FSA Permissible Election Changes

[Guest TGM]

We have a cafeteria plan that allows pre-tax employee contributions to pay premiums for third-party health insurance policy. The cafeteria plan also has a flexible spending arrangement to reimburse proper medical expenses not paid for under the health insurance policy.

Election forms under the FSA must be submitted by 4/30/99. At some later date, we anticipate that we will change to a different health insurance plan that carries a lower premium, but requires greater employee payment of expenses (i.e. higher deductibles and co-pays).

I believe the new "cost changes" reason under the '97 proposed regulations for making an election change allows an across the board adjustment to the amount deferred under the cafeteria plan for the lower premium under the new health plan.

The question is whether employees can make a mid-year change to increase FSA deferrals. The "cost changes" rationale would not seem to apply because that deals with an increase or decrease in premiums for a third-party health insurance policy.

I question whether the "coverage changes" provision of the proposed regulations (or any other proposed or temporary regulation) would allow a mid-year change of the FSA because the "similar coverage" actually would be provided under two plans - the new health plan and increased FSA deferrals.

Any thoughts would be appreciated.