insurance by shifting risk between the employer and the participant, and this “insurance” classification is what gives the benefit the tax advantages it enjoys, I think that the area in the regs concerning when the benefit becomes effective is not “proposed” at all. I can think of no court which would rule to allow backdating unless the employees were somehow and obviously misinformed with regard to their elections. I would also add that Final Treasury Regulations 1.125-4 (addressing mid-year election changes) state that a retroactive election change can only happen in the event of a birth or adoption. This specific clarification infers again that the IRS intends HC flex accounts to work on a prospective basis only.

The regs don't prevent this, but if this employee terminates in the middle of the year, the employer will need to return a pro-rated amount to the participant. An employer may want to disallow an up front contribution simply to get around the administrative task of having to return amounts to terminating employees.

If the register receipt lists the drug so that the claims processor can make an accurate determination as to whether it is allowed under Section 125, then it should suffice. Problem is, very very few register receipts provide enough information. Requiring the Rx stub is the way to go. If the group pushes back, explain that their previous carrier/company took a very relaxed view of the IRS regs, and your interpretation is designed to protect the qualified status of this 125 plan. You don't want to risk that the IRS might levy all kinds of back taxes and penalties on the group and/or participants.

Yes. You should only have to file the main 5500 (i.e., no Schedule F).

The CPA is wrong. Reg 125-1 Q&A 15 addresses this in the first paragraph of the answer. Elections must occur before the benefit is available. In other words, retroactivity is not allowed. Expenses prior to 7/1/04 would be known expenses, and insurance (the IRS sees FSAs as "insurance," resulting in the tax advantages given by the IRS) relies on risk.

Based on the original post, we know that the employee is currently an opt-out under a 125 plan. The spouse is under an employer’s plan with family coverage, but we don’t know for certain that this spouse has a 125 plan. As to whether or not the spouse has a 125 plan, it really doesn’t matter in the issue in the original post. As long as the spouse’s employer’s plan allows employees to drop coverage due to the cost increase or the curtailment in coverage, then 125-4 allows the employee to pick up coverage for him/herself along with the spouse (again, assuming the employer’s 125 has adopted these rules under 125-4, which they are not required to do). To your question, specifically, if the spouse is under a 125 plan and is hit with a substantial increase in cost, 125-4 says that the employee (the spouse, in this case) can revoke the current election and select a new benefit option package or drop coverage if no other benefit package option is available offering similar coverage. If there is no other option even offered by the employer, then this is easier. The example the IRS uses is someone going from an indemnity plan to an HMO option. That’s a no-brainer since the payroll deductions for an HMO will almost surely be less than those for an indemnity plan. I think that the point of the legislation is to allow people to move to a lower cost alternative, and if there isn’t anything lower cost, to allow coverage to be dropped. Although it’s too much to expect from the IRS, a better example would have been someone in a PPO option, with a cost increase being implemented for the employer’s PPO option and HMO option. If the employee moves to the “lower” cost HMO option, the new HMO costs might still be higher than the “old” PPO costs. Now there is no lower cost option (even though there technically is another option), so the employee should be allowed to drop coverage, in my view. I’m reading between the lines, however.

This is one of those dual purpose OTC items. If the sunscreen is to treat a medical condition, and the claimant can produce a physician's prescription or written direction, it appears that most claims processors are allowing it under those circumstances.

Check these previous threads. They should help out immensely for an overview: http://benefitslink.com/boards/index.php?s...t=0entry77697 http://benefitslink.com/boards/index.php?showtopic=24759 http://benefitslink.com/boards/index.php?showtopic=22096 http://benefitslink.com/boards/index.php?showtopic=24151

Since the employer is simply reimbursing the employee for these co-pays, and there is no cash option, then I agree this looks OK. This would be a basic Section 105(b) reimbursement plan, but remember that the non-discrimination rules within 105 will apply.

As long as the balance is attributable to things which are reimbursable (i.e., the dates of service are within the flex plan year, the services are allowable medical expenses, the expenses are not payable under any regular medical coverage, and the patient is eligible under the flex plan), and this is documented in the claim papers you have in your hand, then this is reimbursable. To further illustrate, many flex claims are processed and paid based on the "employee responsibility" column found on Explanations of Benefits. This is OK, even though the doctor might not have gotten around to actually billing the patient, yet. Again, make sure this is not a carryover balance from a previous year, as these might be related to services rendered outside the current plan year.

For your 1/1/04 to 6/30/04 time period, you should have held a short plan year in preparation for the change on 7/1/04. That would have avoided this issue, but assumes you knew about the upcoming change (not always true!). You need to start your new plan year on 7/1, and there’s nothing you can do about the elections prior to that, as I see it. Those that no longer need the account can stop it on 7/1 with no more contributions. Even those that elect new accounts on 7/1 can still access their full original annual election with dates of service prior to 7/1. I don't see any way around it. You can't force them to continue deductions once the new plan year starts. This additional exposure that the employer has is a result of the less-than-perfect planning on the employer’s part. Any chance this can be pushed off until 7/1/05? That way, you can advertise a 6 month plan year for 1/1/05-6/30/05 and avoid all this.

Harry Beker, Russ Weinheimer, and John Richards (all of the IRS's Associate Chief Counsel's Office) commented on this issue on a “non-binding” basis in March of 2003. This was at an annual conference of the ECFC in Arlington, VA as follows: ==> CORRECTING UNDER WITHHOLDINGS. If an employer discovers late in the year that it accidentally under withheld employee pre-tax salary reductions, the employer probably can withhold the amounts on a pre-tax basis in the subsequent year to correct the mistake. With this said, I would withhold the amounts this year. Any pushback from the employee with this approach would stall at the IRS’ door if this is , indeed, their view.

If the employer’s contributions appear in box 10 of the employee’s W-2 (it should, otherwise it was taxable to the employee), then it will count toward the $5,000 limit. When the employee completes their tax return (Form 2441), any overage will be taxable to the employee. Form 2441: http://www.irs.gov/pub/irs-pdf/f2441.pdf Form 2441 Instructions: http://www.irs.gov/pub/irs-pdf/i2441.pdf

You used the word “dependent”, so I am assuming that even though this QMCSO required that the employee provide coverage, this person is still considered a dependent based on the wording in the plan. If he/she is, then I think you need to leave the dependent on the plan until the next open enrollment, if this plan is operating under Section 125 (pre-tax payroll deductions). At open enrollment, the termination of the dependent would not be a COBRA event. If the plan is not under 125, and the underlying health plan allows terminations at any time, then this is a voluntary drop without loss of eligibility. There is no loss of “dependent child status”, so there is no COBRA requirement. An employer can be more generous than the COBRA regs, however, and can offer COBRA if they want.

If the plan is subject to HIPAA, yes (meaning this is a group health plan with more than 50 participants).

Makes sense.

In theory, you definitely could come up with COBRA premiums like this. Arriving at COBRA premiums is ultimately a guess no matter how you break down the coverage levels. You could look at all claims over the past year or two or three for individuals who are not employees or spouses, and use those claims numbers to come up with COBRA rates. That would certainly be a complicated undertaking, but it is possible, depending on the reporting capabilities of the TPA’s claims system. If I were the TPA (I do work for one), I would satisfy the client by arriving at COBRA rates the usual way (a single rate, employee+spouse, employee or spouse +child, employee or spouse +children, family, or what have you). Then I would look at the ratio of dependent claims on a PMPM basis to employee claims on a PMPM basis over the same time period. I would multiply that factor times the single COBRA rate to arrive at a single child COBRA rate. Something along those lines should give something that the client wants.

This is addressed in 125-4 (f)(4). The other plan does not have to operate under Section 125. The regs say that a 125 plan may permit a change on account of a change made under another employer’s plan. You are correct that you have two status changes happening here. If either the curtailment of coverage or the raising of employee cost share allows employees to drop coverage under the other employer, then this change will allow the employee and spouse to begin coverage under your plan. That is, if your plan (both the underlying health plan as well as the 125 plan for pre-tax deductions) allows someone on the plan due to this type of loss of other coverage. HIPAA Special Enrollment rules do not provide protection here.

By the way, you can try here for various announcements, rulings, etc: http://benefitsattorney.com/links/Internal_Revenue_Service/

For cases with children of divorced parents, each parent can claim the medical expenses they incur for the child, regardless who takes the tax exemption or who provides more than 50% of the expenses. If your employee incurs 50% of the medical costs, then whatever that figure is can be submitted and paid through that employee’s flex account. The other parent can take care of the expenses he/she incurs under their own flex account, if they have one. Your employee can’t get reimbursed for expenses incurred by the former spouse, however. I agree with JerseyGirl that if the entire amounts are being submitted, some form of documentation stating that your employee is responsible for only 50% of each bill is a good idea.

No. This practice eliminates any risk to the employer. There must be risk-shifting between the employee and employer for the FSA to be called "insurance" by the IRS and enjoy the tax advantages of the benefit.

As for life insurance, a 125 plan can only offer up to $50,000 of group term life insurance to employees on a pre-tax basis. This means that if the employee is paying for coverage, only the percentage of premium which pays for up to $50K can be taken pre-tax. Any premium for the amount that goes over $50K needs to be taken post-tax. If the employer is providing the life insurance, only an amount up to $50K can be provided without any consequence to the employee. The premium paid by the employer on the amount which goes over $50K will be imputed income to the employee (as if they had paid for it themselves using after-tax dollars). In all cases above, the death benefit is tax-free. The cite for this is Section 125(f), which also refers to Section 79(a). Regarding disability (STD and LTD), whatever the employee buys with pre-tax dollars becomes taxable benefits when the plan is utilized. It is usually recommended that deductions for these benefits be taken with post-tax dollars. If the employer pays the premium for the coverage, the benefit is taxable to the employee.

My understanding is that you would have to look at the definition of dependent under the HD plan.

No. However, there have been so many changes since then (IRS guidance on COBRA rules as they apply to FSA's under 125, family status changes, FMLA guidance, etc.) that a rewrite is long overdue.

Even if this was a Roth IRA, you might need to file an amended return. The credit for contributions to retirement plans extends to Roth IRA's (form 8880). If this form was filled out in the tax return, it would mean that an amended return should be filed.