Errors in elected amounts during enrollment

[bcspace]

If an EE makes an error in specifying the amount elected, when do such errors become permanent? In this case, an employee has realized from the first paycheck that the election is $50 per pay period too large. The claim is that the ee filled out two enrollment forms but sent in the wrong one.

[J Simmons]

If an EE makes an error in specifying the amount elected, when do such errors become permanent? In this case, an employee has realized from the first paycheck that the election is $50 per pay period too large. The claim is that the ee filled out two enrollment forms but sent in the wrong one.

When the announced (or plan specified) annual enrollment period ended. That's when it became irrevocable, unless according to various reports of unpublished, unofficial information letters from the IRS there is 'clear and convincing' evidence that the EE thought he was electing the other amount when he turned in the election form he did during open enrollment. The plan fiduciaries have a duty to operate the plan according to its documents, if the plan is subject to ERISA.

If the plan year is the calendar year, it becomes particularly 'irrevocable' once the plan year begins--because of the cafeteria plan regulations that only permit election changes mid-year under very narrow circumstances.

Clear and convincing is a legal evidence standard, higher than a mere more-likely-than-not and below beyond-reasonable-doubt. You'd need to investigate all the surrounding circumstances. For example, can he produce the other filled out enrollment form? Why did he not discover his error earlier, when perhaps running across the 'right' enrollment form at his desk or his home earlier than now? What was the reason for filling out two? Which one was filled out first? If it was the wrong one, why wasn't it destroyed before filling out the 'right' one? If the amount in the claimed 'right' election differs from the prior years' elections by this EE, what is the explanation? This can be a difficult sticking point if the 'wrong' one actually follows this EE's trend from prior years. These--and any other factors--would need to be delved into in determining if there is clear and convincing evidence of the claimed enrollment error.

Keep in mind, if you get it wrong and change the amount for the EE now, you risk qualification for the IRC 125 tax advantages for all EEs in the plan.

[LRDG]

The standard is that there must be clear and convincing evidence of the error/mistake and it must be reasonable conclusion to correct the mistake, and doing so would not otherwise voilate Sec. 125.

Most enrollments involve gathering a lot info from a variety of departments, a number of individuals involved in the process, an enrollment staff, management and minipulation of data accross system platforms. It is not always perfect, but is usually very close, based on first hand knowledge.

If the mistake is the EE missed a deadline, the plan and regs usually don't have tollerence for that type of error, unfortunately. However if the EE didn't receive material that would have led to meeting a deadline, either because for example the EE was out sick, vacation, business travel, during enrollment, those EEs really should be attended to by enrollment staff before there's a problem, but could be a circumstance under which a corrected election might be allowed.

There must be documented evidence (available for review in the event of an IRS audit), that an error was made, and it would be reasonable to correct without violating Sec. 125.

[Guest Sieve]

And be careful, because if you allow a change for this employee, you may (or may not) be surprised to find out how many other employees eventually ask for like treatment because they, too, turned in the "wrong" form. Strange how that happens, isn't it . . .?

[bcspace]

And be careful, because if you allow a change for this employee, you may (or may not) be surprised to find out how many other employees eventually ask for like treatment because they, too, turned in the "wrong" form. Strange how that happens, isn't it . . .?

Indeed. I ended up giving an answer similar LRDG's.

[LRDG]

Administrators or enrollers who let it be known that EE Joe Schmore is changing a Sec. 125 plan election, get exactly what they deserve.

In my most menacing tone of voice while flexing muscles and pounding iron? knuckles, I stress to Joe Schmoe that election change is allowed under the strickest of confidence and I'd hate to eliminate changes entirely should word of this get out.

One other comment made concerns when elections become permanent? Elections are 'permanent' on the effective date of the plan. With respect to the regs, elections can be waived, revoked, voided, changed, up to the day prior to the plan effective date. On the plan effective date that is no longer true and elections are 'permanent' on the plan effective date forward.

For late enrollments, for instance new hires or newly eligible participants, their elections become permenant on the 'effective date' of their election, which is the date their enrollment/election form is signed, typically.

[Guest Sieve]

For what it's worth, I wouldn't tell an employee that these kind of changes are made "under strict confidence", because that's implying that there is something rotten in Denmark that others should not find out about--a dangerous approach, IMHO. Better, I think, to indicate that these are fact-specific situations, and this individual meets the very strict standards which permit this very rare correction.

Also, on a practical level, wouldn't the election of a new employee become permanent when given to the administrator (rather than when signed).

[LRDG]

For purposes of determining effective date for late enrollments, it is the date of participants signature on the enrollment form, unless the plan doc and enrollment form specify otherwise.

This date is for establishing service dates to honor FSA claims. Similar to the first date of the plan year establishes the service dates to honor FSA claims for participants enrolled during annual open enrollment, for example FSA services no sooner than 01/01/09 and no later than 12/31/09. Typically there is no similar date within the PD to establish when the FSA 'effective date' for service to be honored for participants enrolling in the plan late.

Insurance effective dates are typically established in the insurance contract.

Edited to add:

For what it's worth, the standard for Sec. 125 plans is written documentation, it's what the IRS requires and more importantly participants should not be required to rely on memory for the date admin received it, (is that even possible for participant to know?), guess the service date or assume what the service date should be for his claim to be honored. Forfeitable monies are at risk if the service date is just one day early. Written reference is for benefit of participant, administrator, and plan sponsor.