Flexible Benefits Newsletter - July 2000

IRS ISSUES NEW REGULATIONS

Six Changes-in-Status Categories

Fran Pullano Receives Highest Recognition

IRS ISSUES NEW REGULATIONS

Final and Proposed Regulations Address Permissible Cafeteria Plan Election Changes

July 2000 - On March 23, 2000, the IRS issued two sets of regulations that clarify and expand the change in status and change in cost or coverage provisions. The new change in status regulations provide an exhaustive list of events that permit an election change for all qualified benefits, and limit permissible benefit changes attributable to the event under a narrow consistency rule. The list of events has been somewhat expanded, and the consistency rule has been relaxed to accommodate practitioner concerns. The final regulations are effective for plan years beginning on or after January 1, 2001 but plan sponsors can rely on the regulations now. Once effective, election changes will not generally be allowable for a change in status except as otherwise provided in the new final regulations.

The IRS also issued new proposed regulations that expand the scope of the change in cost or coverage provisions. The proposals expand those provisions to apply to all qualified benefits, including dependent care assistance and self-funded medical coverage (other than health flexible spending arrangements). In addition, the proposed regulations address the “spousal election lock” issue by allowing a prospective election change that corresponds to a spouse's open-enrollment change or certain mid-year election changes.

Communication aspects of the proposed new regulation are important. Employers must communicate the provisions to affected employees, and should not merely implement the new rules on an ad-hoc basis in response to employee inquiries. They emphasize that failure to prospectively communicate the new rules may give rise to claims of discriminatory administration.

If you are interested in arranging a meeting with Fran Pullano to discuss the new regulations and implementation issues, please call to set up an appointment.
(716) 385-6010 - Toll Free 1-800-836-8100 or: franp@flexbene.com  

Fran Pullano Receives Highest Recognition

The Employers Council on Flexible Compensation (ECFC) has awarded the highest professional certification available for practitioners in flexible compensation to a local benefits consultant.

Fran is principal of M.A. Services/Pullano & Company, and was one of nine flexible compensation practitioners to become designated “Certified in Flexible Compensation Instruction” by the Council's Academy for Professional and Ethical Standards. There are 13-thousand practitioners in flexible compensation nationwide, and Fran is one of only 142 to earn the “CFCI” designation. She is one of six in New York State, and one of only three in the greater Rochester area.

The rigorous flexible benefits examination was given in Washington, D.C. last April and covered plan design and administration, regulations and ethical standards. Flexible benefit plans include flexible spending accounts, child and elder care reimbursement accounts, 401(k) and other defined contribution plans and other innovative forms of compensation and benefits.

The 2,800 members of the ECFC represent employers from Fortune 500 corporations, universities, state and local governments, labor unions and professional trade associations, and societies and professionals who serve them.

If you would like to know about ECFC, visit them on their web site at www.ecfc.org; or you can learn more about flexible benefits from our website: www.flexbene.com. 

Six Changes-in-Status Categories

Final regulations provide an exhaustive list of categories of permissible events. Events that do not fit within one of the categories will no longer qualify once the regulations become effective.

1. Employee's Marital Status
2. Number of Dependents
3. Employment Status
4. Dependent Eligibility
5. Residence Change
6. Adoption Assistance

Consistency Requirement

If a change-in-status event occurs, employees are allowed to make changes consistent with the event. The final regulations clarify (and limit) the election changes. Under the final regulations, a uniform rule generally applies to all qualified benefits (accident or health coverage and group term life). The question is whether the election change is on account of and corresponds with a change in status event that affects coverage eligibility of the employee, spouse or dependent for the qualified benefit.