Does either IRS or Erisa require a "written" election form.

[Moe Howard]

An employer has offered pre-tax benefits (fully-insured medical and 401-k) to its employees for years. Everyone is happy. The employees are fully aware that their premiums and deferrals are being withheld "pre-tax" from their wages.

The employees obtain coverage in the medical & 401(k) plans by simply filling out a standard "group enrollment form" furnished to them by the insurance company (medical) and the trustee bank (401-k). Neither form constitutes a cafeteria plan "election form". Neither of these documents mention anything about "cash or deffered arrangement or pre-tax"

In other words .... the employee participants are never given an "election form" by anyone, on which they can officially choose to receive cash or the pre-tax benefit . It's all verbal. The employer simply tells eligible employees to "fill out the medical group enrollment form and bank forms if they want these pre-tax benefits".

Is there any IRS or ERISA rule that written election forms have to be used. Or is verbal agreemnet legal ?

[SLuskin]

You can have automatic enrollment in a Cafeteria Plan, if the documents so provide. But you have to offer a waiver form so the person can opt out. You should still be providing an SPD, or something which describes how and when a person can change his/her election, and some sort of statement about the possible reduction of social security benefits at retirement.

[E as in ERISA]

See IRS Notice 99-1, which indicates that the Code and regulations do not require any specific method for enrolling in a retirement plan.

[Guest kwn]

IRS Cafeteria Plan Study Industry Specialist Abba Rabbani and IRS Assistant Cafeteria Plan Study Industry Specialist Jay Jensen answered a number of questions about cafeteria plans at the Midstates Benefits Conference on April 18, 1997. The conference was jointly sponsored by the IRS and the American Society of Pension Actuaries. Sophia E. Chrusciel, a partner in McDermott, Will & Emery, also participated in the presentation on cafeteria plans. The questions were posed by Mary A. Thompson, Managing Director of The MEDSTAT Group.

Negative Elections

Negative elections to make pre-tax salary deferrals into cafeteria plans are "ok," according to Abba Rabbani, so long as the participants understand their "inaction of making a positive election" to make pre-tax contributions into the plan and they are permitted to make a choice for each plan year (see Prop. Reg. §1.125-1, Q&A-8 and Q&A-15 and Prop. Reg. §1.125-2, Q&A-6). Under negative election procedures, employees are assumed to elect pre-tax contributions unless they affirmatively tell the employer that they want to make after-tax contributions. No express salary reduction agreements are used in conjunction with negative elections.

Rabbani also advised that while negative elections are permissible, plan administrators should require participants to take some affirmative action, such as a waiver of coverage where no benefits are elected, to ensure that the benefits are properly communicated to employees.

Some employers use interactive voice response systems for plan enrollments. Rabbani advised employers using such systems to provide employees with confirmation statements before the beginning of the plan year so that they can make any necessary corrections. Employers should retain copies of such confirmation statements for their records.