Section 125 Self-Administration

CM_D

I am looking into self-administrating our Section 125 plan. Can anyone tell me if they are doing this or reasons why they decided not to self-administer?

stilldazed

Our organization has been self administering and are looking to move away. We're pricing services now to outsource. It's a legal mine field full of trip hazards. If your organization is large enough and has effective legal and accounting resources as well as sufficient staff and management commitment to designate a specialist expert and keep the expertise level high, the choice may be good for your company. Our organization's experience reflects that if those things are not in place up front and maintained with diligence, quality of administration suffers, which increases the risk substantially. It's labor intensive and may be a bigger burden than your employer wants to bear alone.

CM_D

I have 25 employees enrolled currently. Can you tell me how it is labor intensive? We are thinking of using the debit card - do you have one?

stilldazed

We have about 25 people enrolled in FSAs as well. We're also a large employer for our geographic area but a relatively small employer in the big scheme of things (just under 500 EEs). Our HR dept. is 2 people, myself (director) and an assistant, which means we are both generalists by default. We have to be good at a lot of things, which basically prevents our being expert in any one thing. We have no in-house legal counsel or tax advisor. Our Sect. 125/FSA process is broken functionally between HR (plan administration), Payroll/Accounting (claims), and Risk Mgmt (HIPAA). We've also had high turnover in all relevant positions until about a year ago, and I sincerely don't know when our company moved to self administration. It was before I came onboard and really doesn't matter. Our experience is that expertise has suffered a lot, and that has had a direct impact on every thing in the process that gets recorded on paper. Payroll folks barely understand the concept and know general info only. Accounting folks see it has an HR issue because it's an employee benefit. HR researches questionable circumstances and lends professional advice on reimbursement issues (eligible expenses, receipts vs. no receipts, reimbursement timing--little details). Risk Mgmt doesn't understand the HIPAA aspect (because we're not an insurance company and HR/Payroll doesn't provide health services). Accounting staff file annual reports with IRS. ERISA applies, which requires current and regularly updated plan documents (managed in house). HIPAA applies because medical FSA is a self administered health insurance plan if there are 50 or more participants, which requires policies/procedures that can pass HIPAA scrutiny or a constant eye on the number of participants with documents ready just in case. IRS applies, which requires a certain amount of reporting. Educating employees is an issue. I don't know what your participation ratio is, but if it's low, you have a knowledge barrier that should be addressed. If you self administer, finding educational aids is difficult, and finding the time to do the education is difficult as well. Cobra applies in a modified version to medical FSAs and not at all to childcare FSAs. Special enrollment issues vary from one type of FSA to the other. If you administer in house, you may also have to inhouse the Cobra administration. Periodic discriminatory testing is required. Recordkeeping is intense, and records should be maintained for 7 years, so fool proof retention/storage is an issue. Keeping expertise and knowledge current is an issue. Once processes are performed in house, it's very easy for an organization to fall into the mentality that the process no longer needs as much attention as did before because the costs are hidden. That's is a very risky decision in Section 125 administration. The administration truly has to be expert because ignorance of requirements does not exempt an employer from liability. We're having trouble in several areas.

CM_D

Thank you very much - I think you just dissuaded me from self-administering.

stilldazed

Not trying to squelch your idea. If your organization has adequate resources, it may be a good thing for you. I isn't for us. The costs to outsource are far less than all the costs associated with in-house administration.