New open enrollment for flex plan allowed or required when plan offers

[jeanine]

I apologize in advance for not knowing much about this, and am hoping someone can answer my question and point me in the direction of further information.

If a group currently self-funds and also offers a flex spending option to cover co-pays, co-insurance, etc. must the plan hold a new open enrollment for the flex option if they are now offering an increased dental benefit? There will be an open enrollment for the new dental benefit which now covers orthodontia. May eligible employees 1) sign up for flex through an open enrollment and/or 2) increase or decrease the amount withheld? Thanks for any input, I am going to search as much as I can in the meantime.

[Guest boberlander]

I aplogize in advance for piggybacking on your question, but I felt the two questions were similar enough that someone who knows these types of plans could anser us both.

My company has a medical reimbursement plan on a calendar year. We have health plans on an off-calendar year.

We are changing health plans in the middle of 2001, at the new plan year beginning. We were told we cannot (it is contrary to the law) adjust pre-tax money going to medical reimbursement. That is, no status change. Is this correct? Assume that there is a large change in the cost of benefits.

Thank you.

[Lisa Hand]

A change in cost or coverage is NOT a valid change of status event to adjust the medical FSA.

Treas. Reg. 1.125-4(f)(1) fianl regualtions issued Mar. 23, 2000.

[GBurns]

I read the posts to be that Jeanine was adding a new benefit whereas boberlander wanted to change his FSA.

A change to the FSA is not allowed for boberlander but jeanine seems to be allowable as the adding of a new benefit type.

Jeanine, I suggest that you go over to the EBIA site and look up the series titled "IRS Officials Comment on Various Cafeteria Plan Issues" especially 8/10/00 -Adding a New Benefit type in Mid-Year and 8/24/00 - Automatic Cost Change Rules. There are also other valuable items so take a good look. This should point you in the right direction.

[Lisa Hand]

Jeanine's post specifically asks about opening the enrollment for their flex option "which covers co-pays, co-insurance, ect" which would be their medical FSA as a result of increased dental benefit, which would not be allowed.

[Guest boberlander]

I re-read the final fegs (incorporating 3/2 and 3/6/2001 corrections). There is an example #8 that indicates that you change the amount deducted for the specific implementation of the new benefit plan, but not change and FSA deduction. Is this stated correctly?

My company is changing insurance providers and adding another (as an HM0). If my contribution amount changes from X to X+1 because of the change, the difference can be taken out of my check pre-tax. However, I cannot make a new election (as additional FSA dollars for say, vision care, which didn't change).

I expect that my company will adjust the pre-tax deductions for the change in benefits plans automatically. That is, there is no "account," each deduction relates specifically to a premium payment.

Do I have the nomenclature correct - is this a medical reimbursement account, and is that the same thing as an FSA?

[Lisa Hand]

The change event is a "significant cost or coverage change" which is detailed in Treas. Reg. 1.125-4(f). 1.125-4(f)(1) states "In general. Paragraphs (f)(2) through (5) of this section set forth the rules for election changes as a result of changes in cost or coverage. This paragraph(f) does not apply to an election change with respect to a health FSA (or on account of a change in cost or coverage under a health FSA)."

A health FSA is the same as a medical flexible spending account (FSA).