Cafeteria Plan

[Guest maridel]

I have an employee that has a new baby, wife has decided not to return to work and is taking leave. They have a balance left in their dependent care account and no monies left in their medical reimbursement account. They want to know if they can stop their dependent care reduction, increase their medical reimbursement to cover COBRA premiums and transfer the balance in their dependent care account to their medical account.

The only part I can find no information on is the transfer of funds from one account to the other. I does not appear that can be done under any circumstances.

[papogi]

As long as the employee has requested these changes within the time frame allowed under your particular 125 plan, he can stop the DCFSA (and should since his spouse is now in a position where they are no longer eligible for a DC account, he can raise his HCFSA election (addition of a dependent allows an employee to start or increase a HCFSA election under 125-4), and under no circumstances can HC and DC monies be intermingled/tranferred.

Incidentally, what COBRA premiums would these be? Only some COBRA premiums are payable under HCFSA's.

[Kirk Maldonado]

Papogi:

What premiums can be paid through a health care FSA? I thought that the regs disallowed the payment of any premiums under a health care FSA.

[papogi]

COBRA premiums may be reimbursed if the COBRA coverage is provided by the sponsor of the flex plan. COBRA through another employer's health plan is not reimbursable. My original statement is a bit misleading. Technically, they are simply increased payments to the employer on a pre-tax basis to cover the COBRA premiums. The Thompson's manual boils this down to say that they are reimbursable under an FSA, although the semantics of that statement are arguable.

[Kirk Maldonado]

I disagree.

The regs are extremely explicit that premiums may not be paid through an FSA, although you could pay those amounts through the premium conversion portion of a cafeteria plan.

[papogi]

You're right. The Thompson's manual's statement that some COBRA premiums are payable through a health care FSA is incorrect. All the regs say is that they are sometimes payable through increased pre-tax payroll deductions directly into the 125 plan, but not specifically through the health care FSA. I confronted the editor of Thompson's on this, and I wouldn't be surprised if they change their interpretation of 125-4.

[Lisa Hand]

Kirk:

Thanks for clarifying this issue, so promptly.

No insurance premiums may go through a Medical FSA. Prop. Treas. Reg 1.125-2, Q/A-7(B)(4).

Premiums reimbursed under a Section 125 plan are from a category for premiums only, never from an flexible spending account.

EBIA's legal has a very good detail on this issue.