Can the unexpected renewal of a contract with an employer be considered a qualifying event?

[Guest DK Ellerson]

One of our clients has a division of employees who expected their employment contract with the client to be terminated at the end of the August. However, the contract was extended through the end of the Plan Year. Employees made Plan Year Annual Elections to their FSA's based on expenses they would incur through the end of the contract period. Now that they have effectively been 're-hired', could this be considered a change in status that would allow these employees to increase their Annual Elections to their FSA's?

Any and all guidance would be greatly appreciated. If you can direct me to any reference material regarding this situation, that would be great.

Thanks in advance for your help.

[papogi]

I can’t think of anywhere this might have been addressed. I would not allow new elections on 9/1/04, but would allow employees to submit claims with dates of service falling after 9/1/04. For those people who made elections too high and did not incur enough expenses, this is great. They now have another 4 months (if this is a calendar year plan) to incur charges. For those people who cleared their accounts, they have still come out ahead. They just won’t be getting as much of a benefit from the FSA as they might have gotten. That’s my opinion about how to handle this, but I think you have an argument as to why you would allow new elections on 9/1/04. With no guidance (that I’m aware of anyway), I would opt for the conservative approach.

[sloble@crowleyfleck.com]

I think you could allow new elections if the contract extension is considered a change in employment status that affects eligibility under the cafeteria plan or component plans(s). I think you would have to treat the employees as new hires at least under the cafeteria plan and apply any waiting period, etc. to show that eligibility was affected. Of course this all depends on what your plan document says.