Lisa Hand

Elections for 125 plans are required to be done prior to the start of the plan year and changes are only permitted during the plan year if a valid change of status occurs and the participant requests a change within the time period detailed in the plan documents. So the short answer should be no one has gone to that type of set up since it would result in an out of compliance plan.

Since reimbursements are only to be made for 1) expenses within the Plan Year; 2) for services rendered and 3) for amounts that are not going to be reimbursed from any other source, you have significant responsibility and authority to verify expenses, especially if you have reason to believe fraud is involved. This type of verification is why many employers out-source it to TPAs. Given that we are only 7 days into the 200 Plan Year (assuming it is a calendar plan year) it is highly unlikely that insurance has processed the service if it was rendered in 2000.

CLKeown: one quick correction: The IRC does not set ANY maximum for the medical reimbursement benefit. The $5,000 is generally the maximum for the DCA benefit, with the specific participant situation defining the actual maximum($5,000 or $2,500 or $4,800). The employer, if they wish to, sets the maximum on the medical FSA. The level funding "risk" is why they would wish to do so.

What possible rational does the employer have for capping the DCA benefit at $1,200 when the regulatory cap is $5,000 ($5,000 married, filing jointly & head of household; $2,500 for married, filing separately)? Since there is NO risk to the employer, it seems short sighted to not extend the full benefit allowed by law. Also please clarify your explaination of "quarterly contributions". Are the employees making salary reduction elections? or is it only employer benefit dollars?

bzorc - You may be thinking about overnight camps which are not considered "employment related" under Code 21, even if the camp separately allocates the expenses for day time and overnight activities. It is an All or Nothing Rule. So if the "Day camp" is part of an overnight camp then none of the expenses are eligible.

One more note on this issue since herbal remedies are normally "prescribed" by a naturopath or acupuncturist, ect., according to the IRS informational letter on July 30,1999, medicines and supplies can only be excludable if prescribed by a "physican" as defined as a "doctor of medicine, osteopathy, dental medicine, optometry and chiropractor." A practitioner of alternative medicine or holistic healer would not meet this definition. Therefore, any prescribed remedies would NOT be reimburseable even if the professional services of the holistic healer are eligible for both MSAs and Medical FSAs.

kclark- That type of plan requirement is called a mandatory final check rule and requires ALL participants regardless of claims, account balance ect, to contribute the remaining allocation for the plan year out of their final check. The reason you probably have not heard of this type of setup is that there are serious concerns on whether it violates COBRA and state laws. Additionally, very few employees would sign up for a "benefit" with this type of punitive aspect to it. For the above mentioned reasons, my company as a TPA, will not set up or work with these type of plans.

Exactly how did an over-reimbursement occur? Administrative error? software error?

Chris are you asking about a Premium Conversion Plan? or a Plan including FSAs? How many less than 100? Ususally plan costs are based on number of employees and complexity of the plan and what additional services you may require. I am sure any of the cafeteria plan TPAs listed in the yellow pages would be happy to give you quotes which would illustrate the range of costs for the type of plan you are interested in. Remember TPAs can not directly quote you prices on this work group as that would be advertising. [This message has been edited by Lisa Hand (edited 12-14-1999).]

Thanks Joe for the great response. kclark - your TPA may have misunderstood the question and thought you were talking about Dependent Care Assistance (DCA FSA) costs, which do have a "keeping up a home" test and do have an exception for a custodial parent who can not claim the child as an exemption.

What does your plan document say about the deadline for submitting elections?

Remember it is when the service is rendered not when formally billed, charged, or paid that determines the date of service. The service must be claimed during the plan year for which it is incurred, therefore; 18 months of treatment must be claimed over the two plan years it spans. A copy of the treatment plan and the contract should detail the banding and monthly costs. You might want to subscribe to a legal guide such as the one put out by the Employee Benefits Institute of America or partner with one of the companys that specialize in 125 Plans, so that this expertise is readily available.

Is the treatment only 11 months long?

Please give us a bit more detail about your question.

The $5,000 maximum is per family for married, filing jointly and head of household. The maximums are different for married, filing separately and if one spouse is a full-time student.

Unless your plan document and the participants' enrollment forms clearly state that your plan has a mandatory final paycheck rule where you take the entire final deduction out for ALL terminating employees, you risk violating the uniform risk rule by requiring the terminating employee to make extra deductions without disclosing this prior to enrollment. In addition, if your plan does include this language, you may be violating state wage laws as well as COBRA requirements. In regards to the employee on unpaid leave of absence, they are not terminated and how their pariticipation should be handled depends on whether it is a FMLA leave or a non-FMLA.

Steve: In addition to the IRS audit guidelines, there are 5 sets of proposed regulations, one set of temporary regulations and a wide range of things which must be done properly to keep FSAs in compliance. Instead of trying to get up to speed in a new area which you have no background, you might want to consider working with another TPA who specializes in Section 125 Plans. The BenefitsLink yellow pages have a number of them under Cafeteria Plans. That way you keep the business and your clients gets the expertise and service they need.

Insurance premiums can not be run through an medical FSA under any circumstances. Earlier discussions on a separate account for individually owned health premiums should address the other issues raised here.

Yes, you can include Adoption Assistance in a Section 125 Plan. It works like Dependent Care Assistance, the funds are available once they have been payroll deducted. However, the sponsor must be very clear to anyone who wishes to participate that it is, like all benefits under 125, subject to the "Use it or Lose it" rule, regardless of what the situation is, the expenses must be incurred during the plan year. So if the adoption was delayed and actually happened the following plan year, the participant would lose some or all of their money.

Under the new temporary rules, it depends on how long between the termination and rehire, within 30 days the previous elections reinstate and longer than 30 days new elections after any plan dictated waiting period.

Employee Benefits Institute of America, LLC legal guide. Their web page is www.ebia.com

Where did you read that?

The exception for sole proprietor is clearly defined as along as the employee/spouse is a bona-fide employee. However, it is not as clearly defined from the IRS for partner's spouses, and of course they would not be eligible if they were also a partner.

This would be a good question to query to the IRS. One item to consider is medical expenses of items that are are also used for non-medical reasons are normally limited to the cost which exceeds the normal item. Such as a television equipted for hearing impaired would not be entirely allowed only the cost above a normal TV for that function. Thus the entire cost of the laptop would most likely not be allowed, but the cost of specific software or add-ons specific to the disability most like would.

Might want to look at IRC section 318 - constructive ownership of stock. Spouses, children, grandparents and parents of greater than 2% shareholders of S corp owners may not participate due to the ownership attribution rules.