Health Care Reimbursement Question

[Guest cease]

Flex Plan has two components: Health and Dependent Care Reimbursement Accounts. Participant may elect to defer up to $2,000 towards Health Care Reimbursement. Plan Year is the Calendar Year. Plan sponsor wants to know if they can amend plan mid year to increase the amount of Health Care Reimbursement up to $4,000 and as a result, allow particiapants to increase their salary deferral amounts.

Would someone please be kind enough to direct me to a prior posting (I could not find one that fit my inquiry), or appropriate Internal Revenue Code cite?

Thanks.

[Guest lschaab]

My first answer is that you open up a can of worms with separate periods of coverage issues, where an employee could ultimately elect $6,000 (using your figures) but only contribute $4,000 (I think I have that right). However, that being said the change in status rules do not appear to allow employees to make a change to their FSA upon the "addition or improvement" of a benefit package (the increase maximum on the FSA). If you were permitted to amend your plan to increase the maximum you could have a discrimination problem as well, the higher amount is technically not available to all eligibles. I see lots of problems with a mid-year amendment of a health FSA.

[Guest kwong98]

I agree with lschaab. It would be best to change the Health FSA maximum in the new plan year. Under IRS Code 1.125-4, this isn't doesn't appear to be an allowable Change In Status. The "addition or improvement of benefit package" refers to insurance coverage not the maximum in a Health FSA.

[Guest cease]

Thank you both for your responses.