Help, Please - document question

[Guest MikeD]

I have a client who has apprached me with the following scenario:

Prior to last year, the client has offered all of its benefits on a December 31st plan year. However, last year, the client changed their benefits plans and moved some coverages from one company to Aflac and changed the plan year. So, now, they have some benefits that are December 31st year and some that are June 30th plan year. I would think that they could maintain separate plans for each set of benefits (so, one document for the 12/31 benefits and one for the 6/30 benefits).

The problem is that they never executed a new plan document for the June 30th benefits and here we are coming up on the end of the year. My gut is to have them execute the plan now with Board resolutions back to the date they initially decided to adopt the new plan. In my experience, this isn't a hot button with the IRS and showing a good-faith attempt at complaince will usually be sufficient to protect the employer...especially when they correct the problem on their own. Does anyone have a better idea?

Also, when the change was made to the new benefits plans, they allowed some employees to stay under the prior company's critical illness plan, due to higher rates in the new plan. In essence, they grandfathered out the old benefits. So, now, they have employees with one company's critical illness plan on the 12/31 plan year and some under the new Aflac plan with a 6/30 plan year. Does this cause any problems? In essence, is there a problem with a company payroll deducting premiums from two similar plans under 2 different cafeteria plans with different plan years? (I know that's a convoluted question...)

[Bill Presson]

You need to really detail what you have. A cafeteria plan will have a document that sets out what benefits are offered.

Just because some benefits (that are part of the plan) change their renewal date, doesn't mean that you suddenly have multiple cafeteria plans. It just means that the renewal date changed.

While it can complicate the enrollment process, it can be done. So don't jump to conclusions on what the effects are. Just document what happened.

Then talk to the people that drafted your current cafeteria document and have them walk you thorugh this.

[GBurns]

You seem to be conflating "policy" with "plan". Both the old critical illness benefit and the new Aflac benefit are insurance policies not plans as the term is used in "cafeteria plan" "benefit plan" etc. As benefits they should not precipitate a cafeteria plan document for themselves. They are simply benefits offered through the already existing cafeteria plan and covered by that plan document. There should have been no adopting of a new or additional cafeteria plan or cafeteria plan document when installing or for enrolling.

[Guest MikeD]

I certainly understand what you are both saying. However, the Employer wanted to adopt a second plan to cover the benefits that are being offered under the new Aflac plan. The thought was that, since the new plans are on a new Plan Year that it would be smoother to maintain two plans (one on the 12/31 plan year for those benefits and one on the 6/30 plan year for those benefits).

So, Plan # 501 specifically covers (Plan document lists covered benefits as) the health and dental plans that renew on 1/1, as well as the "old" ancillary products that renew on 1/1. Plan # 502 specifically covers the ancillary products provided through Aflac.

I understand that that is not necessary, but I don't know of anything that says you can't do this. Do you?

Also, if they do this, they have now been advised that they can't have the same benefits (i.e., critical illness policies) offered in two separate plans, even though they are provided by 2 separate companies under two separate plan years. Again, I'm not sure that I have ever seen anything that says that.

Thanks for the help. I know that this is sometimes a "low on the radar" kind of thing for the IRS, but we just want to make sure that we get it right!

[Guest AflacPhyllis]

Hi, I'm AflacPhyllis, an Aflac worldwide headquarters employee here to help. I can have an Aflac representative contact you to discuss. In order to do so please email me at AflacPhyllis@aflac.com.

Thank you,

AflacPhyllis