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Election Changes under a Cafeteria Plan
Cafeteria plans enable employees to pay for their benefits on a pre-tax basis. Generally, a cafeteria plan takes the form of either, 1) a premium-only plan (POP) where employees’ health and welfare plan contributions are pre-tax or, 2) a flexible spending account (FSA) for unreimbursed medical or dependent care expenses. Under a cafeteria plan (i.e., Section 125 Plan), participant elections generally can’t be changed until the beginning of the next plan year. This is commonly termed an “irrevocable election”. However, when a participant experiences a change in status or when the cost or coverage of a benefit changes, he or she may be permitted to make an election change that is consistent with the event.
Employers should consider that the IRS sets the regulations for administering a cafeteria plan, such as when an election may be changed. And while a cafeteria plan may not be more generous than allowed by the IRS, it may choose to limit the events that it will recognize. An employer should clearly spell out these allowable changes in its Plan Document.
Keep in mind that the carriers and/or administrators of each individual plan (medical, dental, FSA, etc.) generally dictate when changes can be made. So, even if the IRS says you can make a certain change within the underlying cafeteria plan, the individual carrier may not allow any change outside of open enrollment or HIPAA special enrollment. (Under HIPAA, plans must generally allow you to add newly acquired dependents or dependents who lose coverage under other plans.)
Status Changes:
| EVENT |
Change allowed under Medical & Dental |
Change allowed under Flexible Spending Account (FSA) |
Change allowed under Dependent Care Assistance Plan (DCAP) |
Change allowed under Group Life, AD&D and Disability |
| Change in employee's legal marital status (marriage, divorce, legal separation or death of spouse) |
Yes |
Yes |
Yes |
Yes |
| Change in the number of dependents (birth, death, adoption or placement for adoption) |
Yes |
Yes |
Yes |
Yes |
| Change in employment status (including change in work site location) |
Yes |
Yes |
Yes |
Yes |
| Dependent satisfies (or ceases to satisfy) eligibility requirements |
Yes |
Yes |
Yes |
Yes |
| Change in residence |
Yes |
No - even if health coverage changes |
No |
Yes |
Cost Changes:
| EVENT |
Change allowed under Medical & Dental |
Change allowed under Flexible Spending Account (FSA) |
Change allowed under Dependent Care Assistance Plan (DCAP) |
Change allowed under Group Life, AD&D and Disability |
| Cost changes with automatic increases/ decreases |
Yes |
No |
No |
Yes |
| Significant cost changes |
Yes |
No |
Yes (unless care provider is relative of employee) |
Yes |
| Significant coverage curtailment |
Yes |
No |
Yes |
Yes |
| Addition or significant improvement of benefit |
Yes |
No |
Yes |
Yes |
| Change of coverage under other employer's plan |
Yes (arises when spouses have different open enrollment periods) |
No |
Yes |
Yes |
| Loss of coverage under governmental or educational institution |
Yes (only for a LOSS, not a gain of coverage) |
No |
No |
No |
Other Events:
| EVENT |
Change allowed under Medical & Dental |
Change allowed under Flexible Spending Account (FSA) |
Change allowed under Dependent Care Assistance Plan (DCAP) |
Change allowed under Group Life, AD&D and Disability |
| Special enrollment under HIPAA |
Yes |
Not technically, but IRS has suggested that enrollment may be allowed |
No |
No |
| COBRA Qualifying Event |
Yes - can pay COBRA premiums pre-tax through payroll deductions |
Yes |
No |
No |
| Judgement, Decree or Court Order |
Yes |
Yes |
No |
No |
| Entitlement to Medicare or Medicaid |
Yes |
Yes |
No |
No |
| Family & Medical Leave |
Yes |
Yes |
Yes |
Yes |
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