Multiple Cafeteria Plans

[Guest ehs]

An employer has a calendar year 125 plan with an FSA. The same employer is considering a mid-year health plan renewal that would result in higher co-pays and deductibles to employees. We know the current calendar year FSA elections cannot be adjusted in any way, but could the employer establish a 2nd cafeteria plan that would allow employees to elect a 2nd FSA, presumably to cover the potential additional financial exposure that the new health plan would require?

[J Simmons]

I don't think there's a clear cut answer in the regs.

I'd be nervous about this because you've already given the EEs an FSA election opportunity for the year, a full 12 months. What is being considered would (a) allow for a second, mid-year opportunity and (b) create a shorter than 12 month period for the new FSAs.

If you proceed, I would at least limit the amount of the new FSA to each EE's potential additional financial exposure that the new health plan being added mid-year would pose, and definitely not allow any expenses that were incurred prior to the mid-year addition and election.

[SheilaD]

Wouldn't this be a qualfiying event which would allow a mid-year change in elections. I went to http://www.changeofstatus.com/resources/2001final.asp. (2001 changes to final 125 reg's). This seemed to indicate that if there is a significant change in the cost to the employee they could make mid-year election changes.

[J Simmons]

Mid-year significant change in cost/coverage latitude does not apply to FSAs. Treas Reg 1.125-4(f)(1).