Mid year election changes for dependent care assistance

[Guest janmin]

A HCE elected deferral of $5,000 for the year and must now reduce election to $3,000. Can spouse now elect $2,000 under his employer's dca??

Thanks.

[QDROphile]

Why the reduction?

[Guest janmin]

Client did not say, but since spouse is a HCE, we assume other plan did not pass 55% average benefits test.

[QDROphile]

You can't tell if the reduction is proper without knowing what the plan says and more facts. You can know that a limitation on benefits because of compliance is not a status change described in the regulations that would allow mid-year change under the plan of either person. So even though the reduction may have been proper, it may not be a change in election. The spouse does not, by reason of a change, necessarily have a change in the HCE spouse's plan that would allow a mid-year election under the other spouse's plan. Does the other spouse have another event that would allow a mid-year election? The IRS is very generous about what constitutes change in cost or coverage when it comes to childcare FSAs. See Example 5 of Treas. Reg. section 1.125-4(f)(6).