Automatic Cost Decrease - Premium Holiday?

[Guest rocnrols2]

Company sponsors a cafeteria plan for its employees. Company discovers that it has a large amount booked to an insurance reserve for one of the plan's qualified benefits. Company would like to have a premium holiday for the participants currently participating in the coverage. Assuming the plan authorizes election changes for such an event, does the qualified change in status event for automatic election changes dur to cost increases or decreases permit Company to prospectively reduce the pre-tax premium payments that the employees are contributing? The reason I have concerns is that the ability to do this is dependent upon the cost of the "qualified benefit." In this case, the insurer is not reducing the cost of the qualified benefit. I would appreciate your thoughts on this.

[papogi]

1.125-4(f)(iii) refers to paragraph (i), Automatic Changes, and says that the cost increase or decrease refers to a change in the elective contributions within the flex plan, and may be due to actions from the employee or the employer (such as reducing the amount of employer contributions). Based on this, and if I’m reading your post correctly, I think that you’re fine. The cost of the qualified benefit does not have to change. Rather, the elective contributions only need to change. Again, this will fall under an automatic cost change, so there is no “significant” amount to satisfy, either.

[KIP KRAUS]

You haven’t said what the qualified benefit is. If the benefit is one that is developing a large reserve it may be one that could look at an alternative financial arrangement that would reduce the actual premiums being charged by the insurer. Alternatively, the client could market the plan and find a better financial arrangement.