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Closing existing FSA and opening new FSA - compliance issues


mtdtla

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Hello! This is my first time posting, so apologies for mistakes. I was wondering if anyone has any knowledge to share on how to properly do the following below. I've been unable to get any clarity from our TPA of the FSA plan, nor from the CPA (perhaps this is a legal compliance issue I'm concerned with and maybe it's beyond their scope). 

We have an existing FSA plan with a plan year of 4/1-3/31, which is the same time line for our health plans' plan year. We merged (acquired) w/ another company earlier this year, and they have a Jan 1-Dec 31 plan year for their health plans, and didn't have an FSA. Our company has decided to restructure the plans so company wide the plan year would be Jan 1-Dec 31 for all offices, with the same plan year and enrollment periods for all health & dental, and FSA. 

Questions I have are: 

1. If we close the FSA plan by Dec 31, this year, do we have to notify staff? If so, how soon? Is there a blackout period? 

2. If we close FSA by Dec 31, some employees have fully utilized their Health Care FSA balances already, so the company would lose the missed premium that the employee would have normally contributed during the Jan Feb Mar payrolls. Is this correct? Can we ask them to contribute those funds they would have normally contributed in Jan/Feb/Mar?

3. To avoid any more of the situation in above #2, are we allowed to ASK employees to only use up to the amount they would have contributed through Dec 31? Or is this unlawful? 

4. For employees who have the Dependent Care FSA, and were anticipating using the full amount, will now be cut short by 3 months. Can they contribute a higher amount? Is this change-over of the plan year possibly considered a QLE/Qualifying Event? 

 

Any information would be greatly appreciated!

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Unfortunately you're going to need to delay this transition until next year.  The health FSA limit is capped at a prorated amount for a short plan year.  You'll need to tell employees that prorated amount in advance of the short plan year and have them capped at that prorated limit when electing at OE for the short plan year. 

At this point presumably you have elections (and reimbursements) in excess of what would have been the prorated limit for a short plan year running from April - December ($2,387. 50).  So you'll need to make the transition with a short plan year from April - December 2024 that is communicated in advance and capped at the prorated limit (likely $2,400).  Then you can start with for a calendar plan year in 2025.

Here's an overview of these considerations: https://www.newfront.com/blog/short-plan-year-considerations

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