Lisa Hand

Joe is absolutely correct, if it is a valid medical expense under Section 213 then it can be reimbursed under the Section 125 Plan. The only impact insurance coverage or lack there of, has is in determining the amount to be reimbursed. RK, Lasik, which has been performed for the last six years, and the newer Intacs which were approved in April 1999 by the FDA, are all legal. Insurance companies are not covering them because of the expense ($2,000 - $2,500 per eye). For the administrator of a Section 125 Plan, to reimburse some and not others for the same procedure would be discriminatory and if you follow the logic of only allowing it when glasses are a problem, then contact lenses which are clearly listed as eligible medical expenses would also be disallowed.

A Section 125 Plan does not have to have a cash out option for benefit dollars unless it includes an option for unused benefit dollars to be used for 401(k), then a cash-out option must be included. It is quite common to discount the benefit dollars if they are cashed out since the whole point is for the employees to have a benefit not simply more compensation.

Section 152(B)(2) might be helpful is determing dependent status as it does address not only adopted children, but also foster children and those placed for adoption.

A cafeteria plan may include a 401(k) option only if it also has a cash-out option.

Since the regulations require a written request for reimbursement, independent third-party verification of the expense and it is the date the expense is incurred, not when formally billed, charged or paid that deterimines the date of service, it is difficult to see how such a system would work and still be in compliance with the IRC and the governing regulations.

R. Jermier - offering individual policies through a cafeteria plan may present compliance issues under ERISA, COBRA, FLMA ect, if the individual policy is deemed to be an employer-provided benefit. Careful consideration should be given to the wording of the plan document to address these concerns. wsweeney - no, premiums are not put back into the employee's check. Joe P. gives an excellent description of the process in his above answer.

No. Only the Form 5500 filed with the IRS.

We use Data Path and are very happy with their support and product. We administer both POP and full plans. They are also very supportive on customizations and we believe their maintenance fees for support delivered are quite reasonable.

NO

Joe is correct, these expenses are not permitted in a section 125 plan. The pre-tax parking and transit need to be a separate benefit and should be formally adopted and have a plan document, though that is not currently required. The costs can also function like reimbursment accounts with the employees incurring the expense and submitting claims to be reimbursed.

It would be a separate FSA from unreimbursed medical or dependent care, therefore a separate election. One word of caution, if adoption assistance is put into the Section 125 Plan, it is subject to the "Use it or Lose it" rules regardless of the circumstances. It might be more prudent to have the employee take the expenses on their taxes if there is any danger that the adoption would not be finalized during the Plan Year.

NO. It would violate the "Use it or lose it" rule. They should closely review their records to make sure they haven't missed any eligible expense.

The employer, plan sponsor, also has a responsibility to insure complaince with the IRC and the regulations. From a TPA's prespective, the approach I detailed helps insure that both the employee and employer are protected from inadvertantly violating the maximum, as well as addressing the issue of discrimination, especially with the short or off calendar plan years or periods of participation less than a full year, without creating an additional administrative burden for the employer and employee. It also helps insure the expenses are incurred during the period of coverage and the plan will pass the IRS audits on DCA benefits. It is not about punishing the employees, it is about insuring complaince without resorting the extraordinary efforts to do so. Obviously, there is more than one appropriate manner to deal with the adminstration of this benefit, any will work as long as the requirements of the IRC and governing regulations are complied with.

$5,000 divided by 12 is $416.66 and one possible way to address the issue of the required tracking is to craft the benefit as described above. Thus no one regardless of plan year ever exceeds the limit for a calandar year.

Pro-rate the $5,000 as a maximum monthly number of $416.66 in the plan documents, so regardless of the 12 month time-period you are looking at the maximum benefit will not exceed $5,000 regardless of the claims submitted.

Section 125 requires cafeteria plan participants to be "employees". Prop. Treas. Reg. 125-1, Q/A-4 provides" the term "employees" includes present and former employees of the employer.. even though former employees generally are treated as employees, a cafeteria plan may not be established primarily for benefit of former employees."

Who is eligible to participate in the plan will be detailed in your plan document.

In addition to providing peace of mind to the participants, out-sourcing provides the employer with a vaulable protection from liablity such as a former employee suing for wrongful dismissal based on medical reasons. For example, doing claims in-house same situation described by Joe, you have to terminate the employee and they come back and sue saying you fired them because of their counseling or the genetic testing they had done or that one of their RXs is AZT. A TPA protects the employer from this risk.

IRC Section 125 (d)(1) "In general - the term "cafeteria plan" means a written plan under which-(A) all participants are employees, and (B) the participants may choose among 2 or more benefits consisting of cash and qualified benefits."

For denied claims, it is wise to, first, retain a copy and second, the reason for denial should be detailed in writing referencing the particular reason, in accordance with the IRC and the plan documents, that the claim is being denied. Your plan documents and summary plan description should detail the claims procedure, how claims are denied and the rights of the participant to appeal denials. Once again a good reason to outsource to a TPA.

They Wait until the next open enrollment to make any changes.

The five Proposed and one Temporary regulations as well as the new IRS audit guidelines. This is one of the main reasons along with the potential liability of seeing that documentation that companies outsource the actual administration of their cafeteria plan.

If the plan document states a 60 day close-out that is the close-out for the plan and it can only be change for future plan years, not retroactively. A retroactive adjustment would disallow the entire plan, since it would be adjusting the Plan to accomidate one individual so they did not lose their allocation, this violates the "Use it or Lose it" rule. Looking forward, it seems that the plan close-out period should be reconsidered, 90-days is more common. Also whatever employee notification system is currently being utilized is obviously not working.

What specific types of programs are you refering to - Dependent Care Assitance? Adoption Assistance?

It sounds like the 1997 plan document may not have been necessary. The only thing effective in 1997 was a new service agreement which should not have effected the plan document. Regardless as long as the 5500s have been properly filed, the whole issue should be resolved by restating and adopting the plan document with all the correct information, also make sure it is updated for all current laws. Your administrator should have made sure this was handled and should correct it at no charge. If they don't, it might be time to look at a new provider for your 125 plan with someone who specializes in them.