ERISA and missed health insurance deductions

[Guest RAJ]

I have a client, in California, with a commissioned employee. Occasionally the employee does not receive high enough gross wages to cover all of their deductions, including health insurance. The client wants to wait and take a cumulative pretax deduction when the employee has sufficient gross wages. However, they were told by their attorney that they could not do this because it violates ERISA. Though I am currently checking with the state to make sure this doesn't vioalte any state labor or insurance laws, I did not see anything (even in ERISA 3(1)) that indicates this violates ERISA. Has anyone encountered this before? Also, if anyone is aware of any issues specific to California, that would be helpful.

Thanks!!:confused:

[Mary C]

RAJ

This may be a stretch, but under Section 125, you cannot take premiums on a pre-tax basis for a retro enrollment. For example, employee gets married 1/1 and completes forms to enroll the new spouse on 1/25. Forms are processed 2/2 and premums calculated to cover the new spouse from 1/1 are taken from check on 2/15. Section 125 prohibits these premiums from being taken on a pre-tax basis.

I haven't encountered a problem with taking reto premiums on an already enrolled person, though. In fact, under FMLA an employee on leave can wait till they return to pay for coverage while on leave on a pre-tax basis.

Mary

[mbozek]

RAJ: I am not clear on what you are talking about? Are you saying that the employee's compensation is too low to cover deductions under the 125 plan and so the employer is going to withhold deductions until enough total comp is earned?

It could be that there is a problem under state labor laws which limit the amount of a deducton to a % of the compensation paid to the employee.

Maybe the client should just ask the lawyer what the basis is for the opinion.

[GBurns]

Why would the client have an opinion from the lawyer that has no supporting basis or info?

[Guest RAJ]

In reply to MBozek, that is exactly what the scenario is. I did refer them back to the attorney for more information. I even contacted the state Deparment of Insurance and DOL. Neither was aware of any issues in making up the shortage in premium (due to insufficient compensation)on later payrolls.

In response to GBurns, that is a very good question. Unfortunately, as TPA, we get caught in the middle and end up researching the details of the question, before we can even begin to research the details of the answer.

Thanks for you help and I will try to keep everyone posted as soon as I can obtain more information from the client.