Mistake in Election

[Guest KHDOW]

After the plan year began, an employee is claiming that he made a mistake in his Medical Spending Account election. He elected $3,000 (the MSA maximum of the plan) and now claims he meant to elect $300. The past several years the employee elected $500.

His initial phone call to me indicated he wanted to elect $500 instead of $3,000. I informed the employee of the status changes that would allow a change in his election. The employee now indicates he is ADHD and he made a mistake and meant to election $300, not $3,000 (which is a change in story from initially wanting to change to $500). He indicates his mistake is atributable to his ADHD condition. He indicates that his ADHD is the reason he added an extra zero to the election. The employee is claiming there is a provision by the IRS for "clear and convincing evidence" that a mistake has been made.

I believe there was a "change of mind" in his election, not a mistake. Anyone have any guidance on the "clear and convincing evidence" or other suggestions?

[QDROphile]

It is a judgement call. The evidence goes both ways, but I am troubled by the change in story. If he had elected $5000 (which would have been caught becuase it exceeds the limit, but it is an illustration) and said he wanted $500 again, I would be inclined to go for it. At this point, I am suspicious that he may have had some big expense in mind but backed off. I am not convinced. Arguing ADHD does nothing for me, but I don't know ADHD. What is your plan year? If it is late in the plan year, so much the worse for him.

[SLuskin]

How long after the start of the plan year was this noticed? If right after the first deduction, I would tend to call it a mistake. If anything else, I would call it buyer's remorse and not allow it.

[J Simmons]

How long after the start of the plan year was this noticed? If right after the first deduction, I would tend to call it a mistake. If anything else, I would call it buyer's remorse and not allow it.

I agree with this, and with QDROphile's assessment. They are consistent. The clear and convincing standard is something that has been reported by attendees at conferences where IRS officials have spoken, and there's supposedly a couple of informal letters from the IRS to someone about this, but I have not seen them or been able to obtain copies.

Err on the side of not allowing the change unless the evidence is clear and convincing that he thought he was, during open enrollment before the plan year began, electing the lesser amount. The reason, do you want to put all EEs' cafeteria plan dollars at risk of being taxed just to accommodate one EE? Obviously, no. But that's what is at stake if the IRS audits and second guesses you. So if you conclude that there is clear and convincing evidence, have a well documented file of all the reasons, describing all the circumstances that led you to that conclusion and making the adjustment.

[LRDG]

Was the election confirmed via Election Verification Statement?

Plans should be issuing election verification following open enrollment each year, with enough time prior to the first day of the new plan year that would allow EEs who experience buyer's remorse or have made an error, or admin keyed the amount incorrectly etc., an election change can be made before the plan begins.

The Verification is also for protection of the plan, allowing admin an opportunity to state 'we issued your Election Verification on 12/01/2009, provided 10 days to return the statement w/changes for the plan year begin date of 01/01/2010. According to our records you did not submit a request to change your election, indicating you agree w/the election you made during open enrollment in 11/15/2009. As the election verification instructions indicate, it is your final opportunity to change your election prior to the beginning of the plan year, a change in status not withstanding".

IRS regs do not contain a specific provision for change in elections due to admin errors, or mistakes or do-over for any reason for that matter. As admins, the verification statement does provide for 'buyer's remorse', or correcting election errors by admin or participant before the beginning of the plan year, and a final reminder to the participant, that IRS regs prohibit a mid-year election changes unless there is a change in status.

With respect to this specific participant, I agree that if it is the first P/R deduction, meaning the first time he would have noticed the deduction amount off by $2,500 or $2,800, I might consider allowing a change if no Election Verification Statement was provided to Participants. However, I'm not sure I would consider this at all. Doing so could back fire if word were to get out to a disgruntled participant/employee wanting to stir the pot a bit, or anyone else experiencing FSA buyer's remorse.

My final final comment: Where is the clear and convincing evidence in his argument thus far? $3,000, urh, I ment $500, oh, make that $300 because number 3 and five are so close and that extra zero could happen to anyone. Because I made an oopsy and therefore qualify for a do over in my annual election in an Internal Revenue Plan, that could jeopordize the elections of every employee participant, w/IRS re-cooping all those EE and ER tax savings, assesement of possible IRS penalties? IRS plans that prohibit any such election change after the beginning of the plan year?

[Chaz]

I don't know the answer to this but I wonder if there are any ADA or other employment-law related issues at play here.

[My 2 cents]

Does ADA require the IRS or DOL to make reasonable accomodations for people with ADHD? If it weren't for concern over the potential reaction of the IRS or DOL, one can probably assume that the employer would not be averse to letting the person make the change. One thing is certain though - violating the law and/or IRS/DOL regulations goes way beyond making "reasonable accomodations". If the requested change would represent a violation of the law or the applicable regulations, the employer is fully entitled to reject the request out of hand. Demonstrating that the requested "accomodation" would be illegal should squelch any potential litigation under ADA.

[david rigby]

Don't forget that many administrative decisions are (should be) made in conjunction with documented procedures and respect for precedent.

[Guest taylar]

This is really a good forum.

i get so many information from this topic.

thanks

==============taylar