Qualifying Event Options - Cafeteria Plan - Please Help
stilldazed
640 Posts
We have a situation for which I'm sure I have the right answer, but I'm getting some resistance and am looking for some quick insight.
Situation: Wife in a family is employed with us and has family health insurance to cover herself, her husband, and their only child. Wife is pretaxing her premium under cafeteria plan provisions. The husband also just became an employee and qualified for his own insurance. His employment/eligibility for health insurance is a qualifying event, which has allowed him to enroll in a single health policy on his own; however, the wife is also trying to use the same event to drop the child and reduce her policy to a single policy. Concurrent with the timing of the change, the wife has enrolled the child in an individual policy. It is financially favorable for the family to have two single policies (one for husband & one for wife) and an individual policy for the child. The sales rep for the individual policy supports that we should allow the child to drop without being picked up by the dad. I think we can't, unless of course the husband picks up the child as a dependent. "Mandated Benefits" supports that "IRS regulations allow midyear election changes to cafeteria plans when a change in a participant's status occurs, and the change in election is consistent with the change in status." Likewise, our SPD outlines that changes must be consistent with the change in status as well.
That means to me that the child must be covered by the mom, unless the dad is willing to pick the child up as a dependent. Of course, the sales rep has a different opinion and thinks we should allow the change because an overall favorable financial benefit to the family will result if there are two single policies and an individual policy (not to mention a commission to the sales rep for the individual policy). My assistant has allowed the change without question. I'm trying to correct a potential error before it occurs.
The employee is confused at this point, wants insurance to remain uninterrupted, seems to understand my concern, but wants the most bang for the buck. Seems cut and dry to me, but the sales rep is feeding information as well that disagrees. We have till March 31 to resolve the issue, and we have an alternative available for allowing the entire family to be covered under one family policy, even though both the husband and wife are employees. The health carrier is aware of the option. We just handle payroll deductions for premiums differently. That is what I think is due this family at this point.
Again, looking for insight. Any thoughts out there? It must be Friday afternoon after a long week. I'm beginning to doubt my interpretation of reading material!
Thanks,
Situation: Wife in a family is employed with us and has family health insurance to cover herself, her husband, and their only child. Wife is pretaxing her premium under cafeteria plan provisions. The husband also just became an employee and qualified for his own insurance. His employment/eligibility for health insurance is a qualifying event, which has allowed him to enroll in a single health policy on his own; however, the wife is also trying to use the same event to drop the child and reduce her policy to a single policy. Concurrent with the timing of the change, the wife has enrolled the child in an individual policy. It is financially favorable for the family to have two single policies (one for husband & one for wife) and an individual policy for the child. The sales rep for the individual policy supports that we should allow the child to drop without being picked up by the dad. I think we can't, unless of course the husband picks up the child as a dependent. "Mandated Benefits" supports that "IRS regulations allow midyear election changes to cafeteria plans when a change in a participant's status occurs, and the change in election is consistent with the change in status." Likewise, our SPD outlines that changes must be consistent with the change in status as well.
That means to me that the child must be covered by the mom, unless the dad is willing to pick the child up as a dependent. Of course, the sales rep has a different opinion and thinks we should allow the change because an overall favorable financial benefit to the family will result if there are two single policies and an individual policy (not to mention a commission to the sales rep for the individual policy). My assistant has allowed the change without question. I'm trying to correct a potential error before it occurs.
The employee is confused at this point, wants insurance to remain uninterrupted, seems to understand my concern, but wants the most bang for the buck. Seems cut and dry to me, but the sales rep is feeding information as well that disagrees. We have till March 31 to resolve the issue, and we have an alternative available for allowing the entire family to be covered under one family policy, even though both the husband and wife are employees. The health carrier is aware of the option. We just handle payroll deductions for premiums differently. That is what I think is due this family at this point.
Again, looking for insight. Any thoughts out there? It must be Friday afternoon after a long week. I'm beginning to doubt my interpretation of reading material!
Thanks,
Comments
In your case, the spouse has a gain in coverage eligibility which is the qualifying event. Giving him separate coverage and dropping him from the wife's coverage is a change made on account of and corresponding to the qualifying event. Giving the child individual coverage, in my opinion, is not.
I have no doubt that the insurance salesperson has a good understanding of insurance and how it works. That does not mean that the sales rep automatically understands IRS rules and regulations.
I guess what all this boils down to is that I support your conclusions, but can't give you specific guidelines to go to. Sorry.
I've been reading for the afternoon and found some concrete references to the consistency rule. Actually, I found helpful information at this website in the password protected area--Louisiana ELL, 2/2001; Virginia ELL, 2/2003, Kansas ELL, 6/2000, and North Dakota ELL, 5/1998, and the answer engine. I also found an IRS bulletin, #2000-15, that addressed some revisions in Sect. 125 administration. The consistency rule that describes that midyear election changes can be allowed only if the change being requested results from the qualifying event. After hours of reading, I'm convinced that I was correct to start with, as I think you are as well. The family qualifying event is the spouse's employment and eligibility for group coveasge. The spouse can either take it or decline it. If he takes it, he can be dropped from the wife's policy. The child has not had a qualifying event--no change in dependent status--so the child must remain unchanged until 1) open enrollment, or 2) the husband elects coverage and picks up the child on his policy.
Again, thanks.