Changing Hours and Eligibility

[Guest Darla K]

I have an employee who has been working around his children's school schedules so he can take them to school and now he is having to change his hours from 9:00-6:00 to 8:00-5:00 and this now puts a bind on the family because they will have to put their child in before school day care because of the change in hours.

Can he enroll in Dependent Day Care Reimbursement mid-year?

Is this an eligible Change in Family Status?

[papogi]

A change in work schedule (hours) qualifies as a change in status. As long as he is eligible under all other rules (spouse, if any, works), etc. then this would be allowed. He should also look at whether the tax credit is better than the DCSA. The 15%/27.5% tax bracket is usually the cut-off. If they are over the 15% bracket, the DCSA is probably better.

[Guest Darla K]

Thank you for the informative reply. I appreciate it!

[QDROphile]

Be careful to distinguish what the law allows by way of a change and what the plan allows. Plan terms are not required to go to the full extent of what the law allows. The plan might not allow the mid-year enrollment based on the change in work schedule.

[Guest Darla K]

Do you have further information as to whether the change can take place? If so could you provide it for me.

[papogi]

QDROphile brought up a good point. Unlike COBRA (where the Federal rules are minimum standards), the rules under Section 125 are maximum standards. The IRS says that the situation you described above is an allowable status change. You should check the plan document in question to be sure whether or not the plan allows this as a status change (most plans adopt all allowable status changes, but are not required to). In fact, it is possible for a 125 document to be written to not allow any status changes at all.

[Guest Darla K]

My contact at the employee's office said it is ok by them to go ahead and let them change as long as it is ok by me, but I wanted to make sure it was an eligible change before giving a definate answer. The plan document does not directly address this situation just like all the IRS publications I have found. I can't seem to find any information in any IRS publications addressing the situation, although I could very well be overlooking it too. If you have any place where I can find this information as to whether the above scenerio is an eligible/non-eligible change in family status, I would greatly appreciate it so that I can inform the employer.

[Guest Darla K]

My contact at the employee's office said it is ok by them to go ahead and let them change as long as it is ok by me, but I wanted to make sure it was an eligible change before giving a definate answer. The plan document does not directly address this situation just like all the IRS publications I have found. I can't seem to find any information in any IRS publications addressing the situation, although I could very well be overlooking it too. If you have any place where I can find this information as to whether the above scenerio is an eligible/non-eligible change in family status, I would greatly appreciate it so that I can inform the employer.

[papogi]

This situation would fall under Treasury Regs 1.125-4©(2)(iii). The employee is going through a change in employment status which affects his dependent's eligibility with regards to a DCSA (the child is becoming eligible for the DCSA because of the change in hours).

[QDROphile]

If the plan document does not clearly cover the situation, the document must be interpreted. The person with authority to interpret the document should decide. Are you that person? In a well drafted document, the person with authority to interpret will be identified, and is usually the plan administrator or other fiduciary.