Different FSA eligibility for different locations?

[Guest Dick Boever]

A law firm opened a branch office in another state. They hired four employees to open the branch, two attorneys and two support staff. The firm wants to allow these four individuals to participate in the flexible spending account (FSA) plan (unreimbursed medical) immediately, even though they normally make new hires wait one year. Their rationale goes something like this: This is a new office and they want to treat these people as if this was a new plan making everyone eligible as of the date the office opened and then subject new hires to the normal rules.

There are about 50 employees at the main location.

Has anyone ever seen this done? Any justification for this treatment? I would appreciate any thoughts you may have.

What about actually setting up a new FSA plan for the new location, with no waiting period, then amending or merging the plan later?

[Lisa Hand]

It appears this approach would have problems with discrimination with the different requirements for the new employees at this new location and then future new employees under the other rules.

You can set up different requirements and benefits for different categories of employees and even different plans for different categories of employees, but as long as the employees are all in the same category, you must apply the same rules and waiting period to all eligible employees. Setting up a separate plan and then changing it would certainly have the appearance of trying to circumvent the regulations.

[Guest Dick Boever]

What about amending and restating the plan document, which needs to be done anyway, making all employees employed at restatement eligible and imposing a waiting period for new hires?

[Guest Joe Vasko]

Amending the plan document during the middle of the plan year, to allow immediate participation in the Unreimbursed Medical portion of the plan would be the only way they could enter the plan. However, under an audit, the IRS may not look at this as discriminatory if these four employees are key or highly compensated. In addition, all employees who have not currently met the plans eligibility requirements will now be eligible to participate.