Premium Conversion Agreement Annually?

[Guest Mike_A]

Here is how our Sec 125 Premium Conversion Agreement reads.

"I agree to have my gross salary re-directed to pay any employee contributions/premiums for employer-sponsered benefit plans, in accordance with Section 125 of the Internal Revenue Code. I instruct my employer to make these contribution on my behalf.

This salary re-direction arrangement will continue until:

The end of the plan year covered by this agreement. For future plan years, I will have the opportunity to modify this agreement;"

Do I need the employee to complete one every year? If so, how can I word is so I don't have to?

[WDIK]

arrangement will continue until:

The end of the plan year covered by this agreement.

It seems to me a new election would be needed.

[leevena]

I have read your statement (This salary re-direction arrangement will continue until: The end of the plan year covered by this agreement. For future plan years, I will have the opportunity to modify this agreement;") and it seems to be saying that the election is good for the plan year only. Otherwise why would you have the next statement "I will have the opportunity to modify this agreement?"

As for your second question, about making it automatic year after year, why would you want to do that. I can almost guarantee you that there will be all kinds of confusion and frustation in the future. There is always someone who will want/need to make a change. The yearly election process will be a good reminder for them to consider changes, and will provide you with the ability to avoid frustration/confusion on their part.

[Sandra Pearce]

Our Plan Document and SPD have the following wording regarding pre-tax contributions to health and dental insurance:

If you do not file a new Salary Reduction Authorization Agreement form with the Plan Administrator before the start of the new Plan Year, your previous election for Health and/or Dental Insurance Premiums will continue the same as in the previous Plan Year. The Employer will reduce your compensation accordingly.

We do provide a notice to make the change from pre-tax to after-tax and vice versa.

[oriecat]

Our forms say "Payroll Deducted Premium Benefits under IRC Sec 125 - Payroll deducted premiums will be deducted on a Pre-tax basis for the current and all subsequent plan years based upon this election form until a signed election revocation is provided by the participant."

As for your second question, about making it automatic year after year, why would you want to do that. I can almost guarantee you that there will be all kinds of confusion and frustation in the future. There is always someone who will want/need to make a change. The yearly election process will be a good reminder for them to consider changes, and will provide you with the ability to avoid frustration/confusion on their part.

I've found the opposite to be true. When we required annual forms, many people would sign to decline coverage, but when I checked with them that they wanted to pay their premiums after tax, they said no, they want their premiums pre-tax, they just wanted to decline participation in the flex plan (meaning the FSAs). No matter how many times we explained at the meetings that pretax premiums ARE a part of the flex plan, this still happened constantly. Now we just get forms from people who want to renew or start their FSA and life is much easier. Rarely does anyone actually want to change from pretax to after tax premiums.

[Guest Mike_A]

Thanks to all for the replies, they really helped.

[JDuns]

There are many benefits under a 125 plan that change annually (particularly health and dependent care FSA election needs) for which annual elections are very necessary and other benefits that are appropriate to carry over from year to year. I recommend differentiating between the two.

I recommend an election form structured to specify what will apply for that person if nothing is done and what their options are. For example,

Medical insurance - Continue to participate in plan A paying premiums on a pre-tax basis (carrying over your election from prior year). By checking here __ I elect to waive participation in Plan A. By checking here ___ I elect to pay premiums on an after-tax basis.

Health Care FSA - No coverage (resetting prior year's election). I elect to contribute $___ to a health care FSA.