Amendment to Cafeteria Plan

[Guest ndgal]

I have a client who operates a calendar year premium only plan. They are thinking of amending the plan to add a dependent care benefit to the plan. Am I correct in thinking that the effective date of this new benefit would have to be January 1, 2002? In other words, it is not permissible to make this new benefit retroactive to January 1, 2001 since the salary redirection agreements have to be in place before the start of the plan year (except for new participants of course).

[KJohnson]

I don't think that you would have to wait until 2002 under the new cafeteria plan regs.

The recently finalized cafeteria plan regulations state that:

"If a plan adds a new benefit package option...the cafeteria plan may permit eligible employees (whether or not they have previously made an election under the cafeteria plan....) to revoke their election under the cafeteria plan and, in lieu thereof, to make an election on a prosective basis for coverage under the new...benefit package option."

This is slightly different wording that the proposed regulations, but even if you plan was updated based on the the proposed regs, you probably can allow mid-year changes in elections based on the addition of a new benefit option such as a DCA plan. However, I think the election could only be prospective (not retroactive to 1/1/01) an I don't know if there are any "short year" DCA Plan issues.