ER wanting to stop contribution

[Guest rachd]

Employer currently contributes a certain amount per employee into the cafeteria plan. They have now changed their mind mid-year and want to retract this contribution (from now forward- not going back). Is this allowed?

It seems to me- no- because it would be changing the annual election for all ee's but I can't seem to find anything to back me up. Any sources would be greatly appreciated as well!!

Thanks,

Rachel

[papogi]

In your first paragraph, you say cafeteria plan, inferring that you are talking about all the benefits under the café plan. In the second paragraph, you mention the annual election changing, inferring that you are only talking about the FSA portion of the plan. If you are talking about the entire café plan, if the cost change is significant, employees would see this as an increase in costs, and the election change rules under 1.125-4(f)(2)(ii) and (iii) would allow them to make some election changes. With regard to the health FSA, cost changes do not allow any changes there. I would think that the employer could stop contributing, but the employee would still have access to what the employer’s “election” was before contributions stopped as long as dates of service are before the stoppage. This means the employer could still be forced to pay out, due to the uniform reimbursement rule. If the employee was adding a certain amount to the FSA on top of the employer’s contribution, the employee’s election should continue unchanged. Again, the employee could go for the full amount, however, with incurrals prior to the stoppage of employer contributions.