Lisa Hand

Are these deductions for insurance premiums? [This message has been edited by Lisa Hand (edited 05-24-2000).]

It is when the service is rendered that determines the date of service and what plan year it may be claimed within, not when it is formally billed, charged or paid.

Trea. Reg. 1.125-4©(2)(i) - Change in employee's legal marital status - including marriage, divorce, death of spouse, legal separation and annulment.

Sounds like an E & O issue to be discussed with your TPA. Reimbursements are only to be made for service rendered, not on estimates in advance of service.

Obviously moving within the same block or normally the same town would not satisfy the definition of a move which effected access to benefits and would not justify a change in election.

The final and proposed regulations on change of status events were issued March 23, 2000. The easiest way to get to a copy would be on Benefits Buzz of this web page for that or the following week. They are in the Federal Register, not the actual section of the IRC.

If you are pre-taxing the employee's portion of the premium through salary reduction, then section 125 is the portion of the IRC which permits you to do so. So you need to comply with all the requirements of 125.

Are you pre-taxing the premiums?

Sluskin is correct. A different quesiton is why are you pre-taxing disability premiums? Did you understand that if the premium is pre-tax, the benefit is TAXABLE. Your TPA should have explained that to you and the employees need to understand they are trading a small tax savings now for their benefit being reduced by taxes.

See responses posted under Cafeteria Plans

A more detailed response can be found on the Cafeteria Plans workgroup(Topic is the same), including a transcript from a conversation with Harry Beker at the IRS on this subject provided by the EBIA.

You actually need to download the final and proposed regulations issued March 23, 2000. They can be accessed from Benefits Buzz on the main page of this web site, the week of March 20th.

Thomas - thank you for clarifying that point. At this point, it seems pretty clear "double-dipping" is not permitted.

Please give us a bit more information. What is your plan's deadline for claims submission for the old plan year? Have you received a denial letter? If the claim is not going to be paid, a written explaination must be forwarded. What reason, if any, has been given for the check not being issued?

Section 125 and its regulations detail the conditions under which changes can be made and provide clarification on "the circumstances under which a cafeteria plan may permit an employee to change his or her cafeteria plan election..."(final regulations issued March 23, 2000, summary). As detailed in the other changes section, they do not set a specific period of time in which changes must be made. "Consistent with the approach taken in the 1997 regulations and in the interest of providing employers and plan administrators flexibiity, the final regulations do not prescribe such a period. However, nothing in the final regulations would prevent a cafeteria plan by its terms from requiring that any election change (other than those made in connection with rights for which there are specific minimum election periods, such as under section 9801 (as added by HIPAA) and section 4980B (relating to COBRA coverage)), must be made within a specified period after a change in status event."

Another possibly better source, since it is direct from the IRS, is the current posting from the EBIA on Benefits Buzz, entitled "IRS Officals Comment on New Cafeteria Plan Regulations on Mid-year Election Changes"

You might want to look at installing a Section 125 Plan, you could then cost share the increase, but the impact on the employees is reduced by @ 30% when the employees pre-tax their portion of the premium. The addition of the medical flexible spending account would also assist in addressing the deductable. This would improve your benfit package while addressing the cost issue.

David: "boy is this cool!" was exactly my reaction to freeERISA.com and thanks for the link. It is extremely useful for a TPA to check on their clients' amoung other things. I have already worked with them and put their address on my web page under useful links. Thanks again

Email me a fax number and I can send it to you, once I am back in my office I will also post the web location. Keep in mind, the letter does not require plans to reimburse in this manner, only says that when it is basically impossible to match cost with service it can be done. You need to look to your specific plan document as to how it handles it.

Any employer considering one of these programs should seek an opinion from their attorney. After an additional review of the article and legal guide section, I do not believe it was narrowly focused and would not advise my clients to operate in this type of gray area without written legal opinion and written approval from the IRS.

The Employee Benefits Institute of America had a very good article on this subject in their September 1999 Cafeteria Plans Current Developments and in their legal guide update from the same time period. It is very clear from both that this is not a valid use of the IRC. They also quoted Mr. Beker from the August Symposium specifically addressing this issue and saying that employees can not receive tax-free reimbursement for employer paid coverage.

Why can't the payroll service do the entire correction on one paycheck?

Benefits Buzz - accessed from BenefitsLink home page

According to the final regulaltions issued March 23, 2000, "if, in accordance with the special enrollment rights provided by HIPAA, an employee, spouse, or new dependent is entitled to enroll in a group health plan, a cafeteria plan may permit the employee to elect to enroll pre-existing dependents in the underlying group health plan."

Change in cost or coverage - proposed and final regulations issued March 23, 2000 - would permit the change in premium but not a change in the FSA, in fact the proposed regulations specifically prohibit the Medical FSA being changed. What your client might consider instead is cost sharing the increased in premium with the employees instead of eliminating benefits. [This message has been edited by Lisa Hand (edited 03-28-2000).]