Changing the Plan Year

[Guest Carly]

Is it acceptable to change the plan year of a cafeteria plan? We currently have a calendar year plan year but would like to change it. Are there any regulations on this?

Thanks

[SLuskin]

Carly, there has to be a good business reason for changing the plan year. For example, the group health plan renews June 1, and you would like the Section 125 plan to renew at the same time as the group health plan. You can have a short plan year, but not a plan year longer than 12 months. You cannot change plan years often (I had heard rule of thumb not more than 2 times in 5 years), and it cannot be for the purpose of avoiding any of the "use it or lose it" or the employer risk of forfeiture.

[Guest mmclees]

Just a thought...How do the employee deductibles accumulate? On a calendar year? Or would it coincide with the new plan year? It may be quite difficult for some employees to base a FSA medical election on a plan year that doesn't coincide with the deductible year.