FSA and DCAP Changes

[oriecat]

I want to make sure we can do this... employee came to me in May, said the wife will be covered June 1 under her new employer's plan. So we can submit the drop of the wife. He can also then change down his FSA, can't he? Or could he only do that if she also had an FSA she could then enroll in?

Now let's complicate it more- he came to me about two weeks later and tells me they are getting divorced. She has moved out. He is keeping his kid and their kid. Custody of her kid will probably be going to her parents. But at this time, her kid, the employee's stepson, is no longer living with him, so he would like to lower his DCAP. Can the change of residence of the wife and stepson be used as a status change to allow that? Could it also be used to lower the FSA, if it can't be lowered due to the new coverage? I don't really understand the change of residence status change and when it can be used, whether the change also has to affect eligibility for the benefits first. On the DCAP, the plan doc says that "an eligible dependent is any member of your household for whom you can claim expenses", so by moving out the child is no longer a member of the household, so he would lose eligibility and therefore the amount could be reduced, right? But I don't think that would apply for the FSA.

I know that once the divorce is final these changes could be made no problem, he just would prefer to lower them now, since he no longer has the expenses for them.

Thanks for your thoughts on this!

PS - The plan doc pretty much allows all changes in the regs.

[Guest JerseyGirl]

I would say that the change of employment status of the wife should allow both her removal from the employee’s health plan and the lowering of his medical FSA contribution. In regard to the DCAP contributions, hasn’t he had a reduction in the number of dependents? The step-child no longer satisfies the eligibility requirement either, if the employee is no longer financially responsible for this child. Either way you look at it, it would appear the changes being requested are both consistent with and on account of a legitimate change in status. You would probably be wise to have something about the child in writing to back up what I am assuming was verbal-only communication of the change in status just to be safe.

[oriecat]

Thanks, JerseyGirl. I thought I should be able to do it, since there are so many variables involved, but I wanted to make sure I wasn't confusing myself.