Election Change Deadlines

[kgr12]

I'm trying to get a handle on any deadlines that exist for making 125 plan election changes.

Plan document says that participant must make new election within 30 days after an event that allows them to make an election change. Employer is interested in making this a little more liberal where possible (so if it is possible, it is recognized that a plan amendment would be required).

Here is how I'm interpreting Sec 125-4 of the regulations:

1. If the change comes from a special enrollment right, then Section 9801(f) of the Code requires that the change be made within 30 days of when the right arises (i.e can't be made more liberal).

2. If the change comes from a "Status Change," the consistency rule requires that the change be "on account of and CORRESPONDS WITH" the change in status. What "corresponds with" means isn't discussed and no specific deadline is identified. So it looks like a participant could change an election within some reasonable period after the event, such as 30 days, 31 days (maybe even by the end of the month following the month in which the status change occurs?).

3. If the change comes from anything else authorized (Court Order, entitlement to Medicare/Medicaid, significant cost or coverage changes, FMLA), there's no deadline and the consistency rule doesn't apply, so there's no apparent deadline at all, although as a practical matter an employer would probably want to impose one.

Any comments, insights, remarks would be appreciated.

Thanks!

[LRDG]

I agree that, as a practical matter, no more than 30 days from the qualifying event is an appropriate period of time to allow election changes.

I would only add that in some circumstances, through no fault of the participant, I have allowed an appropriate time period extension. The circumstances could be a delay in the receipt of documentation, delayed or lost mail, or ER, administrator or third party error.

This is the most exhaustive and cohesive evaluation I've seen on the subject of deadlines for election changes, and of Sec 125-4. Although I haven't reviewed the regs. yet. (is there a link, perhaps?)

[Jacmo]

I have a detailed, exhaustive narrative and flow chart produced by EBIA (I think). It is 21 pages long, about half of which is a narrative and the other half a flow chart. It covers every conceivable event for all affected benefits. All code references are to 1.125-4.

The flow chart starts off with Step 1--Did employee request a change within 30 days of the event?

Step 2--Does the event, benefit affected, and related consistency requirement allow a change?--Yes or No

Step 3--If yes, complete change of status form

There are no exceptions to the 30 day rule. However, as LRDG noted, we have allowed changes due to administrative error (and documented them as such).

Keep in mind that, although most 125 plans are written to allow the most liberal interpretation (within the confines of 125), some employers (usually very large employers) choose to further restrict the qualifying events under their plan, but they cannot liberalize the rules, such as adding days to the 30 day rule or adding qualifying events.

[papogi]

kgr12, nowhere in 125-4 does it state that election changes must occur within 30 days of the event. Back before January 2001, there was no reference to any required number of days in 125-4. In Jan 2001, the IRS said that all 125 plan changes must be on a prospective basis only (not back to the status change date), except for birth, adoption or placement for adoption, which could go back to the event date as long as they were reported within 30 days of the event as outlined in HIPAA 9801(f). Still, the industry standard has always been 30 days following an event, as this was seen as enough days to notify one's employer of a change, but still a short enough time to help ensure that the vague consistency standard was being held to should there be an IRS audit. EBIA has undoubtedly taken that stance for all changes, and, with so many employers relying on their books, decided that this was the most prudent thing to publish. I don't disagree. However, outside of the 30 day time span forced on a 125 plan when HIPAA 9801 is also involved, there is still no specific restriction placed on other status change notifications that would prevent you from using a longer time span. Again, I would not recommend it, however.

[Guest mck]

Is there a way to safely allow an election change for a newborn where the event is reported after 30 days (58 days in this case), when the plan indicates a 31 day cutoff? Can "reporting the event" be satisfied by the employer/plan having paid benefits for the newborn for the first 30 days of life?

If employer allowed this exception, is it realistic to expect the Service to disallow the tax benefit for all of the plan participants? It appears under the former rules, at least in the case of highly compensated EE, the tax shelter would be lost for just the affected EE. I saw a January memo from the AICPA indicating that a similar provision was overlooked in the new rules and should be added.

[Guest mck]

Furthermore, back to very basics, if EE has a 125 family plan already with wife and dependent, is it really an "election change" under 125 if EE adds another dependent (by birth) with no other change in plan premiums or other coverage changes (i.e. except insuring the new child)?