Dependent Care FSA Qualifying Event

[French]

An employee's spouse will begin teleworking shortly and we were asked whether contributions to the Dependent Care FSA can be reduced as a result of this change. Our SPD identifies a qualifying event as an employment status change that affects eligibility which I do not believe this situation fits. However I think it is a valid question especially in today's working environment as often times working at home is the only way one can retain a job and this might not have been predictable. I assume that we are not the only employer that has been asked this question. Thoughts and comments based on the regs??

[papogi]

If the change to teleworking means that they are no longer sending the child to daycare, or are using less daycare (resulting in lower costs), then yes, the DC account can be reduced. If they are continuing to send the child to daycare with no changes at all, then I don't see how the regs would allow a reduction, and I don't see why you would want to reduce the account. Again, if they are reducing their DC costs, then a change would be allowed based on the change in cost rules.

[LRDG]

You may need to amend the PD & SPD in order to allow this election change.

Based on your description, the change to 'teleworking' qualifies as an IRS status change for this situation. However, based on the limitation in the SPD (& PD?), an employment status change that affects eligibility , the plan document & SPD may actually prohibit the change.

[masteff]

I would take the position that teleworking is a change in worksite.

IRS Reg Sec 1.125-4 says in part: "(iii) Employment status. Any of the following events that change the employment status of the employee, the employee's spouse, or the employee's dependent: a termination or commencement of employment; a strike or lockout; a commencement of or return from an unpaid leave of absence; and a change in worksite."

[papogi]

It is a change in worksite, but it doesn't affect eligibility for the plan, so it doesn't matter. I think the only route you have is via cost change if the person plans on less daycare after the change to telecommuting.

[masteff]

Ah yes, point taken.

And I agree it would likely fit w/in example 6 in the reg for paragraph (f), change in cost/coverage. And if the employee wanted to entirely eliminate daycare, I would think could make the case for allowing to revoke the election.