Arbitration Dispute Judgment

[Guest kenne]

I was hoping someone may have input regarding the following. A local govt. had an arbitration decided against them and must now repay employees for health insurance premiums that were previously deducted through their 125 plan. The govt. was obliged to pay health insurance premiums as cost of living increased. The shortfall (premiums increased faster than the cost of living) was deducted through the employee's 125 plans. According to an arbitration judgment, the govt. must now pay the employees for those amounts deducted through the 125 plan. Any thoughts?

1) Must the 125 plan returns be amended?

2)Should prior W-2s be amended? Will the repayment be subject to FICA?

3)How will this affect their 125 plan?