Part Permitted Election Changesebcflex.com/Portals/8/PDF/webinars/Permitted-Election... · 2017-04-14 · • 16 permitted election change events (Treasury Reg. §1.125‐4) • Change

4/12/2017

Copyright 2017 Employee Benefits Corporation

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2© 2017 Employee Benefits Corporation

Boot Camp Part 1: Permitted Election Changes (Change of Status)

4/12/2017


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Employee Benefits Corporation

Glenda HodgeCompliance Consultant

[email protected]

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The material provided in this webinar is by Employee Benefits Corporation and is for general information purposes only. The information does not constitute legal advice and may not be relied upon by anyone as such. Nor may the information be disseminated in any form.

© 2017 Employee Benefits Corporation 4

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Today’s Agenda:

• Review of Section 125 plan election rules

• Effective date of the change

• Permitted election change events overview

• Change in Status Events

• Effect of election change

• Real life election change requests

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Review of Section 125 plan election rules



• Elections are made:

–Prior to satisfying waiting period by a new employee

–Within 30 days of hire if eligible on date of hire

–Prior to start of new plan year by existing eligible employees

–Mid‐year due to a recognized permitted election change event

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• Elections are:

–Prospective

– Irrevocable for the period of coverage (plan year), unless…

• Mid‐year change allowed if you experience a permitted election change event

– If not irrevocable, no tax free status


Review of Section 125 Plan Election Rules

• 16 permitted election change events (Treasury Reg. § 1.125‐4)

• Change must be on account of and consistent with event(no time period specified for determining “on account of”)

• No requirement to adopt any election changes in cafeteria plan

– Including changes increases participation which increases tax savings for employers and participants

–BESTflex Plan Document includes all 16

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Effective date of the change


Effective date of the change

• Changes requested prior to event are effective on event date

• Cafeteria plans generally allow a 30‐day period after the event to request a change as a proxy for “on account of”

• Effective date of election change is later of

– the event date

– the date the form is signed (within the allowable period)

• HIPAA special enrollment allows retroactive enrollment of newborn/adopted child to event date for non‐excepted plans (most health care FSAs are excepted)

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Permitted election change events overview


Permitted election change events overview

Change in Status

Cost changes with automatic increases/decreases in elective contributions

Significant cost changes

Significant coverage curtailment (with or without loss of coverage)

Addition or significant improvement of a benefit package option

Changes under other employer plan

Loss of health coverage under a government or educational institution

401(k) election changes

HIPAA special enrollment rights

COBRA qualifying event

Judgments, decrees and court orders

Medicare or Medicaid entitlement

FMLA leaves of absence

Pre‐tax HSA Contributions

Mid‐year reduction in hours with intent to enroll in another health insurance plan

Mid‐year enrollment in a Marketplace Qualified Health Plan

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Change in Status Events



• Definition of a Change in Status Event

– Event that affects eligibility of employee, spouse or dependent for a qualified benefit (health, dental, health FSA), employer’s cafeteria plan, a spouse’s employer’s qualified benefit or spouse’s employer’s cafeteria plan

– Summary:

• Affects number of eligible individuals under the plan

• Affects ability to have coverage

• Affects enrollment at another employer

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• Applies to all group benefits

• Request for change must be on account of an event

–No later than 30 days after event presuming 30 days is used in the Plan Document(The day after the event is the first day of the 30 day period)

• Request for change must meet the Consistency Rule or a Special Consistency Rule for specific events

• Permitted Election Change Form must be signed and sent to plan administrator



• Special Consistency Rules

–Changes to group term life, disability and Accidental Death & Dismemberment (AD&D) allowed even if eligibility under plan is not gained or lost

–Dependent Care Assistance Plan (DCAP) allowed even if eligibility under plan is not gained or lost, but instead when eligibility for reimbursement changes

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–Divorce, annulment, legal separation, death of spouse or dependent or dependent ceasing to be eligible only allows coverage to be canceled for the affected individual

–Gain in eligibility due to marriage or change in employment status only allows change if the individual(s) gets coverage or has it increased under another employer’s plan




• Example: Jack and Diane are married and Jack carries family health insurance for them with his employer. Diane gains employment and becomes eligible for health insurance where she works

–Diane can enroll herself or both herself and Jack through her employer

–Jack, however, can only decrease his coverage to drop Diane if Diane enrolls herself. Jack can completely revoke his plan election and become covered under Diane’s plan only if she enrolls both herself and Jack through her employer

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• General Consistency Rules

–Change requested corresponds with the event

– The event must cause a gain or loss of eligibility (of either the underlying benefit or the cafeteria plan)

–Health FSA election changes are permitted when the Change in Status Event affects eligibility for health coverage as a whole



• Change in Status Events

–Change in marital status

–Change in number of dependents

– Spouse/dependent becomes eligible or ineligible under plan

– Spouse’s/dependent’s change in employment status when accompanied with a change in eligibility under spouse’s/dependent’s Employer’s plan

–Unpaid leave with loss of eligibility/return from leave with gain

–Change in Residence

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Marital Status

• Definition of a Marital Status change

–Marriage

–Divorce

– Legal separation*

–Annulment

–Death of spouse



Marital Status


–Marriage

• Affects number of individuals on the plan –may add coverage and increase elections at primary employer

• Affects enrollment at another employer –may drop coverage and decrease elections at primary employer if enrolling in spouse’s plan

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Marital Status

• Example:

–Celia and Ralph are engaged

–Celia is enrolled in benefits through her employer

• Single group health insurance

• $1,200 health care FSA

–Ralph is enrolled in benefits through his employer

• Single group health insurance


–Ralph and Celia marry 3/15/17



Marital Status

• Example:

–Celia can add Ralph to her benefits as a result of the marriage

• Add him to health insurance

• Increase her health care FSA

– If Celia does these things, then Ralph can drop his benefits

• Drop his health insurance

• Decrease or drop his health care FSA

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Marital Status

• Example:

–Ralph can add Celia to his benefits as a result of the marriage

• Add her to health insurance

• Increase his health care FSA

– If Ralph does these things, then Celia can drop her benefits

• Drop her health insurance

• Decrease or drop her health care FSA



Marital Status


–Divorce, legal separation*, annulment, and death of spouse

• Affects number of individuals on the plan–may drop coverage and decrease elections at primary employer

• Affects enrollment at another employer –may add coverage and increase elections at primary employer if were enrolled in spouse’s plan

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Marital Status

• Example 1:

– James and Patricia are married

–Patricia is enrolled in benefits through her employer

• Family group health insurance


– James is enrolled in benefits through his employer


– James and Patricia divorce 3/15/17



Marital Status

• Example 1:

–Patricia can drop James from her benefits as a result of the divorce

• Drop him from her health insurance

• Decrease or drop her health care FSA

–Patricia is also losing coverage under James’s benefits

• Increase her health care FSA

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Marital Status

• Example 1:

– James can drop Patricia from his benefits as a result of the divorce

• Decrease or drop his health care FSA

– James is also losing coverage under Patricia ’s benefits

• Enroll in single health insurance

• Increase his health care FSA



Marital Status

• Example 2:

–Celia and Ralph are married and have kids

–Ralph is

• Enrolled in family coverage

• Has a health care FSA for $1,200

–Ralph passes away on 1/29/17

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Marital Status

• Example 2:

–Celia may

• Enroll herself or herself and her children in health insurance with her employer

• Elect a health care FSA with her employer

• Elect COBRA for Ralph’s health insurance for herself and/or children

• Elect COBRA for Ralph’s health care FSA if COBRA needed to be offered



Change in Number of Dependents

• Definition of a Number of Dependents Status Change

–Birth

–Death

–Adoption placement of a child

–Participants’ parent or other individual (sibling) could become or cease to be a dependent under the terms of the plan

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–Birth, adoption placement and an individual becoming a dependent affects number of eligible individuals under the employee’s plan

• Affects number of individuals on the plan –may add coverage and increase elections




• Example:

– Sophia and Juan are married

– Juan

• Carries EE+1 benefits coverage

• Has a health care FSA of $1000

– Sophia and Juan adopt a child

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• Example:

– Juan may

• Increasing benefits to EE + 2 or more

• Elect a dependent care FSA

• Increase his FSA election

– If Excepted health care FSA, increase would be effective date of signature unless Juan signed the election form prior to or on the date of adoption (most health care FSAs are Excepted)

– If non‐Excepted health care FSA, increase would be effective date of adoption due to HIPAA retroactive enrollment





–Death and an individual ceasing to be a dependent affects number of eligible individuals under the employee’s plan

• Affects number of individuals on the plan –may drop coverage and decrease elections

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Change in Employment Status

• Definition of Change in Employment Status

– Termination of employment

–Commencement of employment

–Change in eligibility as a result of full time to part time or vice versa

– Strike or lockout

–Return from unpaid non‐FMLA leave

–Change in worksite




• Definition of Change in Employment Status

– Termination of employment (when individual was eligible while working), loss of eligibility as a result of full time to part time, strike or lockout, or loss due to change in worksite

• Affects ability to have coverage –may drop coverage and decrease elections

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• Example:

–Bunny and Vivian are married

–Bunny does not have coverage through her employer

–Her spouse, Vivian has

• Family health insurance

• health care FSA

–Vivian has her hours reduced by her employer and loses eligibility for benefits




• Example:

–Bunny may now

• Elect in single or family health insurance with her employer

• Enroll in the health care FSA

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Change in Dependent Status

• Definition of Change in Dependent Status

– Individual ceases or begins to meet the definition of dependent under the terms of the plan

• Typical scenarios

–dependent care FSA: Expenses for child age 13 or older

–Non‐health plan: 19‐23 year old child ceases/begins to go to school full‐time

–Health plan: End of month in which child turns age 26

–health care FSA: End of year in which child turns age 26




• Definition of Change in Dependent Status

–Beginning to meet the definition under the terms of the plan

• Affects ability to have coverage –may add coverage and increase elections

–Ceasing to meet the definition under the terms of the plan

• Affects ability to have coverage –may drop coverage and decrease elections

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• Example:

– Tony is a single parent

–Vito is his son

– Tony has

• Single + 1 coverage

• A health care FSA with a 1/1/2017‐12/31/2017 plan year

–Vito turns 26 in May and loses eligibility for the health insurance




• Example:

–Vito’s age affects his ability to access coverage for Tony’s health insurance plan ONLY

• Tony may decrease his health insurance to single and change the pre‐tax premium to account for the change in coverage

–Vito has lost access to other health coverage

• Tony may increase his health care FSA as Vito’s expenses are still eligible through the end of the calendar year

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Change in Residence

• Definition of an Residence Status Change

–An employee moves outside the insurance carrier’s (HMO) coverage area

• The employee no longer is within coverage limits so loses coverage

• Or, becomes eligible for the alternative PPO

• No loss in eligibility for health plans so no change in health care FSA allowed

• Change in health insurance plan allows for decrease or increase in premium



Change in Residence

• Example:

–XYZ Employer has offices in Madison, WI and Wausau, WI

–Grace lives in Madison and

• Enrolled in HMO for health insurance

• Elected $500 for health care FSA

–Grace moves to Wausau

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Change in Residence

• Example:

–Grace may

• Stay on HMO

• Change from HMO to Wausau plan

–Grace has not lost eligibility for a health plan so Grace may not

• Change her health care FSA election


Effect of the election change on future claims and deposits

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Effect of the election change on future FSA claims and

deposits

• The permitted mid‐year election change creates two segments of FSA coverage for the plan year

– Services incurred prior to Permitted Election Change

– Services incurred after the Permitted Election Change

• This leads to plan questions

–What changes are allowed?

–How will claims be processed going forward?

–How will this affect the EE’s payroll?



deposits

• Regulation provides two ways to handle mid‐year election changes

– Separate period of coverage approach

• Employee’s old election ends on change date

• Employee’s new election begins on change date and runs to the end of the plan year

• For an election decrease, can lead to overspent accounts

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deposits


• Example:

–Jim elects $2,600 on January 1, 2017

» $100 per payroll

–On February 28, 2017, he lowers his election to $1,100» $50 per payroll

–He can claim $2,600 for expenses incurred between January 1, 2017 and February 27, 2017

–He can claim $1,000 for expenses incurred between February 28, 2017 and December 31, 2017



deposits


• Example:

–Employer liability is $3,700

–Employee payroll deposits will be $1,500» $100 per payroll x 4 payrolls = $400

» $50 per payroll x 22 payrolls = $1,200

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deposits

• Regulation provides two ways to handle mid‐year election changes

–Blended approach

• Employee’s old election ends on change date

• Employee’s new election is for the entire plan year

• The amount available for claims after the election changes looks back to the amount reimbursed prior to the change

• Future payroll deductions take into account the amount deducted prior to the change



deposits

• If the election is to increase coverage

–Claims incurred during the plan year will not exceed the increased election amount

• Claims incurred prior to the date of change can reimburse up to the original election

• Claims incurred after the date of change can reimburse up to the new election

–Barring early termination, payroll deductions equal new election amount and total for eligible expense reimbursement

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deposits

• Example:

– Jim elects $1,200 for his health care FSA

– Jim has 12 payroll deductions ($100/month)

– Jim’s wife loses her job allowing Jim to increase his election

– Jim increases his election to $1,800 eight months in

• $1,800 (new election) ‐$800 (deducted thus far) = $1,000 to deduct in remaining 4 months

• $1,000/4 months = $250 deduction/month for remainder of plan year



deposits

• If the election is to decrease coverage

– Typically, new election must result in future payroll deductions

• Plan document dictates ‐many plans state that account revokes

–New election must be at least as much as what has already been reimbursed

–Claims incurred during the plan year will not exceed the decreased election amount

–Barring early termination, payroll deductions equal new election amount and total for eligible expense reimbursement

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deposits

• Example:

–Mary elects a health care FSA of $800

–Mary has 24 deductions ($33.33/pay)

–Mary divorces her husband

–Mary decreases election to $500 after 7 payrolls

• $500 (new election) ‐$233.33 (deducted thus far) = $266.67 to deduct in remaining 17 payrolls

• $266.67/17 payrolls = $15.69 deduction/pay for remainder of plan year



deposits

• Expenses incurred before the change are reimbursed up to the original election or new election, whichever is less

• Expenses incurred after the change are reimbursed up to the new election less expenses reimbursed in first segment

– Increase example:

• Original election was $1,000, new election is $1,500

• Expenses incurred in first segment are reimbursable up to $1,000

• Expenses incurred in new segment are reimbursable up to $1,500 minus expenses reimbursed from first segment

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deposits

–Decrease example:

• Original election was $1,000, new election is $600

• Expenses incurred in first segment are reimbursable up to $600

• Expenses incurred in new segment are reimbursable up to $600 minus expenses reimbursed from first segment


Real life election change requests

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• Example 1 –General Consistency Rule:

–Bob elected single health, dental and a $500 health care FSA

–Bob gets married mid‐year

–Bob wants to add wife to his plans and increase health care FSA election

–Marriage increases the number of eligible individuals under the plan so these changes are consistent with the event

– If Bob requests change prior to the marriage or no later than 30 days after the marriage, his election change is compliant



• Example 2 –General Consistency Rule:

–Mary waived her employer’s health and dental plans and elected $1,200 for her health care FSA

–Mary’s husband, Joe, enrolled in a family health plan with his employer and has no health care FSA

– Joe terminates employment

–Mary wants to make an election change with her employer

–What change(s) can she make?

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• Example 2 continued –General Consistency Rule:

– Joe and Mary are losing eligibility for Joe’s employer’s plan

– Event affects Mary’s enrollment at another employer

–Mary can increase her elections for the plans that were lost because of Joe’s termination

– Since Mary was only enrolled in Joe’s health plan, Mary can only change her health plans (not dental)

–Mary can elect health insurance for herself and/or Joe

–Mary can increase her health care FSA



• Example 3 – Timing

–Bob elected $1,000 for his excepted health care FSA

– Three days after the birth of his son, Bob signs the form increasing his health care FSA to $2,000

–Changes are effective on event date or signature date, whichever is later

–Health insurance coverage is retroactive because health plan is a non‐excepted benefit

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• Example 3 continued – Timing

– The increase is effective 3 days after the birth

• Bob has up to $1,000 for expenses incurred prior to the change

–Only $1,000 of the expenses incurred for the birth are eligible

• Bob has up to $2,000 less reimbursements for earlier expenses for expenses incurred after the change

–Only non‐excepted benefits apply retroactive effective date



• Example 4 –Adult child ages off parent’s health plan

–Bill (age 25) works for Employer A

–Bill did not enroll in A’s benefits because he has father’s plans

–Bill turns 26 and loses eligibility for father’s health insurance at the end of the month he turns 26

–Bill remains eligible under father’s health care FSA until the end of the calendar year

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• Example 4 continued –Adult child ages off parent’s health plan

– Event affects number of individuals on Bill’s father’s health plan

–Bill’s father can lower his health insurance coverage

– Event affects Bill’s enrollment at another employer

–Bill can increase his elections for the plans that were lost because of the event

–Bill can enroll in A’s health plan and elect A’s health care FSA

–Bill’s father can increase his health care FSA



• Example 5 –Change at open enrollment

–Mary is enrolled in her employer’s family health plan and elected $2,000 for her calendar year health care FSA

–Husband Joe is eligible but not enrolled at his employer

– Joe’s enrolls in his employer’s family health insurance at open enrollment in July

–Open enrollment is not one of the Change in Status events

–Mary cannot change her health care FSA election and Joe cannot make HSA contributions due to her health care FSA

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Summary

• We can help clients, brokers and participants understand what event has occurred

• We can help clients, brokers and participants understand what change in election is permitted

• We can help clients, brokers and participants comply with the regulations

• We are prepared to assist you with your questions and issues related to permitted election changes as we move forward


Permitted Election Changes‐Cost of Coverage Events

• Bootcamp Part 2: Permitted Election Changes Cost and Coverage Events

–When can a participant change his pre‐tax elections due to a change in coverage or the cost of coverage?

–What happens if an employer makes a mistake regarding an employee's election?

–What happens if an employee makes an incorrect election?

–What happens to pre‐tax elections if a company fails nondiscrimination testing?

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Questions?

Thank you for attending!!Any questions can also be addressed by e‐mail or phone:

Compliance Department

(800) 346 ‐2126

[email protected]

Visit our online blog:

http://www.ebcflex.com/NewsCenter/ComplianceBuzz.aspx

Documents

Part Permitted Election Changesebcflex.com/Portals/8/PDF/webinars/Permitted-Election... · 2017-04-14 · • 16 permitted election change events (Treasury Reg. §1.125‐4) • Change