§125 Mid-Year Election Changes
Overview During calendar year 2020, cafeteria plans may be amended to allow the types of mid-year election changes outlined below. Changes may only be made on a prospective basis but are not subject to the normal cafeteria requirement that a qualifying life event or other permitted election change (such as a family status change) must have occurred.
Newly Allowed Changes The following changes are authorized:
• Elect health coverage, even if initially declined • Change election to a different health coverage option sponsored by the same employer (including a change from self-only to family coverage) • Drop health plan coverage (requires a written attestation that the employee is or will immediately be enrolled in other “comprehensive” health coverage) • Change elections to health FSA or dependent care FSA, including increasing or decreasing elections, terminating participation, or making a new election Employer Choice These changes are not mandatory plan changes. Employers may elect to adopt some or all of the provisions, but any provisions adopted must apply uniformly to all participants. The §125 nondiscrimination rules continue to apply. Avoid Adverse Selection In determining the extent to which election changes may be adopted, employers should consider the potential for adverse selection of health coverage by employees. To prevent adverse selection, an employer may wish to limit elections to circumstances in which an employee’s coverage will be increased or improved as a result of the election. In addition, employers are permitted to limit mid-year FSA election changes to amounts not less than already reimbursed amounts. Impact on COBRA While not specifically addressed in the notice, the COBRA law is structured to apply the “similarly situated employee” rule for most all COBRA administration purposes. Thus, until and unless guidance is expressly provided to the contrary, employers would be wise to take the conservative approach and assume that expanding election options for active employees also cascades to COBRA Qualified Beneficiaries. This is particularly important as it relates to employers considering allowing employees to elect coverage mid-year (if previously declined) or change health plans (switch plans or add dependent coverage). Effective Date Employers may begin administering new provisions immediately, however, employers must provide notice to all employees of any plan changes adopted. The plan document also must be amended, but the amendment for 2020 changes may be adopted as late as December 31, 2021 and apply retroactively to January 1, 2020.
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