Default Health Plan

[French]

In 2011, we are redesigning our health plan options and will be adding/deleting some health care plans. We are planning on having an active enrollment for the first time in many, many years and we thought that we could say that the "failure to make an election will result in defaulting into one particular plan". This was something that I had been involved in about 10 years ago with another employer. A co-worker recently said that unless the current plan of an employee did not make the redesign cut, we could not simply default them into one plan because salary withdrawals are required. Comments? Thanks.

[GBurns]

The health plan is a separate issue from the cafeteria plan under which the employee enters into the salary reduction agreement.

In my opinion and experience, the employee is correct.

[FormsRstillmylife]

There are now automatic enrollment provisions possible under a cafeteria plan that would coordinate with the default group health plan.

[GBurns]

Can you give a cite?

[oriecat]

http://www.treas.gov/press/releases/reports/section125.pdf

Page 75

(b) Automatic elections--(1) In general. For new employees or current

employees who fail to timely elect between permitted taxable benefits and qualified

benefits, a cafeteria plan is permitted, but is not required, to provide default elections for

one or more qualified benefits (for example, an election made for any prior year is

deemed to be continued for every succeeding plan year, unless changed).

(2) Example. The following example illustrates the rules in this paragraph (b):

Example. Automatic elections for accident and health insurance. (i) Employer B

maintains a calendar year cafeteria plan. The cafeteria plan offers accident and health

insurance with an option for employee-only or family coverage. All employees are

eligible to participate in the cafeteria plan immediately upon hire.

(ii) The cafeteria plan provides for an automatic enrollment process: each new

employee and each current employee is automatically enrolled in employee-only

coverage under the accident and health insurance plan, and the employee's salary is

reduced to pay the employee’s share of the accident and health insurance premium,

unless the employee affirmatively elects cash. Alternatively, if the employee has a

spouse or child, the employee can elect family coverage.

[Peter Gulia]

The quoted passage means only that a plan that otherwise meets Section 125 doesn't fail to get the tax treatment of a cafeteria plan merely because the plan provides for implied or "default" elections.

But such a tax rule doesn't control the law of whether an employer may reduce or deduct an amount from its employee's wages.

If not preempted by ERISA or other Federal law, a State's wage-payment law could impose constraints on the "active enrollment" described in the originating post.

[GBurns]

If there is automatic enrollment intoo the default health plan and no new salary reduction election, What happens if the new rrequired employee share is not the same as before,, but either exceeds or is short ?

[Guest MikeJsimon]

The present down turn has forced many of us to function under financial crunches and do without health insurance provided by an employer. This has forced us to prioritize our investments. It is always important to bear in mind that we can relish the world and be of any use only if we have adequate health. Faced with alternative investment choices, one of the highest priorities is indeed the fitness of our body. In this context health insurance is indeed of the greatest importance, and you should make every effort to acquire a suitable plan.