Premium Reimbusement Account

[Guest Carolynn]

A participant in a premium reimbursement account wants to drop the account in the middle of the cafeteria plan year and take the group health offered by his employer, paying for it with pretax dollars. I can't figure out if this is allowed - can anyone point me in the right direction? I've looked in the EBIA manual for direction.

Thanks.

Carolyn

[papogi]

The only way to get into a pre-tax group medical plan under 125 mid-year is with a status change, and the election change must be consistent with the status change. Has this employee gone through a status change?

[Guest Carolynn]

Thanks for your reply and I'm sorry to have missed that important piece of information - no status change that I'm aware of. However, it may be that August 1 is the start of their new benefits plan year, even thought it's mid-year for the Section 125 Plan. (I don't have that piece of information yet.) I am under the impression that he still isn't allowed a change until the start of the new 125 plan year. Am I right about that?

Thanks for your help.

Carolyn

[papogi]

The underlying health plan operates 8/1 to 7/31, and the 125 plan operates on a calendar year basis, and I'm assuming open enrollment is in June/July, just to confirm. He should be able to elect the group medical plan effective 8/1, and be able to make pre-tax payments for that coverage under 1.125-4(f)(4), assuming his employer's 125 plan allows mid-year changes. Incidentally, 125 elections must be made before the period of coverage begins, so to be effective 8/1, he had to turn in his change request before that in order to be considered at all. The same 1.125-4 rule will allow him out of the premium reimbursement plan 8/1, as well (I assume this plan takes pre-tax payroll deductions from the employee). Again, this all assumes the 125 plan doc in question allows these particular mid-year election changes, and that the changes were requested before 8/1. Without both points satisfied, he's out of luck.

[Guest Carolynn]

Don't "mid-year" changes still need a corresponding change of status?

Also, I don't know what the 1.125-4 rule is, and I probably should! Can you tell me what you are referencing ( I think it's the code) and where I could find a copy? I really appreciate your time and effort in this matter, I learn so much from you and the others.

Carolynn

[papogi]

IRS Reg 1.125-4 outlines all the possible mid-year election changes under Section 125. A plan doc can honor all, some, or none of the allowable changes. These are IRS maximums (you can be more restrictive, but you can't be more generous). Specifically, 1.125-4(f)(4) states that "a cafeteria plan may permit an employee to make a prospective election change that is on account of and corresponds with a change made under another employer plan (including a plan of the same employer or of another employer) if (i) [not quoted] or (ii) the cafeteria plan permits participants to make an election for a period of coverage that is different from the period of coverage under the other cafeteria plan or qualified benefits plan." This is the part which is most applicable to your situation.

The regs can be found here:

http://www.125plan.com/FlexLinks.htm#Inter...e%20Regulations

Specifically, 1.125-4:

http://www.125plan.com/Section%20125-4.pdf

[Guest Carolynn]

I have reviewed the caf plan doc and determined that mid year changes, such as you describe, are allowed. My stumbling block is defining this particular change as allowable.

In short, the ee wants to drop his cal year Premium Reimbursement Account as of August 1, simply because the company now will pay his portion of the health care plan, and previously, they wouldn't because of the high cost associated with out of state employees. Again, the benefits year is August 1 - July 31. Maybe I've answered my own question - is the "change made under another employer plan" the fact that the employer will now pay for his portion of the health care (he still has to pay the dependent portion) whereas previously they didn't?

If so, would this change of election be allowed under 1.125-4 (f) if the employer hadn't changed their mind, but the participant had simply decided it was easier, better, etc. for him to be in the health care plan offered by his employer as opposed to doing the Premium Account?

Again, many thanks for your time and trouble.

Carolynn

[papogi]

I was under the impression that this employee wanted to change his election because of open enrollment, and now wanted to elect the regular group health plan. If so, these elections would have to have been made before 8/1 (the coverage begin date). You mention that the employer is only now picking up the cost of insurance for out of state employees. This opens up a new avenue for the election change. If the cost of a group health plan significantly changes, this typically qualifies as a status change under 125-4, as well. This decrease in cost to the employee related to the group policy should allow him on that plan, as long as the request for the change was made within the plan's specified time frame (usually 30 days). Will the company pay his portion effective 8/1? Is that the effective date of the change in the benefits? This would be the change that the employee may have right to change his election in accordance with. If so, the change can only be done prospectively (not back to 8/1). Let me know if we're getting closer. The details are what makes it work or not.

[Guest Carolynn]

I 'm not sure the change of status applies in this case. According to the ER, he had asked this EE (and others) to carry his own insurance via the Premium Reimbursement Account. Now, the ER has better rates, effective 8/1, and the ER told the EE that the ER would now pay for the EE Insurance (not dependents). So because of this, the EE dropped his outside insurance, effective 8/1, and elected the pretax premiums, during the open enrollment period for the benefit year.

So, although the cost of insurance decreased for the EE, isn't that more because of the whim of the ER? In other words, the EE could have chosen group health earlier, but did not because the ER asked him not to.

Thanks.

Carolynn

[papogi]

The change in rates does not have to be imposed by the carrier/insurer. It can be an increase or decrease imposed by the employee (such as moving btween full-time and part-time) or the employer (change in contribution amount) [paraphrased from 125-4]. So, yes, it can be a change in policy from HR/his employer. If the employer announces a rate change/employee contribution change effective 8/1, then the employee should have a time frame, usually 30 days, to make a corresponding change to his benefits. The decrease in cost to him makes the employer-provided insurance a possibility which was not there before. You could almost even drop this in under a new coverage option becoming available (if the employer did not allow him on the plan previously), yet another option for him to come on the plan. If he was allowed on the plan earlier, but the employer only asked him not to be on the plan, then the new coverage option will not allow him on the plan. However, the rate change will.

[Guest Carolynn]

Thanks! This makes total sense and I fully understand, thanks to your patient and detailed explainations.

Carolynn