Lisa Hand

What specific medical condition does the provider say this would be treating? "Out of proportion" is not a medical diagonsis.

Prop. Treas. Reg 1.125-4, Q/A-7 clearly states claims must include independent third-party verification of the expense, expenses must be incurred during the plan year and all other sources of reimbursement must be exhausted prior to the 125 plan reimbursing. Reimbursing expenses without adjudicating them for these requirements (as well as the others such as medically necessary, not cosmetic, for a valid tax dependent, ect.) would take the plan out of compliance. Even if these requirements could be explained away, it would be very hard to argue that the average employee, even with extensive educational materials, is able to properly determine if their claims are valid. The court ruling (last year I believe) which ruled in favor of an employee to be reimburse an expense not in the plan year, was decided because the plan sponsor only referenced the regulations but did not clearly define the word "incurred" in their educational materials. Since the average employee does not have easy access to those regulations, the court decided in the employee's favor. This court decision should be instructive to employers on this issue of responsibility as a plan sponsor. The burden is not on the employee. There are many sources to clearly document this practice is exactly what a couple people have already stated, a way to make a quick buck with no concern for properly adjudicating the plan, establishing a long term relationship with employer and employee or protecting the participants and employer from future adverse tax implications. It is not a "service" anyone should be paying for. A notice to clients (without mentioning any specific company, of course) detailing the correct procedures utilized by responsible TPAs and warning about this "the too good to be true" approach, might be a positive step to take. This seems to fall into the same category as the "double dipping" on the premiums, which was marketed nationwide until the IRS issued a ruling letter prohibiting them. Many sources prior to that letter advised those plans were not valid; however, it took the ruling letter to put an end to them. The ruling letter on that issue might also be helpful to demonstrate to clients just because someone is marketing a "service" or type of plan, does not mean it is legal.

Rick: This might be better posted under the "Help Wanted" section found on BenefitsLink main page.

One quick note $5,000.00 12 = $416.66, not $417.00. If the $417.00 number was used then you would be $4.00 over the $5,000.00 calender year limit, granted a small amount, but still over the limit.

http://www.irs.gov/ Publication 502 under travel says "Transportation expenses of a parent who must go with a child who needs medical care." This situation is not specifically addressed and is definately worth querying the IRS. This can be done on the IRS web page link above under itemized deductions. It is an email query and normally a response is forwarded within a few days. Additionally a specific ruling letter could be requested.

The risk question is a good one. Also remember, you can not reimburse expenses in advance of the actual date of service. By reimbursing DCA expenses as the funds are payroll reduced, this assists in the proper adminstration of this benefit. Otherwise, you not only have exposure, but risk compliance problems as well as additional complications in claims adjudication.

"I've heard for many years that a 401(k) is one of the benefit plans allowed in a cefeteria plan. I have always wondered why any employer would want to list his company's 401(k) in his company's cafeteria plan document, because a 401(k) is pretax on its own (thus inclusion in a cafeteria plan is not necessary). Does anyone know why the IRS would include a 401(k) as one of the plans allowabe in a cafeteria plan ? Does anyone know, under what circumstances an employer would benefit from having its 401(k) in a cafeteria plan ????" Moe: this was your original post. A question that easily could have been researched in a legal guide on Section 125 Cafeteria Plans. If you choose instead to query these type of issues here, making comments about the compentance of those who take the time to answer your query is neither gracious or permitted. Let's keep this professional all around. There have been too many "flame wars" in the past. First, everyone needs to extend the courtesy of completely reading both questions and answers before firing off responses. Second, in the future, if you or anyone else wishes to express comments on the competance, intelligence or other such personal remarks, do so directly to the individual in a private email, not on this forum.

One more option is if she has had a change in cost of her DCA since change in cost or coverage applies to that category. If it has reduced or stopped then she could make the corresponding change.

The Employee Benefits Institute of America's (EBIA) 125 Legal guide has a very good discussion of this is as well. Some documentation should be used as well as a statement from the employee stating she that she meets the impossibility standard as well as understands she can not make this mistake again in the future.

http://www.changeofstatus.com/resources/regs.asp Treas. Reg. 1.125-4, ©(4), example 8. Your documents need to state how you are going to handle these situations. Basically, terminated and rehired within 30 days has one set of options which are: new election (which is only permitted if the facts and circumstances support it); reinstate the old election (step back into) or require they wait until the next open enrollment (lock out). This is to prevent someone from quiting and returning in less than thirty days specifically to change their 125 elections. The "step back" or "lock out" are recommended as the easiest to administer and to prevent potential problems with the facts and circumstances. Terminated and rehired in more than 30 days is treated as a new hire, who must meet the regular requirements of the plan, waiting period ect.

The requirement to file a Form 5500 on just the 125 plan is currently suspended per IRS Notices 2002-24 & 2002-43, both issued in March 2002.

No. The regulations state that elections must be in place prior to the start of the Plan Year or within the period stated in the plan documents for employees newly eligible during the plan year.

I agree, not legal in the US, it would fall under the category of illegal drugs as detailed in IRS Publication 502 and would not be eligible.

Autelitano - please remember the message boards are for general advise, not for advertising your specific services. If you wish to do so, please contact BenefitsLinK about the opportunites on the Yellow Pages. Many of us who are posting answers are benefits professionals, however, we keep our marketing efforts away from this forum. Additionally, I do absolutely agree no document is a one-size fits all. Just as each employer is unique, each 125 plan should be crafted to fit the needs of that specific employer.

The guidelines for 125 audits are in the IRS training and 125 plans are often looked at the same time as other things such as 401(k), payroll ect. The IRS is already there looking at other payroll deductions. We have seen this a number of times. They are not conducting stand alone audits of 125 Plans, but rather part of a larger total look at the employer. Regardless of how the audit orginated, the impact would still be significant if the plan was found out of compliance or worse yet invalid.

How they would know about it is if the plan was audited, which does occur. To make sure the plan would stand up to review, clearly document the circumstances, educate the employees and have enrollment forms which detail the short plan year and have the plan documents in line and executed prior to the start of each Plan Year, then the employer can demonstrate they were not trying to circumvent the regulations, but rather reacting to this set of circumstances.

tcunagin - you may wnat to try posting this question on the 5500 message board.

papogi is correct - consistency is defined by the relationship between the change which occurred and the change the participant wishes to make. Gaining other coverage is not consistent with increasing the Medical FSA, but rather as already stated consistent with decreasing or stopping the election. What expenses they intend to cover with this election or the fact they are now making more money has nothing to do with the evaluation since an increase or decrease in medical expenses during the plan year is not a valid change of status to change the medical FSA.

Sheila: Did the employee complete an enrollment form to enroll in the benefit during the valid period permitted by your plan documents when newly eligible?

Check with your bank, they may have a more flexible package available for you.

The BenefitsLink yellow pages lists Cafeteria Plan TPAs, you may want to get some other bids. For a 20 person company, $1,000 - $1,500 set up may not be the best you can find, especially if the company is going to be the TPA for the plan.

The 2002 5500 has just been issued without the Schedule F. So for now, until further guidance is given by the IRS and DOL, the requirement for fringe benefits to file the 5500 remains suspended. (see: Benefit Buzz http://benefitslink.com/cgi-bin/pr.cgi?dat...tabase_id=33705 Do remember that does not mean a company may not be required to file the form for other parts of their benefits. package.

The main question that needs answered is , is it custodial care or education. Educational expenses are prohibited from being reimbursed under a DCAP.

Benefits Link yellow pages lists a number of Cafeteria Plan TPAs. Any of them should help with all of your initial questions without obligation and be able to get you additional information on these benefits.

mroberts - there are a number of situations in which a company may not want to or be permitted to pay those expenses, none of which are the result of bad advise from the broker/consultant/TPA. For example, public entities may be prohibited from committing to covering this type of expense by their charter, so the only choice is to have the employees pay the fee or not offer the benefit. Also some employers will not offer the benefit at all unless the employees are paying the fee based on their size, culture or structure, such as the non-profit in this example. The fee is pre-tax since it is a cost associated with the plan. While passing the fee on to the employees can have a chilling effect on participation at lower levels, having the benefit offered is better than not, if that is the choice. It is often the case, if it was a voluntary choice to charge the employees the fee, that after a couple years of experience with the plan, the employer will switch to covering the fee to improve participation.