Change employer contribution after open enrollment

[bcspace]

We have a client that wants to change their employer contribution amount from 100% EE only to 50% EE only as of 11/1/08. Can we do this outside of a S125 open enrollment or do we need to wait until our open enrollment for S125 which is 1/1?

Thanks

[QDROphile]

The employer can always give raises. Salary reduction elections can only be changed to the extent allowed by law and the plan document.

[bcspace]

Thanks.

What would be the law in this case? Obviously such is a sort of a raise (but not through the right channels). So then if the plan docs for this year do not state that 50% will be covered by the employer then they have to wait till next open enrollment when they can change their plan docs and allow such a benefit to be available?

[J Simmons]

Look on pages 43955-57 of the Federal Register here (pages 19-21 of the pdf file that comes up). Prop Treas Reg 1.125-2 is one law you need to be concerned about. It is just a proposed regulation, but it does a fair job of capturing and setting forth in a cohesive format prior guidance from the IRS.

Plan officials are also legally obligated to operate the cafeteria plan as written, if ERISA applies as it does to plans of most non-governmental, non-church employers (i.e., to private employers). So you need to look at what your plan document says about mid-year changes. ERISA section 404(a)(1)(D). You can check that statute out here

[SLuskin]

This would definitely be one of the changes the regs permit if the documents have been written to allow changes like this. The documents we use have provisions for employers changing their contributions midyear and allowing participants to reflect this change via pretax payroll deduction.

As in everything associated with these plan, you have to check the documents.

[bcspace]

Thanks.

It would seem not to be allowed in this case because the plan document does not specify such a change. Just to be certain we are speaking of the same thing; this is not a single employee undergoing a mid year change of election, this is an employer who wishes to change the parameters of a benefit for all employees mid year.

[GBurns]

I have never seen a Plan Document that did not allow the employer to amend its plan. Are you sure that you are looking at the PD for the health plan / employee benefit plan ?

Such a change in employer contribution should satisfy the requirement for a substantial change in cost allowing the employeeto change elections etc.