IRS Expands Rules for Mid-Year Election Changes Under Cafeteria Plans (continued)

IRS Expands Rules for Mid-Year Election Changes Under Cafeteria Plans (continued)

by clarkebenefits_admin Posted on: September 25, 2014Categories: HR & Compliance   

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Conditions for Election Changes Due to Reduction in Hours of Service

A cafeteria plan may allow an employee to prospectively revoke an election of coverage under a group health plan if both of the following conditions are met:

• An employee who was reasonably expected to average at least 30 hours of service per week has a change in employment status so that the employee will reasonably be expected to average less than 30 hours of service per week after the change (even if that reduction does not result in the employee ceasing to be eligible under the group health plan); and

The revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the employee (and any related individuals who cease coverage due to the revocation) in another plan that provides MEC. The new coverage must be effective no later than the first day of the second month after the month in which the original coverage is revoked.

A cafeteria plan may rely on an employee’s reasonable representation that he or she and related individuals have enrolled (or intend to enroll) in another plan that provides MEC within the required time frame.

Conditions for Election Changes Due to Exchange Enrollment

A cafeteria plan may allow an employee to prospectively revoke an election of coverage under a group health plan if both of the following conditions are met:

• The employee is eligible for special enrollment in an Exchange plan OR the employee wants to enroll in an Exchange plan during the Exchange’s annual open enrollment period; and
• The revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the employee (and any related individuals who cease coverage due to the revocation) in an Exchange plan. The Exchange coverage must be effective beginning no later than the day immediately following the last day of the original coverage that is revoked.

A cafeteria plan may rely on the reasonable representation of an employee who has an enrollment opportunity for an Exchange plan, that he or she and related individuals have enrolled (or intend to enroll) in an Exchange plan for new coverage that is effective within the required timeframe.

Plan Amendments Required

To allow the new permitted election changes under Notice 2014-55, a cafeteria plan must be amended to provide for the election changes.

In general, the amendment must be adopted on or before the last day of the plan year in which the elections are allowed. It may be effective retroactively to the first day of that plan year, if:

• The cafeteria plan operates in accordance with guidance under Notice 2014-55; and

The employer informs participants of the amendment.

However, a cafeteria plan may be amended to adopt the new permitted election changes for a plan year that begins in 2014 at any time on or before the last day of the plan year that begins in 2015.

Effective Date

The guidance contained in Notice 2014-55 is effective on Sept. 18, 2014. The IRS intends to amend the current cafeteria plan regulations to reflect the guidance in this notice. However, taxpayers may rely on the guidance in Notice 2014-55 until further guidance is issued.

Source: Internal Revenue Service