FSA Effective Date per Section 125?

[MD-Benefits Guy]

I am working for a new company that has the following rules in place for new hire benefit elections:

Benefits are effective 1st of the month following hire date and employees are able to make changes for 30 days after eligibility date. Under these rules, it is possible that an employee could start Sept. 2 and have until Oct. 30 to make election changes that would be retroactively effective back to Oct. 1....in this situation, the employee has almost 60 days from date of hire to make an election

I am wondering if this violates what is permissible under section 125? I thought in order to be qualified under Section 125 elections, had to be done before an effective date unless we are dealing with the birth of a child/adoption or a new employee who has a 30 day window from hire date to have the benefit be retroactively effective.

Can someone please point me to the language in section 125 (or other legislation) that states that the election must be prior to effective date (that the election cant be retroactive) and the section that specifically permits new employees a 30 day window from hire date to go retroactive. I am able to find the proposed IRS rules from Aug of 2007, but not able to find what was finalizeed

Thanks.

[Guest morris]

Benefits Guy: Your understanding is correct, the company is wrong. The 2007 proposed regs still haven't been finalized so they remain in effect as official guidance.

See prop. regs 1.125-2(d) and the Preamble to 1.125-4, and 1.125-4(b)(2), Example 2 to back up your understanding.

[QDROphile]

Are pay periods monthly? If they are, the plan is stretching limits and not following best practices, but it is not decidedly wrong. The election is made before the taxable benefit (cash) is available.