Plan Year Change for a Cafeteria Plan

[Guest P Arpey]

A client wants to change their cafeteria plan (which includes Health FSA and Dependent Care) from an 8/31 plan year end to a calendar year end. I have read that a plan year change is permitted but only for a valid business purpose. They have had their plan for many years but would like to make this change so that their employees can make their annual elections based on the health insurance benefits for the same time period as opposed to making them in August each year (before they even know what the health insurance benefits will be in the upcoming year). They would also like the change made so it agrees with their fiscal year and is in line with their health insurance. They do not want the plan year to be changed to circumvent the requirements of Code Section 125.

Would this qualify as a valid business purpose?

[SLuskin]

A client wants to change their cafeteria plan (which includes Health FSA and Dependent Care) from an 8/31 plan year end to a calendar year end. I have read that a plan year change is permitted but only for a valid business purpose. They have had their plan for many years but would like to make this change so that their employees can make their annual elections based on the health insurance benefits for the same time period as opposed to making them in August each year (before they even know what the health insurance benefits will be in the upcoming year). They would also like the change made so it agrees with their fiscal year and is in line with their health insurance. They do not want the plan year to be changed to circumvent the requirements of Code Section 125.

Would this qualify as a valid business purpose?

Yes, they would have one short year 9/1 to 12/31 and then 1/1/ to 12/31 thereafter. The plan would have to be properly amended, the SPD updated and election materials clear.