Benefits offered through cafeteria plan

[Guest KLM]

A client wants to offer an insurance product through the cafeteria plan that has a different enrollment year than than the cafeteria plan's plan year. All other insurance products offered through the cafeteria plan have the same plan year. I advised the client that because the insurance product has a different plan year it could not be offered through the cafeteria plan. Are there any alternatives? Thank you.

[leevena]

A client wants to offer an insurance product through the cafeteria plan that has a different enrollment year than than the cafeteria plan's plan year. All other insurance products offered through the cafeteria plan have the same plan year. I advised the client that because the insurance product has a different plan year it could not be offered through the cafeteria plan. Are there any alternatives? Thank you.

There is no requirement that the plan years match. Why do you believe this to be true? If you do want to make them all match, you would need to work with the carriers to change their plan years, which may or may not happen.

[Guest KLM]

I thought that to be the case from reading the proposed regs. 1.125-1(d), Ex. 2.

[LRDG]

The regs are a bit ambegious on the issue of requiring all plans included in a Flex plan be co-ordinated with the same plan year. For example, the regs state that group plans that are underwritten 100% with no element of self insurance can pass mid-year premium increases mid-year through the Flex plan without requiring plan sponsor issue Flex plan amendments or participant election changes to cover the increased premium deductions.

However, if the plan includes other changes, for instance higher co-pays, higher cost deductibles, etc., those changes may not provide for a coorsponding mid-year Medical FSA election change.

Nor do the regs mention in any other respect, how group insurance plans that include elements of self insurance are to do in order to comply. The lack of such instruction leaves the only conclusion and remaining option would be to pass premium increases on to participants mid-year, via payroll deducted on an after tax basis, not automatically included in the pre-tax payroll deduction in effect when the Flex election was made. Administratively participants would have 2 premium deductions, one pre-tax and one for the mid year premium increase deducted after tax.

[jpod]

Perhaps I am saying the same thing as LRDG, but I'll give it a try.

It seems to me that if the insurance product has an enrollment year that does not match the 125 plan's plan year, participants may need a Section 125 permitted reason to opt into or out of the insurance product during its annual open enrollment period. If that's the case, it sounds like a poor plan design to me. On the other hand, if participants can opt into or out of the insurance product at any time during the enrollment year (i.e., so that they can opt in or out as of the start of the 125 plan's plan year), then it should be workable.