New Election Changes Permitted for Health Coverage under Section 125 Cafeteria Plans

On September 18, 2014, the IRS issued Notice 2014-55, which expands permitted election change-in-status rules for cafeteria plans. The new rules allow mid-year election changes in two situations:

  • An employee who would like to change from the employer’s group health plan to marketplace coverage without a period of duplicate coverage or no coverage
  • An employee whose hours of service are reduced below 30 hours per week without a corresponding loss of eligibility for the employer’s group health plan and who wants to change to other coverage

Beginning September 18, 2014, cafeteria plans may allow employees in these situations to prospectively revoke an election for coverage under a group health plan (other than a health FSA) that provides minimum essential coverage, when specific conditions are met.

These new permitted election changes are optional. An employer that wishes to allow the additional election changes will need to amend its cafeteria plan. The amendment must be adopted by the last day of the plan year in which the changes are allowed and may be effective retroactively to the first day of that plan year.  For plan years beginning in 2014, the employer has until the last day of the 2015 plan year to amend the plan.

Contact MSEC for more information.