Does the vender contract trump the 125 plan document?

[Guest Looser]

I work for a PEO that has a single employer 125 plan on a calendar year. The vast majority of our clients participate in our self-funded health plan; however, some of our clients maintain their own fully funded health insurance thru BCBS, HAP, etc. which we administer. Whether the client offers our self-funded or a fully insured product, all of our clients are offered the same dental & vision etc. thru the 125.

Problem: our OE is right now, as the plan year starts 1/1. Some of our clients with fully insured products have a mid-year renewal date and, per the contract with the vender, must have OE date that is mid-year. What do I do with these people for OE? Do they have an OE for everything BUT health? Do they have OE for everything (dental, vision etc.) when they have OE per the vendor contract? Do I need one 125 plan for most of our clients and separate 125’s for those clients with off-year renewals? I’m totally baffled. Please help!

[GBurns]

The bigger question is whether or not a PEO can legally offer benefits as you outlined, any at all.

I suggest that you visit the Q&A columns on the Benefitslink website such as "Who's the Employer" and "Advanced Plan Design". There are also relevant items in the Q&A for Cafeteria Plans and for 401(k).

While the items there are only the opinion of those lawyers, they do cite a large number of cases to support their various opinions.

A number of state Depts of Insurance have similar opinions on their websites. I have attached the New Jersey DOI Advisory Bulletin on the issue. It is the standard explanation that most states give as to why the arrangements that you outlined are not allowed under Federal law and State law.

http://www.naic.org/nj/seh00_02.htm

[Guest Looser]

I don’t really have the option of telling the owners that the whole premise of their business is illegal. Since the issue has not been settled by the courts or the IRS, I’m not sure that is true anyway. Is there anyone out there that also works with a PEO that has run into the same issues and, if so, how have you handled it?

[GBurns]

The reason that I suggested that you, at the least, read the Q&A is because they cite the court cases and the IRS, thereby showing that the matter is well settled by both the courts and the IRS.

The NJ DOI Advisory Bulletin also address the issue as it relates not to NJ law but to Federal Laws again showing that the issue is settled.

I did not give you my opinion, I also pointed out the the comments in the Q&A were the personal views of those lawyers.

But the cites showing the Court and IRS view etc are irrefutable. I can only lead you to them. To read them and use them as a basis for research will be your decision.

[Guest PEOflexguy]

Grey means go.

Depending on whether you have a multi-employer plan or a single employer plan, you can park your non-comforming groups under your Section 125 plan document, using separate adoption agreements. For those with off plan year health renewal dates, the POP portion will automatically change with any premium changes, and the Health FSA elections will be held stable thoughout the flex plan year, unless there is a qualifying event.

We handle flex plans for over 30 PEOs, and I am a former PEO owner. Call me for more info, 608-243-8277 x 126

Tom Jacobs, J.D.

P.S. Don't worry about New Jersey

[Guest Looser]

Thank you! I appreciate the response more than you know. I still have the question about the mid-year health renewal groups. Do we offer them a full OE now, but tell them that any changes to their coverage will not take effect until mid-year when the vendor has OE? The other benefits (flex spending, dental, vision etc) I am not as concerned about – we can definitely OE these benefits with them now. I just don’t understand how to coordinate the health piece.

[Guest PEOflexguy]

If you would like, you could give me a call, 608-243-8277 x126, I have a few questions for you first, then I can answer your question.

thanks.

Tom Jacobs

eflexgroup.com