papogi

This might help: http://www.ebia.com/static/weekly/question.../Caf030717.html

We would go ahead and reimburse the $2500 up front, if the participant has paid these expenses up front. On several occasions, the IRS (specifically, Harry Beker) has made statements concerning ortho expenses, and the fact that they can be reimbursed without following the traditional rules. Each employer needs to make this decision as to how these expenses will be reimbursed.

The employee can still be reimbursed for charges prior to the wedding, but only up to the annual election which was in effect at the time (the amount prior to the increase). The employee can’t have access to the new increased amount with dates of service prior to the wedding. That would be a retroactive election with “known” claims, and that is not allowed, as there is no risk shifting when claims are known. Also, assume an employee originally elected $1000 for the year, then increased it to an annual election of $3000 after the wedding. If the employee used the entire $1000 with dates of service prior to the wedding, there will only be $2000 for dates of service after the wedding. In other words, the employee doesn’t get $1000, and then $3000 in addition ($4000 total). The employee only has access to the annual amount that payroll will deduct.

Most companies offer health insurance. About 55% of very small companies (3-9 employees) offer it, while about 98% of large companies (over 200 employees) offer the benefit. The figure rises as the number of employees rises. About 65% of employers offer dental, but there the percentage is even wider than with medical. Very, very few small employers offer dental, while the vast majority of large employers do. I have less reliable data on vision, but just from being in this industry, I can tell you that many more employers do not offer than do offer it. It follows the same trend, however (very few small employers do, while more large employers do). The “average” coverage is a difficult question, and runs deeper than just whether the plan is a PPO, and HMO, or an indemnity plan. Plan design and employee/employer cost sharing all play a huge role. I can tell you that in 2003, the average monthly employee contribution to single coverage was about $42 (16% of the total premium), and $201 (27% of the total premium) for family coverage. I can also tell you that over half of the covered American workforce is in PPO’s, while a little under 25% are in HMO’s. PPO enrollment picked up steam in the late 1990’s, and has since largely topped off. Many employers offer and HMO and a PPO. You will have to look at your particular options to see which is best (costs, access to providers, whether or not any of your current providers are in one of the networks, etc.). Catastrophic coverage with some sort of pre-tax savings underneath (HSA, or Health Savings Accounts) is a growing plan design, but is not close to “common” at this point. It does not necessarily mean that the employer is cheap, but does tell you that the employer is utilizing some new strategies to cut medical costs. This is a very brief summary, but should answer some basic questions.

Do they typically have forfeitures at the end of each year (that is most often the case). The risk to employers in offering FSA's, when they know all the positives, usually outweigh the negatives. Employers get the benefit of savings on payroll taxes, they shift some responsibility of care onto the employees, they can say that this is yet another benefit offered to their employees (for recruiting purposes) and they can allow forfeitures to offset plan costs. They could place limitations on the reimbursements available in the plan. For example, they could specify that this is only for dental and vision expenses. I'm not sure that's a great idea, however, since those particular expenses are some of the more predictable ones for employees (easy to set up appointments just prior to leaving a company).

pax, the quoted paragraph above was from a benefits co-worker of mine asked to put together a brief analysis of the issue, and I didn’t want to throw out the name of someone nobody here has ever heard of. In a sense, it doesn’t amtter who said it. You can think it through and agree with it or not. As for when it was done, I mentioned that it was within the last couple years, and that’s all I know. It was probably closer to two years ago than two months ago. I put it in quotes to at least be clear that they are not my words, although I agree with the overall view. As for the statement at the end, you are correct. It was only an opinion, based on the prevailing thought on the direction of SS benefits, the rising age to obtain full benefits, and the potential that a greater percentage of those benefits will be taxable. You can certainly arrive at a different conclusion, and time will tell. It’s all prediction at this point. I think the post does at least further the discussion of this point (pre-tax deductions and SS benefits).

Here's a basic analysis done within the last couple years looking at pre-tax money and SS benefits: "Through 125, an employee can avoid federal income tax and social security tax, but as you know, their social security benefits will be affected. Since SS benefits are calculated based on the employee's average monthly earnings, using pre-tax dollars to pay for medical premiums will reduce SS benefits. Here’s an example: An employee earns $30,000 each year. Social Security expects to replace about 42% of this employee's earnings based on that $30,000/year amount. This percentage varies based on those yearly earnings, ranging from 30%-45% for almost all Americans. Anyway, this comes to $12,600/year from SS. Now let's factor in the pre-tax dollars. Assume the employee has $1000 each year deducted pre-tax for medical premiums over his/her entire working life (you can factor this up or down if you like). This reduces yearly earnings from $30,000 to $29,000 and raises the SS replaced income from 42% to about 42.5%, based on a recent SS benefits table. 42.5% of $29,000 is $12,325. So, for each $1000 per year deducted in pre-tax dollars, the yearly SS benefit is reduced $275 for this employee. However, for each $1000 per year in pre-tax dollars deducted from his/her pay, federal income taxes are reduced by $250 (depending on the bracket and number of allowances), and SS taxes are reduced by $76.50 (the social security amount they would have contributed) for a total savings up front of about $326.50. Note that all these calculations are in today's dollars. If we include long-term trends in inflation versus long-term trends in investing, the pre-tax argument is even more convincing, as well as the valid fear that SS may not be as strong in the future as it is now. Financially, it seems much better to realize the savings up front, rather than basically gambling on them in social security."

Probably not. Eligible dependents for health flex plans are typically those that live with or are related to the employee, are US citizens, and the employee pays for more than half of the support. The document will define dependent. If you aren't looking at flex and are, instead, looking at a premium reimbursement plan offered by an employer, then you will have to look at the document for that plan to see how dependents are defined.

Also, tax prep software will ask about Roth IRA contributions because they might allow you to claim a credit on contributions to retirement plans on Form 8880. Trad IRA, Roth IRA, 401k (and some others) contributions all qualify.

oriecat is right. No matter what the size of the cost increase, no changes to health FSA's are allowed. 1-125-4 specifically says No in the case of health FSA's. Changes are allowed in your example to other amounts going through the 125 plan (e.g., if this new plan requires larger payroll deductions for the regular medical coverage, that increase can be taken pre-tax).

As far the regs, guidance on forfeitures can be found in 1.125-2 A-7(b)(7). Here’s a link: http://www.125plan.com/Section%20125-2.pdf Try using the search feature here at the message board for past discussions on the application of these regs. I think there was even a post within the last couple weeks on this topic.

An FSA is basically employer-provided health insurance (contributions are treated as employer money, and money paid from the account is not included as income), and this is what gives it the tax-favored treatment it enjoys. This is no different than an employee paying $100 into regular group health insurance, getting a $500 treatment, allowing the group health plan to pay for the service, then terminating employment. This is simply the risk the employer assumes, and is not fraud on the employee's side.

Having an HRA for the employer amounts, and a regular FSA for the employee amounts will make this happen without a problem.

Treas. Reg. 125-4 allows an employee to make a prospective change under their employer’s plan if the change is on account of and corresponds with a change under another employer’s plan as long as the other plan allows a change permitted under the change of status rules, or the other plan has a different plan year (open enrollment periods do not mirror each other). I’m mostly paraphrasing IRC, but I think your answer is within that section.

As long as the employment of the babysitter allows the employee (and spouse, if applicable) to work, then these expenses are allowed (basically, all other DCAP rules must be followed, as well). You should need only the name and SSN from the babysitter, as well as some sort of receipt given to the babysitter showing the date of service, the name of the dependent, and the dollar amount of the services. A copy of the cancelled check as proof of payment may also be required.

If a deduction is taken from the last paycheck to cover the remaining FSA deductions for the rest of the plan year (per the employee’s request, and following the guidelines in that particular SPD), then FSA claims can be paid for dates of service after the term date, and up to the end of the plan year. As for a sample COBRA offer, here is one which includes mention of FSA’s: http://www.k-b-s.com/pdfdocs/COBRAKIT02%20.pdf There are lots of samples on the internet.

For the Cafeteria Plan itself, no. Depending on the number of participants, and a couple other factors, a 5500 may need to be filed under ERISA for the underlying benefits.

No. Those are known claims, and are prior to the existence of the plan.

Based on my thinking above, I think you could specify a limit on any item. I don't think there is any difference for OTC. I'm saying I've never seen a specific limit set on any item, OTC or otherwise.

I've never seen this, but it would seem this would be allowed. Section 125 rules are written generally as upper limits. Employers can be more restrictive (e.g., not allowing any status changes, or picking and choosing status changes). Some things they can't restrict, such as the requirement that the full election be available to the participants at any time in the plan year. I think you can specify a limit on an item such as this, but it would be an interesting administrative task, depending on the software being used to process the claims.

Claims substantiation would still be required. Whoever pays the claims, the processors need substantiation following Section 125 guidelines, otherwise they are jeopardizing the qualified status of the plan itself.

Your FSA is not subject to HIPAA privacy rules. Your pre-tax premium benefit is not a group health plan. Do you self-administer the group health plan (regular medical coverage), or is it outsourced? If it is outsourced, that is subject to privacy rules regardless of the number of participants.

“But where does it say that you can't continue to defer for when your claims will be eligible again? The employee is still eligible for the benefit, even if the claims for that time period wouldn't be.” Correct. I have never seen anywhere in the regs that deferrals can’t continue. I think they can. I am saying that the employee can cite nothing in the regs that would require the TPA to change its stance, as this is a matter of interpretation. Say that the employee has no children, but intends to before the end of the year. The employee wants to start a DC account in anticipation of that, and signs up for one at open enrollment. The employee is technically not eligible for one, since there are no children in daycare, and most employers (not all) will not allow the employee to sign up for the DC account. The TPA can argue that once the spouse is home on maternity, the employee is actually no longer eligible for the benefit, and deductions must cease. When the spouse returns to work, deductions can be increased to compensate for the lost deductions while on leave, resulting in a full $5K election. The potential problem I addressed in my first post is a real one. It’s not uncommon for moms on maternity to later decide to put off going to work. Employers who have dealt with this issue of DC deductions accumulating for weeks, with no way for the employee to get reimbursement for them, are often the ones who have this policy in place regardless of the TPA’s stance. “While the election change can be offered, I don't think it can be required.” Absolutely it can. Employers can always be more restrictive than 125 regs state or imply, but cannot be more generous. If the TPA chooses to take this stance, however, they might be willing to back off if they have a signed statement from the employer as to their differing wishes in administering the plan, especially in light of the fact that (I think) this issue can be interpreted in multiple ways. Perhaps the TPA would be willing to do what the employer says if they have a hold harmless on file on this issue. If not, the employer is free to find a new TPA. The TPA can interpret regs and install policies to follow those regs as they see fit. Contrary to some beliefs, TPA’s who always do what the employer says are not living up to their legal and fiduciary responsibility.

This is all just a matter of interpretation, and the IRS does not have this spelled out in such a way that there would be no questions, or room for various interpretations. Publication 503 says that qualifies expenses are those that allow both spouses to work or look for work. It also says that payments made while one spouse is out sick are not eligible. Further, it says that expenses for dependents that qualify for only part of the year need to be looked at each day. The day that the dependent no longer qualifies is the day that the expenses no longer qualify. The TPA knows that only those expenses incurred while both spouses work are eligible. The day that one spouse no longer works is when the employee is technically not eligible for the benefit. The TPA who takes this strict interpretation is doing it for the protection of the integrity and qualified status of the 125 plan. There are status changes built into the regs to allow for DC accounts to terminate and restart in situations such as these, so allowing employees to continue deductions through maternity leave is not necessary. Allowing such deductions can actually cause some problems. Say the spouse decides to stay at home with the child after 6 or 10 weeks of maternity leave. Now the DC account terminates, but what about those deductions taken during the leave? They aren’t eligible for any reimbursement, but the employer can’t hand them back to the employee, either. Frankly, I see several reasons to interpret this rule both ways, but I don’t think that the TPA’s interpretation is off base at all.

If monies are placed in a separate account with the plan name, then the plan would probably be considered funded, and would require a 5500 and accountant's opinion. What prints on the checks when they are cut to the employees/providers? If it appears the monies are coming from the employer's general assets, you might be OK.