The ins and outs of pre-tax benefits plans can be pretty confusing. Pre-tax plans are not the same as health or any other kind of insurance, so make sure not to mix them up.
While in many cases they are complementary, you still need to sign up for other benefits like vision and dental, for instance. Of course, things happen, and sometimes people miss enrollment deadlines. We’re human, after all, but you can’t be blind to the downsides of allowing any inputs or changes when your enrollment window has closed.
Let’s Start By Discussing What Pre-Tax Benefits Are:
A pre-tax benefits plan is an account that requires employees to sign up through their employer and is then funded through payroll deductions. The money for the pre-tax benefit is pulled from their salary before taxes.
The funds in any pre-tax account can only be used for specific, designated items, called “eligible expenses.” For most accounts, this means that the funds in this account can only be used to pay for medical expenses. For example, in the case of a Commuter Benefits Account, funds can only be used for commuting, as the name implies.
Here are some questions and answers to know what this is about and the best way to view the implications:
1. What Plans Fall Under Pre-Tax Benefits?
- Commuter benefits accounts (CBPs)
- Flexible spending accounts (FSAs)
- Health savings accounts (HSAs) and
- Health reimbursement accounts (HRAs)
2. What Are IRS Limits To Pre-Tax Benefits?
Under each of the four plan types, you can expect IRS releases updates on limits yearly. These limits vary depending on the plan, and can increase from year to year (though this is not always the case). Inflation is a major cause for increases in limits. Also, don’t forget the increase does not take effect immediately but in the following plan year.
3. What If An Employee Missed The Open Enrollment Deadline?
Employers aim to give a high-level timeline at the least. Open enrollment is usually at the end of the year, with a timeframe of 45 days to review and enroll.
It seems the employee will be the one to bear most of the brunt if open enrollment is missed as there will be no coverage, and they would be unable to enroll for the plan until the next open enrollment period.
A more severe case is having a fine imposed by the Affordable Care Act (ACA). Dramatic right? But employers are not emotionless robots following protocol and not being mindful of the other side of the story.
An exception to the rule is that if an employee experiences a life-changing event, that’ll trigger a special enrollment period. The HR department will be the best point of contact in this case.
4. How Costly Is Missing The Open Enrollment Deadline?
You don’t want to miss out on perks and end up spending a lot more than planned on basic necessities and fines, do you? There you have it. It’s pretty costly when you miss the open enrollment as an employee.
5. Can Changes Be Made After The Enrollment Window Has Closed?
We wish this were the case, but sorry to be the bearer of bad news; it isn’t. Once you miss your open enrollment elections, there’s no option to change this.
An employer is not legally obligated to allow changes to be made or late enrollments either. There’s every chance the terms in your employer’s plan don’t even qualify for any exceptions or changes. And this makes sense. Imagine how cumbersome it would be if everyone idly enrolled whenever they liked for plans and benefits.
Of course, life-changing events do qualify for changes to be made, as stated earlier. Let’s explore this below…
6. What Are Qualifying Life-Changing Events Which Permit Changes?
The most common ones are:
- Changes in marital status
- Changes in the status of dependents
- Changes in the number of dependents
- Changes in employment and
- The state of losing one’s job but still electing to continue receiving benefits from one’s employer
7. Do All Plans Allow Changes To Be Made In The Case Of Qualifying Life-Changing Events?
Most do, but not all. However, this is also time-sensitive to an extent. If you’re an employee who has missed open enrollment, but has a qualifying life-changing event, you will need to contact your administrator or HR department within 30 days of the life-changing event to ascertain your eligibility for making changes and hope the odds are in your favor.
8. How Can The Need To Make Changes Be Avoided?
Take your time when filling out the form, and be thorough to avoid making errors. It’s that simple. It helps not to leave the elections for the last minute as this will make you rush through, which you don’t want to do.
If you have a family, you will need to discuss the enrollment with them to ensure you’re all on the same page and prepared. Your employer will likely educate you and keep you informed on what to expect in open enrollment.