More seasoned employees may be aware of what qualifying events are and the impact they have on pre-tax elections, but newer employees may not be as familiar with the changes involved. Even employees with good intentions might forget to adjust their pre-tax elections to reflect their updated status following a qualifying life event.
To assist employees with the details of the transition, help them understand what does (or does not) count as a qualifying life event, and how the life event could impact their pre-tax benefits. We all understand that getting married or divorced, having a baby, and changing jobs are qualifying life events. But sometimes it’s less clear what counts as a qualifying life event. Healthcare.gov provides a breakdown of four of the basic types of qualifying life events.
Basic Types of Qualifying Life Events
The main groups include:
- loss of health coverage (e.g. changing jobs)
- changes in household (e.g. having a baby, marriage)
- changes in residence (e.g. moving to a new state)
Let’s take a look at several situations that might fall in the “other” category and cause employees some confusion. (Especially when it comes to the impact on their pre-tax benefits.)
Does it qualify?
The answer is not straight-forward. For pre-tax benefit accounts, moving is rarely a qualifying event. Even for health insurance purposes, it may depend on where an employee moves and if their benefits were impacted. For example, a move to another state will always trigger a qualifying event. A move within a state may qualify if the prior plan is not available in the new area or if additional plan options are available in the new area. HealthInsurance.org goes into a little more detail on this concept.
If your employee or an employee’s dependent is about to turn 26, it is a qualifying life event. Depending on the scenario, some options include coverage through their employer (which often involves switching off of their parents’ plan), electing from an open Marketplace or, in some cases, continued coverage under COBRA. With COBRA, coverage is available for up to 36 months. If you’d like to learn more about COBRA for employees, contact the COBRA Department at Benefit Resource, Inc.
Adopting a Child
If your employee is in the process of adopting a child, it is a qualifying life event. One recommendation for employees welcoming a new member to the family is a Dependent Care FSA. As we addressed in our blog, “Being a new mom – how pre-tax benefits can help,” a Dependent Care FSA is separate (and can be had in addition to) the more common Medical FSA. The most important piece of information to impart to your employees is that a Dependent Care FSA is not a sub-plan under a Medical FSA. It is a separate plan and therefore requires a separate enrollment and election amount.
If an employee chooses to start a Dependent Care FSA, they might think they can use the opportunity to decrease their Medical FSA election (if they have a Medical FSA). However, the IRS does not allow this. The type of plan change an employee makes (e.g. increasing their number of dependents) must be consistent with the type of request they are making (e.g. increasing their Medical FSA and/or Dependent Care FSA). This is referred to as the “consistency clause.”
An employee adding a dependent to the family has several options:
- start a Dependent Care FSA (if they don’t already have one)
- increase their Dependent Care FSA election (if they already have one and it is not at the family limit) and/or increase their Medical FSA election (as long as they are not already contributing at the maximum limit)
Legal separation is tricky. It is not a qualifying life event for election purposes, but is a COBRA qualifying event. If an employee is in the middle of a separation, they are eligible to continue coverage under their spouse’s plan. However, once the divorce or annulment is final, your employee can seek coverage elsewhere.
Smoothing the Transition
Qualifying life events can be difficult to navigate for employees. Two steps you can take to close the process:
- Provide access to tools like a company resource, webpage, or outside service (such as a pre-tax benefit administrator). These tools can provide clarification and answer questions if your employee needs additional assistance.
- Communicate clearly with employees about deadlines and what needs to be achieved by when, as well as any penalties inaction could produce. Much like during open enrollment, there is usually a time frame for adjusting benefits after a qualifying life event.
Commit to being their first stop on the road to a smooth transition.