If an enrollment form is submitted after the coverage eligibility/effective date due to an administrative error (the local HR Manager) and no fault of the employee, can the coverage be made effective the first of the month following the discovery of the error or must the coverage be made retroactive to the original eligibility date?

The rule of thumb in correcting errors is that you should make things as close as possible to what they would have been had the error not occurred.

What type of plan is this?

These are medical, dental and vision, all of which fall under the Section 125 regulations.

The coverage was to be effective 7/01 and the HR Manager has just discovered the error. Since we are close to the end of the second month, I was concerned about the retro coverage and the retro payments that would be due from the employee. To add to the issue, one of the employees has terminated!

While 125 requires elections to be made before the coverage period begins, the IRS has also indicated (remarks made at a March 31, 2000 ECFC Conference with Harry Beker present) that true employer administrative errors should be able to be corrected, even retroactively. In this case, I would allow the elections to be retroactive to the proper begin date, as long as it is obvious that this is an employer administrative error. Pre-tax payroll deductions will have to be taken retroactively, as well, which you indicated. If someone terminated, you may not have any salary or salary substitutes from which to take these past payroll deductions. I think that their elections still should be honored.