Section 125 - pretax premium question

[Guest S Rader]

If an employee's premium is unaffected by the addition of a dependent, can he/she add the dependent past the 31 day deadline we have set up in the plan? For example, the employee has family coverage and has a baby. Can the baby be added past the 31 deadline since the premium is unaffected?

[Guest jlcowden]

There should be no IRS limitation on your ability to add the new born; the 31 day period was likely initially an underwriting restriction. The failure to notify beyond 31 days is likely an administrative oversight by the parents...especially if such notice would not increase their cost.

P.S. To make sure you are not unduly accepting more risk than needed,you may want to make sure coverage is not in effect under a spousal plan.

[Lisa Hand]

Section 125 and its regulations detail the conditions under which changes can be made and provide clarification on "the circumstances under which a cafeteria plan may permit an employee to change his or her cafeteria plan election..."(final regulations issued March 23, 2000, summary). As detailed in the other changes section, they do not set a specific period of time in which changes must be made. "Consistent with the approach taken in the 1997 regulations and in the interest of providing employers and plan administrators flexibiity, the final regulations do not prescribe such a period. However, nothing in the final regulations would prevent a cafeteria plan by its terms from requiring that any election change (other than those made in connection with rights for which there are specific minimum election periods, such as under section 9801 (as added by HIPAA) and section 4980B (relating to COBRA coverage)), must be made within a specified period after a change in status event."

[KIP KRAUS]

I agree with JL. However, to avoid future problems, I would design the plan so that if an employee has family coverage(even if only husband & wife) when a child is born, the child would be automatically covered at birth, even if not reported within 30 days of birth. Of course, the child still should be reported in order to avoid future claims problems.

[Guest S Rader]

Thanks for the replies. We have the plan set up as a pre-tax premium plan and I understood that after 31 days from the change in status, employees could not add or drop dependents because of the restrictions under section 125. Is this not a restriction under 125? If not, it must be a plan feature only.

[KIP KRAUS]

I think if one got somewhat creative, one could find a way to accomodate the employee and it would be transparent to any auditor.

[Guest nb]

Hmm, I've got a problem with this thread. Do I understand that your plan docs state that you have 31 days to enroll new dependents and you want to enroll someone outside of that time frame?