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Section 125 Refund
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Section 125 Refund
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We have a section 125 premium only plan. Our medical plan covers dependents to age 19 or 24 if they are a full-time student. Prior to 6/99, we did not have a system to check for ineligible dependents.
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Forums » Topic Forums » Legal Forum » Section 125 Refund
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Section 125 Refund
posted at 6/16/1999 3:34 AM EDT
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Posts: 3
First: 6/16/1999 Last: 7/12/2000 |
We have a section 125 premium only plan. Our medical plan covers dependents to age 19 or 24 if they are a full-time student. Prior to 6/99, we did not have a system to check for ineligible dependents. An employee continued to pay premiums for a dependent, even though the dependent was 23 and a part-time student. The employee wants a refund. 1. Was it the employer's responsibility to notify her that her dependent was no longer eligible? 2. Can we refund the premiums even though they were deducted in previous tax years (he has not been eligible for coverage for 2 years)? 3. If the answers to #1 & #2 are yes, are we required to refund the premiums? |
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Section 125 Refund
posted at 6/16/1999 6:35 AM EDT
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Posts: 11
First: 6/13/1999 Last: 1/7/2000 |
Why does the ee want a refund of premiums? Did the dependent use your coverage? If the answer is yes, don't refund the premiums.
How long has the dependent been a part-time rather than a full-time student? My gut feeling is that the ee has the responsibility to notify the employer when a dependent is no longer a full-time student. I lok forward to EB&G's response. |
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Section 125 Refund
posted at 6/16/1999 9:59 AM EDT
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Posts: 833
First: 6/11/1999 Last: 8/23/2001 |
I'd say "no", since the coverage was in effect. It's the employee's responsibility to add/drop dependents, IMHO, and, as long as the summary plan description was issued to the employees, it was their choice to elect coverage and continue to pay for coverage for an ineligible dependent.
The coverage was extended in accordance with the election option of the employee. I'd say no refund was in order. This is like asking for your car insurance premium back because you didn't have an accident; or asking for the collision portion back because your car wasn't worth it, even though you didn't file a claim. |
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Section 125 Refund
posted at 6/16/1999 9:45 PM EDT
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Posts: 2
First: 6/16/1999 Last: 1/26/2000 |
I do not have a definitive answer. However, if you sent out initial COBRA notification when your employees were eligible, you would have notified the employees that it is their responsibility to notify you if a dependent child ceases to have dependent status. As far as reimbursing the employee, will the insurance company reimburse you? (I kind of doubt it, but you never know.) If the insurance company reimburses you, I don't see a problem reimbursing the employee.
This situation might also present a good opportunity to notify all employees that it is their responsiblity to notify you of changes in family status that may affect insurance. |
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Section 125 Refund
posted at 6/16/1999 9:46 PM EDT
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Posts: 3
First: 6/16/1999 Last: 7/12/2000 |
Thank you for responding. I neglected to tell you that while she was paying the premiums for approximately two years while he was not eligible, she never filed a claim for him. The only way we knew he was not eligible was when she did file a claim just recently, it was denied based on his part-time status. The employee feels that she should receive a refund for paying premiums for insurance that was not actually in effect, and the employer feels that because she had an SPD that outlined the eligiblity rules, it was her responsibility to notify us. We did refund the premiums she paid in 1999. Should we go back the two years? Again, they were deducted pre-tax. Thanks! |
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Section 125 Refund
posted at 6/17/1999 5:12 PM EDT
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Posts: 2217
First: 6/16/1999 Last: 12/13/2001 |
Well, we had to think about this problem a bit, and your clarification helps a great deal.
If the plan provided that dependents under age 24 were no longer eligible if they were not enrolled in school full time (and the plan provided notice of this requirement in the SPD), than the employee is probably (give us some wriggle room) entitled to a refund of premiums. The employer would have to issue new tax forms (and the employee would be obligated to file amended tax returns) or the employer might have to add the refunded money to this year's income statements. If the plan document is well written, it should provide that the plan is entitled to offset any refund by claims improperly paid, which the plan should do. If the plan has still paid more in benefits, than it should offset future benefits by the amount of the overpayment. On the other hand, a very good argument can be made that if claims were covered in the past for that particular person, employee would be estopped from demanding refund because his dependant took benefit of the implied contract (although employee might argue that all employer was entitled to would be actual value of services rendered (and maybe some admin costs) and would have to refund the rest. |
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