OK to change medical FSA election upon reemployment later during same

[Guest Nodak]

Assume an employee elects to participate in a medical flex (125 plan) for the current plan year. During the plan year, the employee is terminated and later rehired by the same employer. When the employee is rehired, may the employee change (increase, decrease, discontinue) the amount committed to the medical flex plan? Is there any coloration to the time period that the employee is not employed?

[Mary C]

The regulations say if an employee terminates and then rehires within a "reasonable" amount of time, then all elections must be reinstated as if they had never left. They do not define "reasonable". We use 60 days.

[Guest Nodak]

Thanks Mary C! Would you happen to have a cite for that reg? Thx!

[Lisa Hand]

http://www.changeofstatus.com/resources/regs.asp

Treas. Reg. 1.125-4, ©(4), example 8.

Your documents need to state how you are going to handle these situations. Basically, terminated and rehired within 30 days has one set of options which are: new election (which is only permitted if the facts and circumstances support it); reinstate the old election (step back into) or require they wait until the next open enrollment (lock out). This is to prevent someone from quiting and returning in less than thirty days specifically to change their 125 elections. The "step back" or "lock out" are recommended as the easiest to administer and to prevent potential problems with the facts and circumstances.

Terminated and rehired in more than 30 days is treated as a new hire, who must meet the regular requirements of the plan, waiting period ect.

[Guest Nodak]

Thank you so much! I believe that answers my question. Woo-hoo!!