election change

[Guest achloe81]

Any recommendations for an employee who wants to make an election change because his employer told him at enrollment that it is OK to use FSA funds to pay for his TriCare premium? Would this be considered an allowable election change?

[GBurns]

When was the election made?

When is the Plan year ?

What does the SPD and Plan document say ?

In essence, Why can he not use FSA money to pay the premium ?

[Guest achloe81]

When was the election made?

When is the Plan year ?

What does the SPD and Plan document say ?

In essence, Why can he not use FSA money to pay the premium ?

I appreciate your response to my question. I am fairly new at this...need I say more?!!

Election was made during open enrollment prior to the beginning of the plan year, July 1. The plan document allows employer medical, dental, and vision under the premium feature. General purpose health FSA and DCAP are also options.

EBIA states that insurance premium amounts cannot be reimbursed under a health FSA. Have I missed something?

Thanks for any help!

[GBurns]

What does the SPD say about insurance premiums ?

You cannot reimburse premiums through an FSA. But why is there a need to reimburse ? Why aren't the premiums being paid through the POP section of the cafeteria plan? Does this person also participate in the employer's medical plan ?

[Guest LMPett]

Any recommendations for an employee who wants to make an election change because his employer told him at enrollment that it is OK to use FSA funds to pay for his TriCare premium? Would this be considered an allowable election change?

I'm confused about the question also. What is change exactly is the employee making? Does he want to drop employer coverage and use the FSA for his own Tricare supplement? FYI, you cannot use FSA funds to pay for any insurance premiums.

Here is how caf plans work. You make a 12 month election, which normally coincides with your open enrollment. At that time, you drop or add and have corresponding payroll reduction. During the plan year, you can't change your election unless it's an IRS permitted change in status (see www.changeofstatus.com). Typical changes in status are marriage (add your new spouse or drop your coverage to join new spouse), add new baby, drop kid who graduated from college, drop because it's your spouse's open enrollment and you want to join his/her plan. If spouse loses his/her coverage, can add spouse mid-year.

The change in status has to have affected your eligibility in your plan or your spouse's plan. The changes should all be listed in your plan document. You probably also have an employee SPD that lists the acceptable changes.

Based on what info you have given, this employee cannot make a mid-year change in election because he has no change in status. I hope this helps!

[GBurns]

By the way, How did the employer tell this employee ? In writing ? On enrollment materials ?

[Guest achloe81]

A appreciate the chatter out there!

The employer( "Tom") feels bad for his employee ("Sam") because he gave "Sam" ernoneous information about using the FSA to pay insurance premium (verbally). "Sam" (who is retired military) elected his FSA amount based on his individual TriCare premium (individual premiums are not offered through the POP section and he does not participate in employer sponsored health insurance ) and does not enough health expenses to cover his election. "Tom" wants to allow a change of election based on his mistake. The plan document does allow all of the ususal IRS changes and those are spelled out in the SPD.

Are there any provisions for changing an election based on false information given by the employer?

I truly apprecitate your comments!

[QDROphile]

The guilty employer can give the emplyee a bonus to make up for the employer's misdirection. But be careful. It is improper to refund the unused FSA amount to the employee, so the bonus should be sized and timed to avoid being characterized as a refund, and the actual excess must be treated properly under the plan terms and section 125 rules. This is not for the timid, the uniformed or the inexperienced and the circumstances may not be right for the move.

[GBurns]

The employer messed up. I suggest that QRDO's solution be considered. A TriCare reimbursement plan following Rev Ruling 61-146 and new Propsed Treas Regs 1.125-2(m) (I think) could be considered.

Why was the Tricare premium not pre-taxed through the cafeteria plan just like any other medical or health plan premium instead of trying to go through the FSA reimbursement routine ?

I do not understand what you mean by "individual premiums are not offered through the POP section ". What says so ? How then do you handle AFLAC type supplemental policies ?

[Guest achloe81]

Sounds like there is not much the employer can do to right this mistake. I will pass along the bonus idea.

In reference to GBurns question about individual premiums in a POP...I am confused how you include individual premiums that are not group sponsored in a POP plan. How do you set up the administration on this? How are the premiums verified and reimbursed? What is the value of a PRA if you can run individual premiums through the POP? What about HIPAA and ERISA concerns?

This is so overwhelming!! Thanks so much for your patience!

[J Simmons]

Reading Rev Ruling 61-146 and new Propsed Treas Regs 1.125-1(m) will answer many of your follow-up questions.

[bcspace]

Reading Rev Ruling 61-146 and new Propsed Treas Regs 1.125-1(m) will answer many of your follow-up questions

I'm pretty new at this too. Where can one go to read these? Thanks.

[J Simmons]

Go here, then under 'Select the Year of Publication' click on 1961, and then scroll down to Rev Rul 61-146. You'll similarly want to look up and read Rev Rul 75-241 and 85-44, to see how later pronouncements from the IRS added limits to the application of Rev Rul 61-146.

For the Proposed Treas Reg 1.125-1(m), go here and go to the 16th and 17th pages of the .pdf that comes up, i.e. pages 43952-53 of the Federal Register.

It is reading that helps cure insomnia!

[SLuskin]

What does the SPD say about insurance premiums ?

You cannot reimburse premiums through an FSA. But why is there a need to reimburse ? Why aren't the premiums being paid through the POP section of the cafeteria plan? Does this person also participate in the employer's medical plan ?

The reason that the TriaCare can't be reimbursed under the POP part of the plan is that TriCare is sponsored not by the employer, but by the Military.

If the employer has a premium reimbursement account in its plan, then that is the correct place to claim those premiums. However, if they just have a medical FSA and a daycare FSA, then the premiums can't be reimbursed.

The IRS has stated multiple times that misaprehension of the law or the regs does NOT constitute a reason to change an election. Only an impossibility would allow a change. So, for example, if I elected the DCAP, but have NO DEPENDENTS AT ALL, most likely I could change the election. However, everyone can use the medical FSA, so there would never be an impossibility. The guy is just out of luck.

[Guest parrot87]

http://www.ecfc.org/ecfc_news/00/0621.htm

You can make a mid year change based on administrative error. Make sure you can substantiate it well though.

[QDROphile]

SLuskin's post is more on the mark than Mattew Tae's post under the circumstances described in this thread. The document at the link is a proposition, not a description of the law.

[Guest parrot87]

SLuskin's post is more on the mark than Mattew Tae's post under the circumstances described in this thread. The document at the link is a proposition, not a description of the law.

Agreed. I attached a pdf that states error as a valid reason, although the nature of the error is important. From what I understand, an employee error must be obvious and an impossibility such as electing dependent care FSA when the employee (who happens to have no kids) meant to elect health FSA. I haven't seen much in the way of correcting employer FSA errors. I figured people could look into it if really interested.

A few more thoughts, can the employee drop his Tricare coverage and change to the group plan? When is the group plan anniversary, a rollover to an HSA might be a valid option. Would adding an FSA grace period help?

Good luck

List_of_Midyear_Change_of_Status_Reasons.pdf

[LRDG]

This is a plan error. This is not an employee election error.

Correcting a plan error does not require compliance with status change or compliance with election change criteria.

IRS does not prohibit administrative relief for errors made by the plan. For instance if in the course of administeration of the plan, a medical FSA deposit for the payroll date of 11/01/08 was duplicated, the administrator would simply reverse the unintended, duplicated deposit.

In this case the plan errored by allowing an unqualifed representative of the organization to advise an employee/participant about enrollment and medical FSA elections.

To correct the error made by the plan, the employee should be allowed to change the medical FSA election by the amount of the premium that was included in the election, according to the incorrect enrollment info proided by the representative of the organization.

I would require a statement from the company rep stating the incorrect info provided to the participant. Require a similar statement of facts by the participant.

Invoice or similar documentation from the insurer to the insured of the total premium amount (or a means to ascertain the total premium amount if monthly billing for instance), included in the participant election amount made in error.

The original election document and the corrected election document, the representative and participant statements of the facts, insurer invoice documenting the total premium amount, should all be maintained to support the election change and the reason, and to allow for an accurate and clear audit trail in the event of an audit. The election change amount should correspond with the total premium amount included in the original election.

Avoiding forfeitures with a bonus, salary increase or stock of equal value is specifically prohibited in the regs. An attempt to avoid forfeitures or circumvent prohibited election changes or correct errors similar to this one, with some type of offset via a bonus, salary increase or stock of equal value is prohibited.

[J Simmons]

I have heard mention numerous times to an informal IRS opinion set out in general information letters relating to mistaken elections in a cafeteria plan, which had been obtained through a Freedom of Information Act request. It is in these letters that the 'clear and convincing' evidence of an error of the type that is a mistake of fact (e.g., DCAP elected by an EE who has no dependents) rather than a miscalculation (EE elects $1,200 for health FSA for him and his wife, at $500 each) or a mistake of law (e.g., that health FSA could be tapped to pay premiums--such as suggested in the OP). Other reports I've read of those information letters make no distinction between the type of error as long as there is clear and convincing evidence that an error was made. Yet others suggest slice and dice the type of error issue differently.

I've seen write-ups but never the information letters themselves, nor any reference to the dates or authors.

Does anyone have copies of those information letters that could send me copies either by attachments to e-mail or PM, or post them on this Board for download?

[LRDG]

Private Letter Rulings?, I've seen a couple published in tax compliance publications such as BNA. I didn't realiza that a FOIA might be involved in order to view an original, or see one not otherwise published or issued on my behalf.

[J Simmons]

Private Letter Rulings?, I've seen a couple published in tax compliance publications such as BNA. I didn't realiza that a FOIA might be involved in order to view an original, or see one not otherwise published or issued on my behalf.

PLRs are given to a specific taxpayer, about a specific situation and are published. General information letters are not. They are usually addressed to a practitioner in response to a question about an acceptable interpretation of a published rule.

If you know of any PLRs or other published ruling by the IRS that provides the 'clear and convincing' standard allowing for corrections of cafeteria plan election errors, please post the cites.