Change in Status Consistency Rule - Loss of Job/Revocation of Health C

[Guest Jordan]

Employee A participates in a medical FSA. During the coverage period, Employee A's spouse loses his job and his employer-based health plan coverage. Employee A wishes to revoke her medical FSA election prospectively. She claims the loss of her husband's job is a change in status (under the old proposed and new final regulations). We believe that while this is true, the election change (ie, revocation of medical coverage through the FSA) is not consistent with the change in status and therefore the change is not permissible. We believe that if her husband loses his medical coverage, the consistent change would be to add more coverage in the FSA, not revoke. Her reason for wanting to revoke is they need the money given the husband's loss of job. We would like to help but don't think we can. Any ideas?

[KIP KRAUS]

If the only issue is canceling her payroll deduction to a flexible spending account, I see no reason not to allow it. Her spouses' loss of employment is clearly a qualifying event and I wouldn't get into whether it makes sense to me or not. This of course, is only my opinion and what I'd do.

[SLuskin]

Doesn't the change being made have to be consistent with the status change which occurred? In other words, it does have to make sense?

[KIP KRAUS]

One of the primary bread winners losing a job and the other needing more cash to help take up the slack makes sense to me. I wouldn't over analyze the intent of the law. Sometimes one needs look at the human side of the situation not the what if IRS side.

If it was my employee I'd let her make the change.