due to union negotiations, employer contribution will not be known unt

[Guest taylorjeff]

I am working with a group which is currently in negotiations. Their 125 plan has a 2/1 anniversary but allows a 7/1 midyear change because their health/dental/life rates renew 7/1. They received a substantial increase this year effective 7/1. However, since they are still in negotiations, the employer will not be able to tell the employees what the employer contribution will be until after the enrollment period and effective date. Negotiations could drag on til August. Obviously, employees can't make an educated decision until they know the employer contribution. Whatever decision is made will be retroactive to 7/1. The employer wants to know what options the employees have. Can some employees drop or change prior to 7/1 and then can some employees make a later election, say for 9/1 after they know the contribution (even though the new contribution will take effect 7/1)?

[mroberts]

a lot of things run through my mind, such as what kind of negotiations are going on that can possibly take 3 months? is the employer looking at switching carriers? if that's the case, there is a whole new set of problems since the employees are making elections based on one carrier and then the employer delivers another one.

why isn't the annual open enrollment already coinciding with the medical/dental/life renewal rates? this seems to be the easiest solution going forward. however, the employer should still decide what the contribution level is going to be for 7/1.

[Guest taylorjeff]

There is no change in carriers. The negotiations are union. They are deciding a 3 year contract and what the employer's premium contribution will be (among other issues).

[mroberts]

i started originally typing that, but then i didn't see anything mentioned about a union so i thought the negotiation was between the carrier and employer.

how far apart are the two sides in the negotiating? does the employer only want to pay 50% for the insurance and the union wants the employer to pay 100%? or does the employer want to pay 70% for the insurance while the union wants the employer to pay 75%? if it's this close, i would simply indicate that the company is going to be paying 70% for coverage while the employees will have to pay 30%. if it turns out that the union is able to negotiate the extra 5%, that's great news the employer can pass on to its employees.

if the two sides are far apart on the negotiations, they should do something to bridge the gap quickly since i don't think retro elections are going to fly per the plan document or the insurance carrier.

[Guest taylorjeff]

Sorry, I meant to include "union" in my first post. I won't have any problems with the insurance carrier - they'll allow a cancelled membership or family to single anytime. Its staying in compliance with the 125 regs. The rate change is effective 7/1, so any employee can make a change then. However, most are hoping the employer will raise its contribution enough to offset most of the increase. if it does, most would stay put. If not, several will cancel or drop family.

My real question is. Can they allow a change 7/1 and then later at 9/1? There won't be anything different 9/1 because any contribution change is retro to 7/1, but the employees will know the actual amount by then

[papogi]

Section 125 is clear that benefit election cannot be made retroactively. Elections cannot be made after the beginning of the coverage period, unless there is a status change. My thinking is that elctions will need to be made on 7/1 using existing rates, then elections can be changed on 9/1 based on the "cost and coverage rules" provisions in 125. I don't see how any elections made 9/1 can be made retroactive to 7/1, when 2 months of claims experience is already known, and still be in compliance with 125.

[mroberts]

papogi - wouldn't the cost increase have to be "significant" in order to allow the employees the ability to make a change in elections? if we assume a 15% increase in medical premiums this year, the only way i see a "significant" cost increase is if all 15% is passed on to the employees. with a union involved, i don't think that's very likely.

[papogi]

Yes, for the cost rules to come in to play, the change must be "significant", a term which the IRS is careful to only hint at a definition for, and completely avoids in 1.125-4. I have seen both 10% and 15% being used as a standard for "significant". You're right that this could cause a hindrance for some employees who want to make a change 9/1, but the rule stating that elections can't be made retroactively is a fundamental rule for 125 plans.

[mroberts]

i agree with you on the retoractive part. that's why i took the stance of getting at least a ballpark number for the employees to make their decisions on. if it's a couple percent higher or lower, no big deal.