ISSUED 01/26/2021
Generally, the Section 125 Cafeteria plan elections are irrevocable except for specific instances in which an employee can make a mid-year election change. The following are permissible mid-year election change events, as long as they are included in the employer’s cafeteria plan document:
Change in Marital Status | COBRA Qualifying Event | Reduction in Hours |
FMLA Leave of Absence | Change in Residence | Enrollment in Marketplace |
Change in Dependent Eligibility | Change in Number of Dependents | Start/End of Adoption Proceedings |
Coverage Change Under Other Employer Plan | Significant Change in Cost of Coverage | Addition or Significant Improvement of Benefit |
Change in Employment Status | Change in Medicare or Medicaid Entitlement | Loss of Gov’t or Education Sponsored Coverage |
Significant Coverage Curtailment – with or without loss | Judgments, Decrees, or Orders Regarding Dependent Children | Change in Cost of Coverage with Automatic Increase or Decrease |
The Consistency Rule, which provides that an election change may be permitted only if it is consistent with the change in status, is an important factor in determining whether a mid-year election change is permissible. For the requested change to be permissible, it must be on account of and corresponding with the event.
• Example 1: At the beginning of the plan year Employee A elects family coverage. During the plan year Employee A gets married and has a baby. Based on the marriage and birth of a child, Employee A requests to drop from family coverage to employee-only coverage. Employee A’s mid-year election request would not be consistent with the addition of a dependent and a spouse. Accordingly, this would not be a permissible change because this election change does not comply with the consistency rule.
• Example 2: At the beginning of the plan year Employee A elects employee-only coverage. During the plan year Employee A has a baby. Based on the birth of a child, Employee A requests to enroll her spouse and baby in family coverage. Employee A’s request would be consistent with the addition of a dependent. As a result, the mid-year election request to add the baby would be a permissible election change. Additionally, under the tag-along rule, the employee can add her previously eligible dependent spouse.
• Example 3: At the beginning of the plan year Employee A elects family PPO coverage for himself, his wife, and two children. During the plan year, Employee A gets divorced. Based on the divorce, Employee A requests
to change his election to employee-only HDHP coverage because he no longer needs such comprehensive coverage. Employee A’s request would be consistent with the divorce. As a result, the mid-year election request to enroll in employee-only HDHP coverage would be a permissible election change.
It is important to note that the employer may exercise its discretion in determining what is and is not consistent, as long as the employer makes the determination in a consistent and nondiscriminatory manner.
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