Mid-year change for Dependent Care Accounts.

[Guest myvettee]

The infamous question. I don't seem to find a straight forward answer regarding mid-year change for Dependent Care. Employee states that her summer daycare provider has increased her rates. Also, summer daycamp has informed employee that daycamp will be closing the first week in August instead of August 31. Therfore, employee has to forfeit the extra dollars allotted for the remainder of the year. Any suggestions, employee anxious to hear.

Thanks for the e-mail opportunity. I couldn't live without it.

[SLuskin]

According to Harry Becker of the IRS, if the daycare provider changes its rates, it is to be treated the same as if a health insurance carrier changes rates mid year. Yes, the election can be changed. However, if the employee changes daycare providers, the elelction cannot be changed.

[Guest LisaM]

An employee has a child care provider that retires or closes down, is this considered a qualified status change? They will still be needing child care but they are not sure where they will go or how much it will cost them.

[Guest myvettee]

Voluntary reduction in hours. Does this constitute a family status change? An employee would like to change her elected dependent dollars. I'm not sure if this is possible due it was a reduction on her part? Please respond. Yvette

[Joe Priselac]

Lisa,

Sluskin's answer applies to your question.

Yvette,

If person voluntarilly quits their job, they are allowed to terminate their participation in the Flex Plan. That is considered a change in work status. FMLA leave would be voluntary and still allow a participant to change their election. The real question centers around materiality. How many hours did the employee reduce? If an employee reduced their work by one hour per week, that would probably not constitute a significant change in work status. Usually change from full-time to part-time status is required. What is your company's definition of full-time and part-time employee? Generally, companies change their benefit offerings or employee contributions based on hours worked. Do you have a threshold that triggers such a change? That should be your starting point in deciding whether this employee has made a significant change of work status.

[Guest Benmark]

Can a 125 plan pick and choose what family status changes would be allowed? For example, could the plan not allow changes in the case of a significant reduction in scheduled hours but define other limited forms of FSC's?

[Joe Priselac]

Yes, as long as the changes you did allow were permitted by the regulations.Most of the time people are trying to expand the reasions that participants should be allowed to change their elections.

[Guest Benmark]

But the IRS has yet to come out with a listing of what constitutes a "family status change"?