Negative elections in a 125 plan

[Guest inslady]

Has anyone ever used a negative election form in a cafeteria plan whereby employees only sign the form if they DO NOT want pre-tax benefits? All other employees would automatically receive pre-taxation of health and dental premiums. I have heard of this being done but have never personally used this before.

Thank you!

[Joe Priselac]

I have used this negative enrollment technique extensively for the POP portion of a Cafeteria Plan. What was it that you wanted to know other than whether someone actually utilised negative enrollment?

[Guest inslady]

I'm looking for a form that I can use as a prototype for declination of benefits. Also, I can't find anything in the regs that allows negative enrollments. Is this a valid and legal way to do it?

[Alf]

The electronic plan guidance that was released early last year does not specifically address cafeteria plans. Also, the recent negative enrollment revenue ruling refers only to 401(k) plans. So, there is not anything official that authorizes negative elections in cafeteria plans.

Nevertheless, I have seen unofficial IRS statements that there is nothing that specifically prohibits negative elections for these plans.

[Joe Priselac]

Inslady,

There is no regulation that says you can have negative enrollment nor is there a regulation that says you can't. As with many issues surrounding Section 125 plans, we have have to infer from informal comments and what the IRS or DOL are doing in related areas. Harry Beker, the IRS guru of Section 125 said at a symposium, informally, that negative enrollment would be fine as long as employees received proper notification of the plan's provisions and were given a reasonable period of time in which to decide. Revenue Ruling 98-30 permits negative enrollment of 401(k)plans. By inference, it would seem that similar negative enrollment methods would be permissible. I don't know what you mean by a prototype to refuse benefits.

[Guest inslady]

Thanks for the feedback. I also have searched the regs and rulings and have found nothing that specifically addresses negative enrollments. We want to do this for one of my clients and now I need to come up with a form for employees to sign to waive pre-tax benefits. If anyone has something they have used, I would welcome seeing a copy.

Thanks!