Employer refused to stop dependent care FSA payroll deductions -

[TS54]

What is the name of your state (only U.S. law)? MN
My employer refused to stop my dependent care FSA deductions even though I requested the stoppage prior to my moving. I fulfilled the change in status requirements and consistency rule under the IRS code and their plan statement cites that they allow mid-enrollment changes under the IRS code. They have ignored my emails and are blaming a former employee for "dropping the ball". Over $800 dollars was deducted and I have nowhere to disburse the money to, meaning under the use it or lose it rule, the employer will get the money after the grace period for submitted claims ends on March 31st. I've attempted to call the IRS but the helpline for FSA issues is not operational any longer. The IRS Taxpayer Advocate Service essentially yelled at me and said they won't go after the IRS for me, which was never my intent. I would like to hold my employer accountable, though in every manner possible. Obviously, there is an incentive to not stop the deduction for them, since they can then use the funds to pay for their administrative costs for the plan. But what is my legal recourse and who do I contact at Federal/State levels to initiate processes to hold them accountable?

 

[xylene]

Was email actually adequate notice?

 

[cbg]

Let's back up a minute.

FSA's are highly regulated and the circumstances under which an employer is legally permitted to make changes are limited.

What was the change in status, when did it occur and when did you notify the employer? Let's start there.

 

[TS54]

Status Change/Applicable Code & Date Change Requested

The employer was emailed on 8/15/2016 ahead of a change of residence that took place on 09/01/2016. They were also contacted via telephone and in person. The request was made within 30 days of the event. The permitted election changes are cited under CFR 1.125-4. A change of residence is a qualifying status change and I fulfill the consistency rule since we changed school districts and child care would no longer be available as his former provider was only for children enrolled within schools at his old school district. The plan benefit statement cited that the allowable mid-enrollment changes followed the IRS allowable election changes.

 

[Zigner]

The employer was emailed on 8/15/2016 ahead of a change of residence that took place on 09/01/2016. They were also contacted via telephone and in person. The request was made within 30 days of the event. The permitted election changes are cited under CFR 1.125-4. A change of residence is a qualifying status change and I fulfill the consistency rule since we changed school districts and child care would no longer be available as his former provider was only for children enrolled within schools at his old school district. The plan benefit statement cited that the allowable mid-enrollment changes followed the IRS allowable election changes.

It's too bad that you never gave notice in writing. Also, generally, you have to give notice at least 30 days prior to the event.

 

[TS54]

Notification of Mid-Enrollment Changes Time Frame

The plan statement cites no required time frame in which to report election changes. In reading the IRS code, the examples use "within 30 days", which I was. As for notifying them in writing, six separate individuals have been included on emails, three on phone calls and two in person. They have been well notified, in my mind, and I see no specific method of notification in the code or in their plan statement. There may be best practices that would say written letter via USPS or legal requirements, so if someone can direct me to that code/requirement, it would be appreciated. Or Zigner, if you can tell me where the IRS requires 30 days notice prior to the event for election changes, that would also be appreciated.

 

[cbg]

That 30 day window? That would be in the IRS regulations that govern section 125 plans.

My employer is more generous about allowing changes than I think we ought to be, and we wouldn't have let you make the change based on what you've posted either. We would have required, at the very least, written confirmation from the child care provider that they would no longer be able to provide child care and the date that the child care is no longer effective. The employer is within their rights to require such verification - in fact, they could be found to be out of compliance with the regs if they do not.

Sorry, but your employer is on firm ground here. Too bad you didn't contact them before or within the 30 day window and ask them what they needed/would require to make the change.

Report them to anyone you like; don't expect to get your money back.

 

[TS54]

Need actual code to reference please

Can you cite the code you referenced that governs the 125 plans where the 30 day window or how the correspondence is legally supposed to occur so I can read that please? HR, the plan administrator, initially responded when I informed them I had a change in status with "that's not a change allowed by the government" (literally what was said). At which point, I included the applicable code pasted into my response and asked what was allowed then. Since then all I have heard is that they were escalating it to higher management to rectify the situation and was offered no explanation aside from that they were sorry this was happening to me and that a former employee had "dropped the ball". So I am still in the wrong even though I have that documented dialogue where they've acknowledged my change request and request for an explanation on how to make the changes?

 

[cbg]

The codes covering ERISA and Section 125 of the IRS code, which are the applicable laws, are very long and bulky and I am not inclined to go searching through them for someone who is so certain he is right and everyone is wrong. Please feel free to do the applicable research yourself. However, I do this for a living and if you worked for my employer, I'm the one you'd have to go through to get your exemption; I can promise you that such a law exists. If you don't care to believe me, that's your privilege. I'm not the one who's asking my employer to violate the law on my behalf.

FYI, a change of residence in and of itself is not even close to a permissible change. Not without proof that the child care is affected. Common sense should tell you that third-party verification would be required; when it affects your taxes and your taxable income, no one is going to pass any laws that requires them to take your word for it.

 

[TS54]

Fsa

I did not in any way ask you to research anything for me nor did I insult you. I asked for the reference to look it up myself in the hopes that you would know where to direct me. And I did not ask for guidance on this topic to recoup my money, but to find a way to speak out to the applicable agencies on how the IRS rules allow for large companies with the means and legal counsel to take advantage of the very people who FSA accounts are supposed to benefit - AKA the folks with less common sense than yourself apparently - who should have legal rights to answers from employers on how they administer the plans. If I bothered you that badly and was just to stupid for your arrogance to bear, then don't respond.

 

[TS54]

Corrected spelling of "too" so as not to be criticised again

I did not in any way ask you to research anything for me nor did I insult you. I asked for the reference to look it up myself in the hopes that you would know where to direct me. And I did not ask for guidance on this topic to recoup my money, but to find a way to speak out to the applicable agencies on how the IRS rules allow for large companies with the means and legal counsel to take advantage of the very people who FSA accounts are supposed to benefit - AKA the folks with less common sense than yourself apparently - who should have legal rights to answers from employers on how they administer the plans. If I bothered you that badly and was just too stupid for your arrogance to bear, then don't respond.

 

[CTU]

I did not in any way ask you to research anything for me nor did I insult you. I asked for the reference to look it up myself in the hopes that you would know where to direct me. And I did not ask for guidance on this topic to recoup my money, but to find a way to speak out to the applicable agencies on how the IRS rules allow for large companies with the means and legal counsel to take advantage of the very people who FSA accounts are supposed to benefit - AKA the folks with less common sense than yourself apparently - who should have legal rights to answers from employers on how they administer the plans. If I bothered you that badly and was just too stupid for your arrogance to bear, then don't respond.

I suggest you pay a professional to deal with your ... "issues". You might want to pay for an attorney, too, to tell you what you've been told here for free.

 

[cbg]

I did not in any way ask you to research anything for me nor did I insult you.

I'm willing to believe that you did not intentionally insult me but you did, in fact, ask me to do the research for you.

Can you cite the code you referenced that governs the 125 plans where the 30 day window or how the correspondence is legally supposed to occur so I can read that please?

Right there.

And I believe I explained to you exactly what would have been required and why. However, I will do so again since we seem to have gotten off on the wrong foot.

For ANY change to a section 125 benefit (that means more than just FSA's - it includes health insurance and any other health and welfare benefit that is deducted on a pre-tax basis) that takes place when it is not your Open Enrollment period, there MUST be a qualifying life event that affects the specific benefit; there MUST be written verification of that change; that written verification needs to include a specific date on which the qualifying event occurs, and there will ALWAYS be a limited window in which to make the changes. This is because it affects your taxable income and the IRS is not going to take your word for it, or let your employer take your word for it.

While a change of address can be a qualifying event for a dependent care FSA, it isn't automatically one. Changing school districts is not enough of a change to be an obvious change in child care, but even if it were, there still has to be third party verification. I had someone who moved from Massachusetts to Puerto Rico and we still had to get a letter from her day care provider stating that the child would not longer be on the rolls as of xx/xx/xxxx. An email is simply not enough.

The IRS, meanwhile, is quite aware of the use-it-or-lose it provision of these plans, since they are the ones who created it. The IRS is not on your side in this issue; nor are they on your employer's side. They are only concerned with making sure that they get every cent of tax that they can justify.

It's a shame that someone in your HR office dropped the ball and for your sake I hope they will make the exception. But they are on very, very firm ground if they refuse.