Cafeteria Plan Training Excerpts
HFSA Design Requirements
When designing an HFSA, the plan administrator should consider the following elements:
- An HFSA plan year is 12 months, except for short plan years. (A short plan year may be necessary for starting or ending an HFSA in the middle of a calendar or fiscal year.)
- HFSA elections by employees must be made each year prior to the beginning of the plan year and are irrevocable except for certain status changes.
- No employee may be required to wait more than three years before participating in the HFSA. The vast majority of plans do not require such a long waiting period. A plan may set up a waiting period that requires an employee to complete a certain time of employment, and then the employee will be enrolled on the 1st of the month following the completion of the set time period.
Example: ABD Corp. requires new employees to complete 30 days of employment before being enrolled in the health care plan on the 1st of the following month. If Kevin begins his employment with ABD Corp. on March 21st, he will complete his 30-days of employment by April 20th – he may enroll in the health care plan on the 1st of May.
Generally, the higher the employee turnover in a company, the longer the waiting period. A longer waiting period may be used to reduce the exposure to the plan due to the uniform coverage rule.
Example: Truck and Trailer Corp. maintains an HFSA under its Cafeteria Plan. The plan administrator has determined that employees who are likely to terminate employment in the first year will typically do so within the first 90 days of employment. Therefore, the plan administrator sets a 90-day waiting period for participation in the Cafeteria Plan. This reduces the likelihood of employees overspending their HFSA funds and then terminating employment.
Other eligibility requirements are often tied into the medical plan. This is done by stating in the plan documents that in addition to the waiting period, in order to be eligible for participation in the HFSA, the employee must be eligible for participation in the medical plan.
Example: In order to be eligible for the medical plan, an employee of YXZ Inc. must work a minimum 30 hours per week. By referencing the eligibility requirements for the medical plan in the HFSA plan document, working 30 hours per week will also be the minimum requirement for participation in the HFSA.
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