For many, you are likely in the middle of a plan year and for whatever reason are considering change. There are always pros and cons with any decision, but there may also be some limitations to changing pre-tax benefits. If you are considering mid-year changes to your pre-tax benefits program, here are a few considerations.
1) Adjusting plan rules
Outlined in your plan documentation are plan rules. These provide clear instruction to employees regarding eligibility, approved expense types and rules for the end of the plan year. There are several reasons you might want to change your plan rules in the middle of a plan year:
- You have decided to adopt an HSA in the new plan year. Adopting an HSA is often a trigger to change an existing FSA plan. If you will be introducing an HSA for the first time, check what happens to remaining FSA funds at the end of the year. An FSA with an Extended Grace Period is not ideal when introducing an HSA and can prevent individuals from contributing to an HSA for up to three months.
- You have issues with your non-discrimination testing. Once your FSA is in place and you’ve determined employee participation, it might be time to conduct a “sniff test”. A “sniff test” is a preliminary non-discrimination test of your FSA plan. This provides an opportunity to proactively make changes to your plan and election limits to ensure the plan is not discriminatory.
2) Mid-year changes to elections
The rules vary regarding which election changes are permitted when.
- Elections for an HSA can be changed at any time for any reason. Employers may limit changes to once per month for administrative purposes.
- Commuter benefit plans are a monthly evergreen election. Changes can be made at any time for a commuter benefit plan. Employees don’t need to wait until open enrollment to set a new election. However, there may be monthly cut-offs for changes.
- FSA elections cannot be changed, except when a qualifying event occurs (e.g. marriage, divorce, job change, birth of a child.)
3) Health plan changes
Major changes to your health plan offerings are never easy, but pre-tax benefits often provide an opportunity to ease those transitions. But, there are a few things to keep in mind.
- Be sure to align the plan years for your health plan and pre-tax benefit accounts. When plan years do not align, employees are unable to properly plan for expenses. This will likely result in lower adoption rates. If your plan years don’t currently align, a short plan year can be used to get them in alignment.
- Adding a health plan mid-year isn’t a qualifying event for FSA purposes. This means if you are adding an HSA-compatible health plan and employees are already enrolled in a Medical FSA, they will not be eligible to contribute to an HSA until the FSA plan year ends.
- New health plan options might trigger new pre-tax benefit plan offerings. Limited FSAs and post-deductible HRAs are commonly added as the result of a change in a health plan offering.
4) Changing administrators
There are various reasons you might be considering changing administrators. There are also times when a mid-year change makes sense, or may even be recommended.
- Changing COBRA Administration off-cycle simplifies the transition. COBRA has various rules and communication requirements. When attempting to change administrators during open enrollment, you have multiple messages being sent to the qualified COBRA beneficiaries, often from both administrators, leading to confusion. Changing your COBRA Administrator off-cycle allows the message to be focused and simplified.
- There is no plan year for commuter benefits. Commuter benefits are a month-to-month benefit and can generally be changed at any time.
- Mid-year changes to an FSA or HRA are less common but possible. Change is always disruptive to a certain degree, but how it is handled and communicated is key.
- Mid-year changes allow you to focus on the change and set expectations. During open enrollment, other benefits decisions can sometimes overshadow your ability to do this.
- A takeover is required anytime you roll balances from one plan year to the next. However, there is little difference between a mid-year and end-of-year takeover.
- You have your reasons and that is not for us to determine. Sometimes you just need a change.
Whether you are working through major plan changes or just needs a few tips, Benefit Resource is available to assist. Contact us or reach out to your regional manager for a no-risk consultation.