Flexible Spending Accounts

[Guest plutofan]

For new hires we have a 30 enrollment period during which if they elect any benefits they are enrolled retroactively back to their date of hire (we have first day coverage). So if a person is hired on August 15th they can wait until September 13th to enroll in medical, but their coverage is retroactive to August 15th if they had any claims. Our attorneys said we cannot use this same methodology for the FSA's. They said HC and DC FSA's go into effect the date of election and can never be retroactive. So using the same example above, the person elects DC FSA on September 13th - that is the day their coverage starts and no claims can be submitted before this date. This is a real problem in explaining to employees and also in programming our HRIS. None of us in benefits has every encountered this before - has anyone heard of this?

[QDROphile]

Perhaps the term "constructive receipt" will sound familiar to you. If your FSA is funded solely with reference to compensation deferral, there is no benefit until there is compensation deferral. There is no compensation deferral until the employee elects it with respect to amount not yet earned. A middle ground is that the coverage can be effective beginning with the pay period in which the salary deferral is submitted, assuming that the salary deferral is effective to reduce pay for that pay period. Some do not agree that the middle ground is legitimate. They believe that the coverage starts with the first pay period after the salary reduction election is delivered -- everything is prospective. Your payroll system should be able to comply with the conservative view.

One solution is for the employer to cover the share of the cost for the time before the election. You need to watch the timing so everyone gets the same deal. You don't want to penalize employees who submit promptly.

Same thing goes for tax treatment of premiums for the health care if premiums are paid through salary deferral.

[Guest plutofan]

Isn't it safe to say though that a TON of employers are not administering this in this fashion? Maybe if a person's benefits begin on a delay (say 2 months after hire) then this isn't an issue, but my last few employers had first day coverage and they both went retro on FSA enrollments and Section 125 premiums.

[QDROphile]

Is your point that a certain volume of noncompliance changes the rule? Or perhaps an insufficient level of enforcement changes the rule?

[oriecat]

But everyone's doin' it, Mom!

[Mary C]

Technically, you can't even take pre-tax contributions retro for the health care plan (unless the retro is due to a birth, adoption or placement for adoption.)

[Guest b2kates]

We attached a cover letter explaining that the individual plans were now merged into and part of the master plan.

Since the individual plans were filing final returns this was just a belt and suspenders protection in the event the Service sent an inquiry about the individual plans, we could respond that they were now included in the "master/wrap" plan