Employees Transferred to New Cafeteria Plan Mid-Year - Change in Status Event?

[Guest rocnrols2]

X sponsors a cafeteria plan for its regular employees and sales employees. As part of a new company initiative, X proposes creating a new cafeteria plan providing similiar coverages except that the employee's cost of medical insurance under the new cafeteria plan will be based on the employee's production. If X creates the new cafeteria plan effective July 1 and moves its ales employees out of the original plan and places them into the new cafeteria plan on that date, is this move permitted under the change in status rules?

[Guest b2kates]

1. does X have the authority to move an employee from cafeteria 1 to cafeteria 2?

2. Assuming yes, it seems that the new structure results in a significant change in the cost of medical, this should be a qualifying event.

3. how does new plan propose to meet discrimination testing?

[Guest rocnrols2]

First of all, thanks for your reply.

1. X has the authority to move a class of employees from Cafeteria Plan 1 to Cafeteria Plan 2.

2. I was considering the possibility of a significant change in cost, however, that appears only to apply to changes within the same cafeteria plan. I also considered the change in coverage exception at (f)(4) of the 125 regs, but the first one did not seem to apply because it would appear that the change has to be a change in status under cafeteria plan 2 and the second one could apply since there will be an initial short plan year which is different that the period for cafeteria plan 1.

3. Since medical under plan 2 will be insured, 105(h) should not be a problem. I did the testing for the employees remaining in plan 1 and it appeared to comfortably pass. As for 125 testing, it is not clear what is meant by discrimination in contributions since certain of the employees in plan 2 will be making higher salary reduction contributions. On a benefits basis, the intent is to provide the same medical coverage for employees in Cafeteria Plan 2 as is provided in Cafeteria Plan 1 and that is why it should pass 125 testing.