On September 18, 2014 the IRS released Notice 2014-55. This notice expands the permitted election changes under a cafeteria plan for participants who may wish to revoke an election in order to purchase a plan through the health insurance marketplace (Marketplace).
To view the notice go to http://www.irs.gov/pub/irs-drop/n-14-55.pdf.×
The following two events will now be considered qualifying events under a Cafeteria Plan (e.g. Section 125 plan) that will allow a participant to make a mid-year election change:
Event #1: Changes Due to Reduction in Hours
If an employee's hours of service are reduced so that the employee is expected to average less than 30 hours of service per week, the Notice allows employees to prospectively revoke coverage, even if the reduction in hours does not render the employee ineligible for the group health plan.
When an employee’s hours drop below 30 hours each week, the new rules permit a cafeteria plan to allow the employee to cancel a prior group health plan coverage election if that coverage is (i) minimum essential coverage (MEC) and (ii) not coverage under a healthcare flexible spending account. There are two conditions on this type of election change:
1. There was a reasonable expectation for the employee to work an average of at least 30 hours each week, but a change in employment status reduced that average hours expectation to less than 30 hours, even though the reduction did not trigger ineligibility under the employer-sponsored group health plan; and the election revocation corresponds with the employee’s intention to enroll in another plan that provides MEC, with coverage effective no later than the first day of the second month after the month that includes the date the employee revoked the original coverage.
2. The second condition applies to all family members enrolled in employer-sponsored coverage due to the employee’s election. In other words, because of the cafeteria plan consistency rule, the employee may not drop coverage altogether. The employee must obtain coverage (under an exchange, spouse’s plan, or another MEC plan) for the employee plus any other person enrolled in the employer’s group health plan due to the employee’s prior coverage election.
Event #2: Changes Due to Qualified Health Plan Enrollment
The notice permits an employee to revoke the cafeteria plan election to pay the coverage pre-tax when an employee seeks to buy coverage in the Marketplace.
The general rule is that employees cannot drop employer-sponsored coverage during the coverage period when they become eligible to enroll in exchange coverage. This is significant particularly for employees with group health plan coverage under non-calendar year plans, because an employee’s transition to exchange-based coverage could entail choosing between temporarily losing coverage altogether or temporarily paying for duplicative coverage (i.e., both employer-sponsored coverage and exchange-based coverage). The new rules, however, help avoid this by permitting a cafeteria plan to allow a mid-year election change if:
1. The employee is eligible to enroll in a qualified health plan offered through an exchange due to a special enrollment period or the employee seeks to enroll in a qualified health plan during the exchange’s annual open enrollment period; and
2. The election revocation corresponds with the employee’s intention to enroll in a qualified health plan through an exchange, with coverage effective no later than the day immediately after the last day of the original coverage that the employee revoked.
Like the prior rule addressing changes due to weekly hour reductions, this rule requires the employee to obtain coverage for related individuals who lose coverage due to the employee’s election revocation.
What do I need to do to add these events to my current plan?
If you wish to include these in your cafeteria plan then an amendment is required. The amendment must be adopted on or before the last day of the plan year in which the elections are allowed, and may be effective retroactively to the first day of that plan year, provided that the cafeteria plan operates in accordance with the guidance under IRS Notice 2014-55 and the employer informs participants of the amendment. For a cafeteria plan in the current 2014 plan year, the 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. However, in no event may an election to revoke coverage on a retroactive basis be allowed.
Am I required to add these to my plan?
No, these new qualifying events are optional and are not required to be added to your cafeteria plan.
If RCI is your current FSA administrator, you may contact your Account Manager or the Flex Department at (308) 635-2260 or toll free at (800) 795-7772). You can also email our Flex Department at RCI-Flex@regionalcare.com.