Change in status during period of unemployment

[Guest Jose Rosario]

A cafeteria plan excludes changes in employment status from qualifying events for purposes of mid-year election changes.

Is the exclusion of changes in employment status from qualifying events for purposes of mid-year election changes permitted? I think it is.

A participant terminates employment, then marries, then is rehired by the employer.

The participant maintians that the marriage is a qualifying event for an election change.

I tend to agree, as the change is being made on account of the marriage, not the rehiring.

Any comments would be appreciated.

[Guest MSMA]

My interpretation is a little different.

The marriage occured at a time when the "employee" was NOT employed.

Whatever happens during this period of unemployment is a moot point.

Also, it is my understanding that if an (cafeteria-plan) employee leaves employment and returns to the same employer within the SAME plan-year, then they can not re-up until the start of the next plan year.

It's been a little over 2 years since I handled this on a daily basis...so I will gladly bow down others who may be more current.

[oriecat]

How can you exclude termination from being a qualifying event? If the employee isn't employed any longer, how do you force them to continue paying for the cost of the benefit? I am confused on this one.

Anyway, my matrix says the following regarding terminations, although this may be specific to my plan:

Termination of participant with rehire within 30 days: Elections made prior to termination are reinstated unless another event has occured that allows a change.

Termination of participant with rehire after 30 days: Participant may make new elections.

[papogi]

A 125 plan can specify which status changes it wants to honor. While most honor all of the IRS allowable events, a 125 plan is not required to do so. For purposes of explanation, a 125 plan could specify that marriage is not a qualifying event, for instance. In this case, HIPAA could force the health plan to allow the spouse on, but any increased medical deduction for that spouse would need to be taken post tax if the 125 does not recognize marriage as a status change. Anyway, since this employee was terminated at the time of the marriage, I agree that there is no qualifying event here with regards to the marriage. When you are terminated, and not paying for FSA COBRA continuation, then all participation in the plan ceases, and no changes can be made. Termination is a qualifying event, and the employee may choose not to continue the FSA. Concerning reinstating the account upon rehire, the IRS uses the words “may” not “must” in 1.125-2 Q-7(3). I think it’s is for this reason that you have some people say that a returning employee cannot make a new election in the same year, and others say that the employee can make a new election. I feel that the IRS is very careful about their use of “may” and “must,” because both words appear in the regs in different areas. I think that the regs are saying that an employer can, if they wish, prevent any rehires within the same year from making a new election, but that an employer can allow a new election if they wish. The 30-day stipulation is thrown in there by some plans to prevent an employee and employer working together by having the employee quit and be rehired the next day in order to come up with a new election. If the plan in question does not have any provision for reinstatement for FSA’s upon rehire, this guy’s out of luck until open enrollment.