FSA Eligible Employee

[Guest rbk08]

Our PD defines an Eligible Employee as: an employee who is regularly scheduled to work in accordance with the current practices in effect when the Employee was hired or re-hired.

This seems to indicate that eligibility is determined based on guidelines in effect at the date of hire and not the current guidelines.

Who determines the eligibility guidelines -- the employer, our plan provider, the IRS?

If the employer determines eligibility, can the requirements be changed at any time?

Are there any regulations (IRS or other) regarding a minimum number of hours that an employee needs to work in order to participate in an FSA?

Thanks so much!

[J Simmons]

Our PD defines an Eligible Employee as: an employee who is regularly scheduled to work in accordance with the current practices in effect when the Employee was hired or re-hired.

This seems to indicate that eligibility is determined based on guidelines in effect at the date of hire and not the current guidelines.

Who determines the eligibility guidelines -- the employer, our plan provider, the IRS?

The employer gets the first whack at deciding eligibility guidelines, within the nondiscrimination parameters set in IRC § 125 and either IRC § 105(h) if it is a health FSA, IRC § 129 if it is a day care FSA, or IRC § 137© and § 127(b)(2) if an adoption expense FSA.

If it is not clearly set forth by the employer in its PD, then ultimately it will be a court that may determine what the vague PD should be interpreted to mean, in the face of a challenge by an employee or the IRS.

If the employer determines eligibility, can the requirements be changed at any time?

By amending the PD on a prospective basis, and giving employees a SMM explaining the change, yes the employer may do so.

Are there any regulations (IRS or other) regarding a minimum number of hours that an employee needs to work in order to participate in an FSA?

Assuming it is a health FSA, take a look at Treas Reg § 1.105-11©(2)(iii)(A).

[Guest rbk08]

If the employer determines eligibility, can the requirements be changed at any time?

By amending the PD on a prospective basis, and giving employees a SMM explaining the change, yes the employer may do so.

Are there any regulations (IRS or other) regarding a minimum number of hours that an employee needs to work in order to participate in an FSA?

Assuming it is a health FSA, take a look at Treas Reg § 1.105-11©(2)(iii)(A).

Thanks.

In this case, it's a Dependent Care FSA -- so if we (the employer) don't think that there is a minimum hour requirement and therefore allow this employee to enroll in the DC FSA, there should be no IRS repercussions for the employee, correct?

SMM stands for...?

[J Simmons]

SMM is 'summary of material modifications'. ERISA § 102(a). But if day care FSA is your only benefit, ERISA might not apply since it is not the same as maintaining a day care center for employees. Even if not, IRC § 129(d)(6) requires "Reasonable notification of the availability and terms of the program shall be provided to eligible employees." Since you'd be changing the 'availability and terms of the program', you need to provide notification.

IRC § 129(d)(3) requires that the day care FSA "benefit employees who qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of" highly compensated employees, as defined in IRC § 414(q). Be careful here if excluding employees based on work schedules, e.g. those working less than 20 hours per week, as it might disproportionately exclude non-HCEs.

IRC § 129(d)(9) allows exclusion of employees to the extent specified in the PD if under age 21 and who have not completed a year of service (as defined in IRC § 410(a)(3)), applied similar to what IRC § 410(b)(4) requires.