Dependent Care

[Guest gar]

I have an employee who elected to have $1,200.00 deducted yearly for dependent care. His parents babysit his kids all year except for Sept thru Dec. He then send the kids to a daycare. The 1200.00 was for this cost during Sept and Dec. His parents have now retired and can babysit all year long. Can he change his election?

There is no status change at all.

[jsb]

Recommend that he give his parents a vacation at the end of the year and utilize the paid care. Then he can make an appropriate election during your Annual Enrollment.

Arguably, he does have a status change because he no longer has need for the Sept - Dec care. But whether that change is occurring now, or actually occur until September, is the operative point. I would try to justify making the change now (effective 4/1/03?) as long as he is within 30 days of something. (eg. the parents' retirement, the decision to put the kids with the parents in Sept - Dec?). I think worst case he no longer needs Sept care, which would be a status change.

Good luck.

[oriecat]

I have to agree that there is no status change, and therefore no change can be made. In my status change matrix, the closest option was "Visiting relative's ability to provide dependent care" - No change allowed. I think that the ee choosing to change providers, whether paid or unpaid, is not a qualifying status change.

[papogi]

I think that there is no status change here, as well, but I wanted to point something out. A change in daycare providers is, indeed, a status change [1.125-4(f)(6)Example 5]. Hindsight is 20/20, but employees in similar cases can run their daycare accounts in such a way to prevent this. The employee should not have signed up for a DC account. In September, the employee should have started the account, and then stopped it when the parents could begin baby-sitting. The only problem is that the $1200 would have to be deducted over a short time period. The advantage is that this problem would not have occurred.

[Guest JerseyGirl]

Any chance that the parents would like to earn $1200.00? If it doesn't have too adverse an impact on their retirement income, they might be happy to have an extra $100 a month. Perhaps this would allow them that little extra they need to take the kids to the zoo or movies once in awhile.

[oriecat]

Originally posted by papogi

A change in daycare providers is, indeed, a status change [1.125-4(f)(6)Example 5].  

Thanks for pointing that out. I was just going by what I could find in my matrix. I will have to look into this more.

[Guest Ric Joyner,CFCI]

But there are others that will argue that this is not a change because he could have forsaw this coming. Either way I think JSB has a better customer service angle.

[papogi]

Status changes are not always completely unforeseen, although in theory they should be. Almost all cases of marriage or birth are events which are completely foreseen and predictable at the time that the employee is making elections for the coming plan year. 125-2 clearly states that a change in providers is a status change, but the problem with this particular case is the timing. This person now sees that a potential status change might occur (such as a person suddenly having a marriage proposal), but the event has to occur before the change can go into effect. The marriage has to happen before any change in election can be made. The change in daycare providers has to occur before the change is allowed. That’s why in this case there is no status change, and there’s probably no legal way to stop the payroll deductions right now. Actually, there will not be any status change for this employee, even in September. That’s when he/she was planning to start going to the paid provider. Now, they will just be staying with the same provider (the parents), resulting in no change in providers.

Agreed. The offering of vacation to the parents in September (or anytime) in order to generate reimbursable amounts appears to be the only way through this.