Flex accounts under different plans

[Oh so SIMPLE]

An employer's fiscal years end 3/31. The employer has a cafeteria plan with medical FSAs, and the plan years end 3/31.

A local "co-op" of optometrists are offering a 'vision card' to employers that amounts to a flex account, but may only be used at one of the co-op optometrists. The co-op has an IT system that will track usage of the vision card, keep the supporting documentation, produce statements for the employee and employer, and invoice the employer periodically. All the employer needs to do is pass out SPDs and sign up sheets.

This employer wants to add these vision card FSAs in addition to the general use medical FSAs in its cafeteria plan, as vision insurance is being dropped. The challenge is that the co-op only offers these vision card FSAs on a calendar year basis. Each March employees would elect their new medical FSAs for the upcoming plan year to begin April 1, but then they'd also be able to elect each December for the vision card FSA for the upcoming calendar year.

May the employer adopt the vision card FSAs as a second cafeteria plan, along side the PYE 3/31 cafeteria plan with a general medical FSA without violating the rules against mid-year election changes? If the two programs would in essence be considered just one, then I think the answer is no. If the two cafeteria plans would be treated distinctly as two, then I suppose that this might work.

[LRDG]

With respect to the plan year, because each benefit option under a Cafeteria plan is described in a seperate document, (I believe each is an 'addendum' to the primary document), each benefit option can establish a seperate plan year within the Vision Care Debit Card FSA Plan, for instance. I have 2 clients with a seperate plan year for their Dependent Care FSA plan, a few with health premium conversion with seperate plan years also. Provided there is a legitamiate business reason for establishing a seperate plan year, I don't recall anything preventing establishing a seperate plan year for Dependent Care or Health Premium options for eligible benefit under the core Cafeteria Plan, I would assume the same is true for the limited use vision co-op.

Curious, is the co-op providing a plan document for Vision Care FSA Debit Card plan, or is the plan sponsor/employer responsible for the Vision Care FSA Debit Card Plan document under the Cafeteria Plan Document?

Are there any problems with the IIAS requirements for free standing retail vision and pharmacy outlets using the merchant Vision FSA Debit cards via the co-op?

Is there a membership fee or any kind of annual fee associated with the co-op? If so, these are not likely eligible under Sec. 125.

One other issue involving limited use FSAs comes to mind, (keep in mind I'm not providing limited use accounts). But establishing a limted use FSA as this would be, how will employees elect and claim expenses who may not want the co-op provider plan, but who do have vision expenses?

This is not a limited use FSA as it was originally established in the regs, as much as it's a provider or co-op plan, and what implicatins that may have with respect to compliance with regs for limited use accounts.

[Oh so SIMPLE]

With respect to the plan year, because each benefit option under a Cafeteria plan is described in a seperate document, (I believe each is an 'addendum' to the primary document), each benefit option can establish a seperate plan year within the Vision Care Debit Card FSA Plan, for instance. I have 2 clients with a seperate plan year for their Dependent Care FSA plan, a few with health premium conversion with seperate plan years also. Provided there is a legitamiate business reason for establishing a seperate plan year, I don't recall anything preventing establishing a seperate plan year for Dependent Care or Health Premium options for eligible benefit under the core Cafeteria Plan, I would assume the same is true for the limited use vision co-op.

Curious, is the co-op providing a plan document for Vision Care FSA Debit Card plan, or is the plan sponsor/employer responsible for the Vision Care FSA Debit Card Plan document under the Cafeteria Plan Document?

Are there any problems with the IIAS requirements for free standing retail vision and pharmacy outlets using the merchant Vision FSA Debit cards via the co-op?

Is there a membership fee or any kind of annual fee associated with the co-op? If so, these are not likely eligible under Sec. 125.

One other issue involving limited use FSAs comes to mind, (keep in mind I'm not providing limited use accounts). But establishing a limted use FSA as this would be, how will employees elect and claim expenses who may not want the co-op provider plan, but who do have vision expenses?

This is not a limited use FSA as it was originally established in the regs, as much as it's a provider or co-op plan, and what implicatins that may have with respect to compliance with regs for limited use accounts.

The co-op provides the plan document, SPD, sign-up sheets, etc.

The co-op claims IIAS requirements are met, explaining that the cards may only be used at the participating optometrist's shops which have, relatively speaking, very limited types of services and products (vision) that they've coded for IIAS in the IT system the cards use.

No membership fee or annual fee of any kind. The co-op optometrists are sponsoring the vision card FSA plan for its marketing purposes.

The promoters are explaining that an employee that doesn't want the co-op provider plan may forego electing it and use the employer's "regular" medical flex accounts for purposes of electing and paying for other vision expenses, following its claim and substantiation requirements.

[LRDG]

I would verify that there is no limitation on the non-limited-use Medical FSA from reimbursing non co-op Vision expenses because vision expenses are reimbursed via the limited use Vision Debit Card FSA. I think there may be such a limitation because of the existence of the Vision FSA plan. I haven't done the research on this matter, only a vage recollection that there may be such a limitation in the regs.

Brilliant marketing, btw.

[J Simmons]

Prop Treas Reg § 1.125-5(e)(3): "Dependent care assistance, adoption assistance, and a health FSA are each permitted to have a separate period of coverage, which may be different from the plan year of the cafeteria plan." It doesn't say one way or the other that two different health flex accounts offered by the same employer may have 12-month periods of coverage different from one another. But LRDG's suggestion about 'legitimate business reasons' for the different years sounds reasonable in light of the fact that the prop regs do permit differing 12-month periods of coverage for flex accounts of differing types (health, day care and adoption assistance) and the prop regs do not (at least I haven't found where they do) lump together all flex accounts of the same type to be treated as one flex account.

On the limited use flex account rules, I thought they only applied to HSA-eligibility and limiting the use to preventive care. Rev Rul 2004-45. I'm not aware of that ruling requiring that if a type of health expense is allowed, the employer must allow such expenses from any health care provider or must have another option for the employee to claim/substantiate that type of expenses if incurred elsewhere.

[Guest TXCafe]

Wouldn't the separate plan years cause problems for election changes? They would be limited to changes for status changes only, right? No dropping just because Junior won't need a pair of glasses this year. Is there a way around that? Does the open enrollment of the other plan year allow for the mid Cafeteria Plan Year change?

[Oh so SIMPLE]

Wouldn't the separate plan years cause problems for election changes? They would be limited to changes for status changes only, right? No dropping just because Junior won't need a pair of glasses this year. Is there a way around that? Does the open enrollment of the other plan year allow for the mid Cafeteria Plan Year change?

That is the question. Having two separate elections per year for medical FSAs, one in August for the general FSA to apply September 1 thru next August 31, and another in December for the vision co-op only FSA to apply for the following calendar year. Each FSA would run 12 months in length. The entire amount of each FSA would be available from the first day of its 12 month period. No mid-year decreases of an FSA would be allowed. Expenses incurred before the 12 month period of either FSA would not be eligible for payment from that FSA. Election would be required before the 12 month coverage period begins. Those aspects all sound fine and dandy.

The concern is whether the staggered years means that with respect to one of the FSAs, the ability to elect the other in the midst of the first FSA's 12-month year would amount to a mid-year change of that first FSA, which is not permitted. Unlike the typical mid-year change, though, the mid-year change to the first FSA by reason of electing the second FSA would not just be to the end of the 12-month period for the first FSA. The second FSA election itself would last for a 12-month period, just a different 12-month period than the first FSA.

The proposed regulations seem fine with differing 12-month periods between medical FSAs and dependent care FSAs, for example. Those are different categories of expenses, though. Does the fact that the vision co-op FSA is limited to just one type of medical expenses, vision related ones, and may only be used at participating optometrist shops differentiate it enough from general medical expenses that are covered under the general medical FSA to allow for different 12-month periods? The vision co-op FSA is only available from the vision co-op on a calendar year basis.