Mistaken Change in Family Status

[Christine Roberts]

If a plan allows a dependent care election change based on the participant's relocation of residence (where this is only a legitimate change in family status for purposes of changing health/accident/life insurance) are the only consequences to the particpant e.g., loss of income exclusion) or are there potential plan-wide consequences? I thought that only violation of nondiscrimination rules conduct could disqualify the entire plan. In this particular instance the relocation is only by a few blocks and does not impact availability of dependent care.

[Christine Roberts]

The answer to this question, per Harry Beker of the IRS (Sec. 125 maven), is that it is not an automatic plan disqualification issue but could result in plan disqualification on audit.