May 2006 | Volume V, Issue 4 | Editor: David Wise

Two and a Half Month Grace Period

The 2½ Month Grace Period, enacted by the IRS last year, wasn’t your average IRS regulations change. It threw those of us in the software business and you in the administration business into a hectic race to make the necessary changes in preparation of administration of this process. The transition wasn’t easy, but we made it together.

Let us look at an example of how this regulation change was embraced by the employers who use the services of eBenefits Administrators, Inc. There was a split, almost directly down the middle, of employers that wished to implement this change. 48.8% chose to accept the grace period while 40.4% chose not to at this time. There was a remaining 10.7% that were undecided when the information was collected. (See Figure 1).

When we asked Joe Schmitt what the trend was for the participation of this plan, he explained that the smaller the client the more in touch with the day-to-day lives of employees they seemed to be. Therefore, according to Joe, “the small employers are loving every minute of it!” Also, eBenefits Administrators representatives worked with clients to determine if the remaining balances showed that a Grace Period would be beneficial. “If they didn’t need the Grace Period because small balances were left, they didn’t amend their Plan so that they could close the books on the Plan Year right after the standard Run-Out period.” Joe did indicate that many of the employers were hesitant to implement the Grace Period the first year, but that he is confidant that next year will be different.

Some other trends developed when we researched the choices made according to eBenefit Administrator’s employer data. 90.2% of the employers that offered the Grace Period allowed DCAP benefits also. All employers that elected the Grace Period offered the full amount of the remaining balance for both FSA and DCAP, if it was included.

When asked if he would do anything differently, Joe said the only thing would be to “turn off the First In First Out (FIFO) feature right from the beginning.” According to Joe, if an EOB is held up by an insurance carrier and other claims occur in the new plan year, turning FIFO off will allow the system to automatically realign the claims to make sure that the participant receives the most benefit from his or her plan. With FIFO activated, this realignment will not occur automatically. After this "small hiccup", Joe said he was able to iron out the wrinkles and enjoy a problem-free administration environment. He was also quick to point out that it was so easy and problem-free because “the software handled everything.”

The introduction of the Grace Period was one of the most talked about regulations that the IRS enacted in recent history. It became one of the biggest decisions that employers have had to make about their benefit packages. DataPath set forth a plan to make this transition, as well as the administration that followed, as easy as possible.

“The 2½ Month Grace Period solution from DataPath has enabled us to corner the market on true software-based Grace Period administration that is accurate and efficient,” Joe said. “Since there is virtually no backend administration, we can provide a solution to our clients that many other software platforms can only dream about. DataPath has hit the target dead-center on this one.”

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