Can an employer who increases the maximum deferral under a health FSA

[Guest Gibson]

Can an employer who increases the maximum deferral under a health FSA during a plan year allow participants to increase their elections during that year?

[Dave Baker]

This has come up a coupla times before --

http://benefitslink.com/boards/index.php?showtopic=7140

http://benefitslink.com/boards/index.php?showtopic=898

-- but I don't think we nailed it down.

[SLuskin]

I don't think you can. Only benefits which are new, not changes to exisiting benefits, can be elected midyear by participants who signed election forms prior to the start of the current plan year.

[Kirk Maldonado]

As a fallback position, you could always change the plan year.

[Lisa Hand]

Be careful about changing the plan year. It needs to be reason other than trying to get around the irrevocabiltiy of the elections.

[Kirk Maldonado]

Lisa:

What is the authority for your statement? I don't recall anything to that effect in the regulations or the preamble.

[KIP KRAUS]

Kirk:

What legitimate reason would there be for changing the plan year and thereby allowing someone to revoke an election? Seems to me that the only reason would be to allow someone to get in some additional monies for medical expenses that one didn't expect. Think it might be a HCE?

By the way. How many times can one change its plan year to accomodate a person, or what ever the creative reason is? Seems to me there's a limit to changing plan years???

[Kirk Maldonado]

Kip:

What is your authority for that position? Remember that changing the plan year affects all participants, and is a decision made by the company, not by a participant. Also, remember that this thread started out because of a plan design change initiated by the employer, not a participant.

[KIP KRAUS]

I didn't think one needed an authority to state an opinion, which is what was intended. Maybe my opinion sounded like a statement of fact but it wasn't intended to.

Lest we all be naive don't think for one minute that an HCE in a small company can't get what he wants for his personal reasons. In addition, even though such a change effects all participants it doesn't mean that my opinion couldn't be possible.

As to the number of times an employer can change a plan year for whatever reason,that was a question based on the fact that the IRS looks with disfavor on an employer making numerous changes to its accounting procedure (i.e, inventory methods) and taxable years. Any CPA out their should be able verify that. I'm just posing the question in caes someone out there knows the authority.

[Lisa Hand]

Kirk:

The Employee Benefit Institute of America's legal guide was my source as well as the regulations which usually require the plan year to be 12 months. Plan years can be short, for example, in the case of a first plan year, or a merger or a termination of the plan or the addition of an entirely new benefit (which would result in a short plan year for that bebenfit) or a change to match all benefits to the same plan year. However, my caution was addressing the idea of changing the plan year mid-year simply to get around the requirement for the elections to be irrevocable and that that situation may be very hard to justify if audited.

[Kirk Maldonado]

I think that people need to realize that not everybody works solely on small professional corporations.

I have several clients with more than 10,000 employees. I can't imagine the IRS trying to challenge an employer of that size that changed the plan year of its cafeteria plan because it added an additional benefit.

If they wanted to challenge it, I think my clients would be willing to do battle with the IRS on that point.