cafeteria plan mid-year election changes · introduction: cafeteria plan mid-year election changes...

Cafeteria Plan Mid-Year Election Changes

Revised February 2018 Lockton Companies

L O C K T O N C O M P A N I E S


INTRODUCTION .................................................................................................. 1

HSA CONTRIBUTIONS AND 401(K) PLAN CONTRIBUTIONS .................................... 2

SPECIAL ENROLLMENT EVENTS UNDER HIPAA AND CHIPRA .................................. 2

EMPLOYEE OR DEPENDENT BECOMING ELIGIBLE UNDER COBRA OR USERRA ........ 4

ISSUANCE OF A JUDGMENT, DECREE OR ORDER .................................................. 5

ENTITLEMENT OR LOSS OF ENTITLEMENT TO MEDICARE OR MEDICAID ............... 6

LOSS OF COVERAGE UNDER GOVERNMENTAL PLAN OR PROGRAM ........................ 7

CHANGES TO LEGAL MARITAL STATUS ................................................................. 8

CHANGE IN NUMBER OF DEPENDENTS ............................................................... 12

CHANGE IN EMPLOYEE’S, SPOUSE’S OR OTHER DEPENDENT’S EMPLOYMENT STATUS ....................................................................................... 14

DEPENDENT CEASES TO SATISFY ELIGIBILITY REQUIREMENTS .......................... 17

EMPLOYEE OR DEPENDENT CHANGES PLACE OF RESIDENCE .............................. 19

EMPLOYEE COMMENCES OR RETURNS FROM USERRA LEAVE .............................. 20

EMPLOYEE COMMENCES OR TERMINATES ADOPTION PROCEEDING .................... 20

CHANGES IN COST OF COVERAGE ...................................................................... 21

CHANGES IN NATURE OR EXTENT OF COVERAGE ............................................... 25

CHANGE IN COVERAGE UNDER OTHER PLAN ...................................................... 27

CHANGE FROM FULL-TIME TO PART-TIME EMPLOYMENT .................................... 28

INTENT TO ENROLL IN MARKETPLACE DURING OPEN OR SPECIAL ENROLLMENT PERIOD ....................................................................................... 30

NOTES .............................................................................................................. 32


1

INTRODUCTION: CAFETERIA PLAN MID-YEAR ELECTION CHANGES

This matrix summarizes the complex rules governing mid-year changes to salary reduction elections

made under a cafeteria plan, under Section 125 of the Internal Revenue Code. Please note that the

matrix is only a summary; it does not reflect every nuance to the analysis of election changes under

the rules.

The situations under which an Employee may make a mid-year change to his or her salary reduction

elections under a cafeteria plan are set forth in IRS regulations and in additional IRS guidance

(particularly with respect to situations relating to the Affordable Care Act that the IRS has recently

determined permit mid-year election changes).

The regulations do not require a cafeteria plan to allow Employees to change their salary reduction

elections mid-year. However, all or nearly all cafeteria plans permit, by their terms, Employees to

make changes to the extent permitted by applicable law.

Election changes must be prospective only, except with respect to HIPAA special enrollments

on account of acquisition of a new dependent by birth, adoption, or placement for adoption. Note,

however, that the 2007 proposed cafeteria plan regulations permit up to a 30-day retroactive

enrollment of new Employees provided their pre-tax premium payments for the retroactive coverage

are taken from amounts made available to them after their enrollment.

The regulations do not dictate, with respect to most events giving rise to an opportunity to change a

coverage election, the time within which an Employee must request an election change after

the occurrence of the event. The cafeteria plan should describe how much time an Employee has

to request an election change. Most plans allow a 30-day window. Federal law requires a 30-day

window in limited circumstances, and a 60-day window in others, as described in this matrix.

This matrix describes the benefits with respect to which certain election changes may be made.

Where the matrix refers to “all qualified benefits,” it means: medical, dental, vision, accident

(except individual policies providing major medical or other benefits not treated as “excepted

benefits” under Affordable Care Act rules), accidental death and dismemberment, adoption

assistance, dependent care assistance, short- and long-term disability, hospital

indemnity/critical illness (if qualifying as an accident or health plan), group-term life insurance on

the life of the employee (not spouse or dependents), paid time off, prepaid dental, vision and

prescription drug plans, and workers’ compensation act contributions.

Where this matrix uses the term “Plan,” we mean the cafeteria plan of the Employee’s Employer.

Similarly, where it refers to “Employer,” it means the Employee’s Employer, except where the

context suggests otherwise. References to “he” or “his” include “she” or “hers.” A capitalized

reference to Employer means the Employee’s Employer, as opposed to another employer (such as a

spouse’s employer).


2

Special Rules for Health Savings Accounts and 401(k) Plans

Health Savings Account (HSA) contributions:

Proposed cafeteria plan regulations require that Employers that permit Employees to make pre-tax contributions to

HSAs allow Employees to modify those elections, on a prospective basis, at least monthly. This is because Employees

may move, from month to month, in and out of eligibility to make HSA contributions.

401(k) contributions:

Where 401(k) contributions are made through a cafeteria plan, the cafeteria plan may permit changes to the

contribution election for any reason, on a prospective basis, to the maximum extent permitted by the Tax Code and

IRS regulations.

Events Entitling Election Changes Regarding Health and Welfare Benefits, Dependent Care, and Adoption Assistance Benefits

Permitted Actions

(Note that some actions are permitted only to elections regarding certain benefits, as indicated below)

Special Enrollment Events under HIPAA or CHIPRA

Employee’s marriage

Birth of a child to, adoption of a

child by, or placement of a child

for adoption with, the Employee

Employee’s or dependent’s loss

of other coverage due to

exhaustion of COBRA coverage,

loss of eligibility, or the other

plan sponsor’s termination of

contributions

Employee or a dependent

qualifying for premium subsidies

from Medicaid or the Children’s

Health Insurance Program

(CHIP)

Employee or dependent losing

coverage under Medicaid or

CHIP

Employee or dependent

becoming eligible for a state

premium assistance subsidy

under the medical plan from

Medicaid or CHIP (this is rare)

Election change for the following benefit:

Medical (see discussion below regarding likely restrictions

regarding dental, vision and health FSA coverage)

The Plan may permit the Employee to revoke a salary reduction election

concerning medical coverage and make a new election mid-year that

corresponds with the special enrollment right.

Notes:

The special enrollment rights triggered by marriage, birth, adoption or

placement for adoption are, to some extent, counter-intuitive. The

Employee may make enrollment changes that don’t necessarily include

the new spouse or dependent child.

If an Employee has a HIPAA special enrollment event, he may add or

change coverage options to the same extent as a similarly situated

newly eligible Employee.

The Plan may by its terms also permit enrollment of pre-existing

dependent children, even though the special enrollment rules

themselves don’t require enrollment of pre-existing dependent children.

If the special enrollment event is one that authorizes retroactive

enrollment in the health plan (such as upon birth, adoption, or

placement for adoption), the election change may also be made

retroactively.

HIPAA special enrollment rules facilitate the enrollment of domestic

partners (DPs), where a benefit plan covers DPs. Although the

domestic partnership is not a “marriage,” where the Employee could

have enrolled a DP earlier but did not and then the DP loses coverage

elsewhere (e.g., through his own Employer) for reasons described in the

column on the left, the Employee may add the DP (if still eligible) due to

the DP’s loss of other coverage. The DP need not be a Tax Code

“dependent” for this purpose.


3


Permitted Actions


Election changes as to dental or vision coverage may or may not be

permitted here; most dental and vision plans are not subject to the

HIPAA special enrollment rules. Election changes as to a Health FSA

likely are not permitted, because Health FSAs typically are not subject to

HIPAA. The Medicaid and CHIP premium subsidies are not available with

respect to high deductible health plans.

Under HIPAA, the health plan must allow at least 30 days for special

enrollments (60 days if qualifying for premium subsidies or losing

coverage under Medicaid or CHIP).

See also the “Change in Status” rules, below.

Example #1:

Acme Co. provides health coverage for its Employees. Under the plan,

Employees may elect either Employee-only coverage or family coverage.

Acme also maintains a calendar year cafeteria plan under which qualified

benefits, including medical coverage, are funded through salary

reduction. Acme’s Employee, Aaron, is married to Betty, and they have a

child, Carl. In accordance with Acme’s cafeteria plan, Aaron elects

Employee-only health coverage before the beginning of the calendar

year. During the year, Aaron and Betty adopt a child, David. Within 30

days thereafter, Aaron wants to revoke his election for Employee-only

health coverage and obtain family health coverage for Betty, Carl and

David as of the date of David's adoption. Aaron satisfies the conditions

for special enrollment of an Employee with a new dependent. Aaron may

enroll in family coverage under Acme’s medical plan with coverage

effective as of the date of David's adoption.

Example #2:

The Employer plans and available coverage are the same as in Example

1. Before the beginning of the calendar year, Edward elects Employee-

only medical coverage under Acme’s cafeteria plan. Edward marries

Francis during the plan year. Francis’s Employer, NewCo, offers medical

coverage to Newco’s Employees and, prior to the marriage, Francis had

elected Employee-only coverage. Edward wants to revoke the election

for Employee-only coverage under Acme’s cafeteria plan, and is

considering electing family health coverage under Acme’s plan or

obtaining family health coverage under NewCo's plan.

Acme's cafeteria plan may permit Edward to change his salary reduction

election to reflect the change to family coverage under Acme's accident

or health plan because the marriage would result in special enrollment

rights. Coverage under Acme's accident or health plan would be required

to be effective no later than the first day of the first calendar month

beginning after the completed request for enrollment is received by the

plan. Since no retroactive coverage is allowed in the event of marriage,

Edward's salary reduction election may only be changed on a

prospective basis. (Edward's marriage to Francis is also a change in

status, as discussed later.)


4


Permitted Actions


Employee or Dependent becomes eligible for continuation coverage under COBRA or USERRA

Election change for the following benefits:

Medical, Dental, Vision, Health FSA

The plan may permit the Employee to revoke a salary reduction election and

make a new salary reduction election mid-year concerning health coverage

to increase payments in order to pay for continuation coverage on a pre-tax

basis. Likely scenarios: paying COBRA for a child who is a Tax Code

dependent but who has ceased to be considered a dependent child under the

plan, OR an active Employee who has a reduction in hours and qualifies for

COBRA.

An Employee who commences a period of USERRA leave may make an

election change to pay the higher premium on a pre-tax basis from regular

or differential pay, or may elect to terminate coverage.


5


Permitted Actions


Issuance of judgment, decree or order (including QMCSO) resulting from divorce, legal separation, annulment, or change in legal custody, that requires health coverage of a child who is a dependent of the Employee:


Medical, Dental, Vision, Health FSA

The Plan may unilaterally make a mid-year salary reduction election change

for Employees, to provide health coverage for an Employee’s child, if a

qualified medical child support order requires the Employer to provide

coverage under the Employee’s health plan, and the Employee is eligible

(and the child is in an eligible class and is the Employee’s dependent).

The Plan may permit an Employee to make a mid-year election change to

add coverage for the child if the order requires the Employee to provide

coverage, and revoke coverage of a child if the order requires the spouse,

former spouse or other individual to provide health coverage to the child,

and the other person actually enrolls the child.

Note:

The court orders contemplated here are not limited to Qualified Medical

Child Support Orders.

Example:

Employer Macro maintains a calendar year cafeteria plan that allows

employees to elect no health coverage, employee-only coverage,

employee-plus-one-dependent coverage, or family coverage. Macro's

Employee, Albert, is married to Brianne, and they have one child,

Clarisse. Before the beginning of the year, Albert elects employee-only

health coverage. Albert divorces Brianne during the year and, pursuant

to Albert's divorce agreement with Brianne, Macro's health plan receives

a qualified medical child support order (as defined in section 609 of the

Employee Retirement Income Security Act of 1974) during the plan year.

The order requires Macro's health plan to cover Clarisse.

Macro's cafeteria plan may unilaterally change Albert's election from

employee-only health coverage to employee-plus-one-dependent

coverage in order to cover Clarisse.


6


Permitted Actions


Employee’s or dependent’s entitlement to Medicare or Medicaid (other than solely for pediatric vaccines), or Employee’s or dependent’s loss of entitlement to Medicare or Medicaid, in either case other than solely for pediatric vaccines:


Medical, Health FSA1

The Plan may permit the Employee to revoke his salary reduction election

and make a new salary reduction election midyear to cancel or reduce health

coverage (including reducing contributions to a Health FSA) for such person

who becomes entitled to the governmental coverage. Employee may change

election to add or increase health coverage (including under a Health FSA)

for such person who loses entitlement for the governmental coverage.

Notes:

It may be permissible, in a case where a dependent loses entitlement to

Medicare or Medicaid and is enrolled by the Employee under his

Employer’s plan, for the Employee to also enroll other eligible

dependents who could have been enrolled previously but were not.

Where the Employee makes a coverage tier change under this rule (for

example, moving from Employee-only to family coverage when a

dependent loses Medicare or Medicaid coverage), the rules might be

interpreted to allow him to change coverage options, if eligible for the

other option.

Entitlement to CHIP is not a mid-year election change event under this

section. But see the HIPAA special enrollment event rules, above.

Loss of CHIP coverage also qualifies as a HIPAA special enrollment event.

The Employee has 60 days to make a corresponding election under the

plan.

1 Arguably, changes to dental and vision coverage elections are not permitted.


7


Permitted Actions


Employee’s, spouse’s or other dependent’s loss of coverage under any group health coverage sponsored by a governmental or educational institution:

A State CHIP program

A medical care program of an

Indian Tribal government or

organization

A State health benefits risk pool

A foreign governmental group

health plan


Medical The Plan may permit the Employee to cancel his salary reduction election

mid-year and make a new salary reduction election mid-year to add health

coverage for such person. However, the Employee cannot change his Health

FSA election.

Notes:

It may be permissible, in a case where a dependent loses coverage and

is enrolled by the Employee under his Employer’s plan, for the Employee

to also enroll other eligible dependents that could have been enrolled

previously but were not.

Where the Employee makes a coverage tier change under this rule (for

example, moving from Employee-only to family coverage when a

dependent loses Medicare or Medicaid coverage), the rules might be

interpreted to allow him to change coverage options, if eligible for the

other option.

Loss of CHIP coverage also qualifies as a HIPAA special enrollment

event. The Employee has 60 days to make a corresponding election

under the Plan.


8


Permitted Actions


Changes to Employee’s legal marital status:

Marriage (including same-sex

marriage)

Death of a spouse

Divorce

Legal separation

Annulment


All Qualified Benefits (including Health FSA)


and make a new election mid-year if:

The election change “corresponds” to the change in status, and

The change in marital status either affects someone’s eligibility for

coverage under a benefit plan, or (in the case of benefits other than

health or life insurance) either affects eligibility or dependent care or

adoption expense benefits. The only life insurance that can be offered

under a cafeteria plan is group-term life insurance for the Employee.

Dependent life insurance cannot be offered under a cafeteria plan.

However, dependent AD&D insurance may be offered.

With respect to health/group term life coverage, an event that increases

or decreases the number of an Employee’s family members who may

benefit from coverage is a status change “affecting eligibility.”

The Employee may also increase his Health FSA election. The Employee may

not cancel coverage (or reduce his Health FSA election), except as provided

below:

If due to a marital status change the Employee or a dependent gains

eligibility under a “family member plan” (a plan made available to a family

member by the spouse’s or other dependent’s Employer), the Employee’s

mid-year election change under the Plan to cease or reduce his or the

dependent’s health coverage (or to reduce the Employee’s Health FSA

election) is acceptable only if the Employee or dependent actually acquires or

increases coverage under the family member plan. In this regard, the

Employee’s certification that the other coverage has been or shortly will be

acquired is adequate (unless the Employer knows this information is false).

In the case of a marriage, the Employee may make a new election providing

for coverage of the Employee and the spouse. The Employee may also

increase his FSA benefits.

In the case of a divorce or death of a spouse, the Employee may cancel

health coverage for the deceased or ex-spouse, but not other dependents.

The Employee may also, in such a case, reduce—but not increase—the

Employee’s health FSA benefits.

In the case of a divorce or death of a spouse, the Employee (and/or other

surviving dependents) might cease to be eligible for coverage through the

spouse’s Employer. In that case the Employee may enroll himself and/or (as

applicable) the eligible dependents under the Employer’s plan. See also

“Changes in Coverage Under Other Employer Plan.”


9


Permitted Actions


Notes:

It appears that where the event leads an Employee to enroll a new

dependent under his Employer’s plan, the IRS will permit the Employee

to enroll other eligible dependents that could have been enrolled

previously but were not, even though the change in status event did not

literally affect their eligibility.

Where the Employee makes a coverage tier change (e.g., switches from

Employee-only to Employee-plus-spouse) under this rule he may also

change coverage options (e.g., from PPO to HMO) , if eligible for the

other option.

The Employee may increase or decrease group term life insurance

coverage or disability or AD&D coverage as a result of a change in marital

status. Thus, the consistency rule is more relaxed for group term life

insurance, disability and AD&D insurance, in the context of marital status

changes.

Example #1:

ABC Company provides health coverage (including a health FSA) for its

Employees through its cafeteria plan. Before the beginning of the

calendar year, Jason (an ABC Employee) elects employee-only health

coverage under ABC Company’s cafeteria plan and elects salary

reduction contributions to fund coverage under the health FSA. Jason

marries Christa during the year. Christa’s employer, 123 Company,

offers health coverage to its employees (but not including any health

FSA), and, prior to the marriage, Christa had elected employee-only

coverage. Now Jason wants to revoke the election for employee-only

coverage, and is considering electing family health coverage under his

Employer’s plan or obtaining family health coverage under Christa’s

plan.

Jason’s marriage to Christa is a change in status, pursuant to which

Christa has become eligible for coverage under ABC Company’s health

plan. Two possible election changes by Jason correspond with the

change in status: Jason may elect family health coverage under ABC

Company’s plan to cover Christa and him; or Jason may cancel

coverage under ABC’s plan, if Christa elects family health coverage

under 123 Company’s plan to cover them both. Thus, ABC Company’s

cafeteria plan may permit Jason to make either election change.

Jason may also increase salary reduction contributions to fund coverage

for Christa under the health FSA.

Additional examples on next page


10


Permitted Actions


Example #2:

Lori is married to Nathan, and they have one child, Henry. Lori is employed by KC

Inc., and KC Inc., maintains a calendar year cafeteria plan that allows Employees

to elect no health coverage, employee-only coverage, employee-plus-one-

dependent coverage, or family coverage. Under the Plan, before the beginning of

the calendar year, Lori elects family health coverage for everyone in her family:

Nathan, Henry and her. Lori and Nathan divorce during the year and Nathan loses

eligibility for coverage under KC Inc.’s, Plan. Henry does not lose eligibility for

health coverage under KC Inc.’s Plan upon the divorce. Lori now wants to revoke

her election under the cafeteria plan and elect no coverage.

The divorce is a change in status. A change in the cafeteria plan election to

cancel health coverage for Nathan is consistent with that change in status.

However, an election change to cancel Lori or Henry’s health coverage does not

satisfy the consistency rule regarding cancellation of coverage for an employee's

other dependents in the event of divorce. Therefore, the Plan may not permit Lori

to elect no coverage. However, an election to change to employee-plus-one-

dependent health coverage would correspond with the change in status, and thus

the Plan may permit Lori to elect employee-plus-one-dependent health coverage.

In addition, if Nathan makes a change to cover Henry under Nathan’s

employer's plan, then Lori may make a corresponding change to elect

employee-only coverage under KC Inc.’s Plan.

Example #3:

Juniper Company provides group-term life insurance coverage as described under

Tax Code Section 79. Under Juniper Company’s cafeteria Plan, an Employee may

elect life insurance coverage in an amount up to $50,000. Juniper Company also

maintains a calendar year cafeteria plan under which qualified benefits, including

the group-term life insurance coverage, are funded through salary reduction.

Mark has a spouse and a child. Before the beginning of the year, Mark elects

$10,000 of group-term life insurance coverage. During the year, Mark is divorced.

The divorce is a change in status. Either an increase or a decrease in

coverage is consistent with this change in status. Thus, Juniper

Company’s Plan may permit Mark to increase or to decrease his group-

term life insurance coverage.



11


Permitted Actions


Example #4:

Briar Inc. maintains a calendar year cafeteria plan under which full-time

Employees may elect coverage under either a PPO option or an HMO. Jackie

elects the employee-only PPO option. During the year, Jackie marries Mike. Mike

has two children from a previous marriage, and has family group health coverage

in a cafeteria plan sponsored by his employer, Cedar Company. Jackie wishes to

change from employee-only PPO coverage to HMO coverage for the family. Mike

wishes to cease coverage in Cedar Company's group health plan and certifies to

Cedar Company that he will have family coverage under Jackie's plan (and Cedar

Company has no reason to believe the certification is incorrect).

The marriage is a change in status. Under the consistency rule, Briar

Inc.'s cafeteria plan may permit Jackie to change her salary reduction

contributions to reflect the change from employee-only PPO to HMO

family coverage, and Cedar Company may permit Mike to revoke

coverage under Cedar Company’s cafeteria plan.


12


Permitted Actions


Changes in the number of an Employee’s dependents:

Birth

Death

Adoption or placement for

adoption

Acquisition of a tax dependent

domestic partner, etc.


All Qualified Benefits (including Health FSA)



The election change “corresponds” to the change in status, and

The change in number of dependents affects someone’s eligibility for

coverage under a benefit plan, or (in the case of benefits other than

health or life insurance) either affects eligibility or affects dependent

care or adoption expense benefits.

With respect to health/group term life coverage, an event that increases or

decreases the number of an Employee’s family members who may benefit

from coverage is a status change “affecting eligibility.”

In the case of a birth or adoption, etc., the Employee may make a new

election providing for coverage of the Employee and the new dependent. The

Employee may also increase his health FSA benefits.

In the case of a death of a dependent, the Employee may cancel health

coverage for the deceased dependent, but not other dependents. The

Employee may also, in such a case, reduce—but not increase—the

Employee’s health FSA benefits.

If after a birth or adoption, for example, it’s possible that the Employee’s

spouse may wish to enroll the family unit under her employer’s plan. In that

event, see “Changes in Coverage Under Other Employer Plan,” later.

Notes:

It appears that where the event leads an Employee to enroll a new

dependent under his Employer’s plan, the IRS will permit the Employee

to enroll other eligible dependents that could have been enrolled

previously but were not, even though the change in the number of

dependents did not literally affect their eligibility.


Employee-only to Employee-plus spouse) under this rule he may also

change coverage options (e.g., from PPO to HMO), if eligible for the

other option.

This is the event under which Employees may add a domestic partner

(DP) (and the domestic partner’s children, if eligible) to a plan, if the DP

and, as applicable, the DP’s children is/are the Employee’s Tax Code

“dependents.”

For dependent care expenses, a dependent ceases to satisfy the Tax

Code’s definition of dependent—therefore changing the number of the

Employee’s dependents—if he or she is no longer considered a “qualifying

individual” under Code § 21(b)(1).


13


Permitted Actions



coverage or disability or AD&D coverage as a result of a change in the

number of dependents as described in this section. Note that the only life

insurance that can be offered under a cafeteria plan is group-term life

insurance for Employees. Dependent life insurance cannot be offered under a

cafeteria plan. However, dependent AD&D insurance may be offered.


14


Permitted Actions


Changes in the Employee’s, spouse’s or other dependent’s employment status:

Termination or commencement

of employment

Strike or lockout

Commencement of or return

from unpaid leave of absence

Change in worksite

Change in employment status

such as a switch from hourly to

salaried, part-time to full-time,

or vice versa


All Qualified Benefits (including Health FSA) The Plan may permit the Employee to revoke his salary reduction election


The change “corresponds” to the change in employment status, and

The change in employment status affects someone’s eligibility for

coverage under a benefit plan, or (in the case of qualified benefits other

than health or life insurance) either affects eligibility or affects

dependent care or adoption expense benefits.

If due to a change in employment status the Employee or dependent gains

eligibility under a “family member plan” (a plan made available to a family

member by the Spouse’s or other dependent’s Employer), the Employee’s

election under the cafeteria plan to cease or reduce his or the dependent’s

health coverage (or reduce his health FSA election) is acceptable only if the

Employee or dependent actually acquires or increases coverage under the

family member plan.

See also, “Changes in Coverage Under Other Employer Plan,” below.

Notes:

It appears that where the change in employment status leads an

Employee to enroll a new dependent under his Employer’s plan, the IRS

will permit the Employee to enroll other eligible dependents that could

have been enrolled previously but were not, even though the change in

status event did not literally affect their eligibility.


Employee-only to Employee-plus-spouse) under this rule he may also


other option.

There is a special rule that applies to terminations followed by rehire. If

the rehire occurs within 30 days, the Employer must reinstate the

Employee’s prior salary reduction elections (cannot allow a new election)

or may prohibit the Employee from participating until the next year. If

the rehire occurs more than 30 days after the termination, the Employer

may treat the Employee like a new hire and permit him to make new

elections.

The Plan may permit the Employee to increase or decrease group term life

insurance coverage or disability or AD&D coverage as a result of a

change in employment status described in this section. The only life

insurance that can be offered under a cafeteria plan is group-term life

insurance for the Employee. Dependent life insurance cannot be offered

under a cafeteria plan. However, dependent AD&D insurance may be

offered.


15


Permitted Actions


Example #1:

Alfaco maintains a calendar year cafeteria plan that allows Employees to

elect coverage under an accident or health plan providing PPO coverage

and coverage under a health FSA. Prior to the beginning of the calendar

year, Bridget elects employee-only PPO coverage, and elects salary

reduction contributions of $600 during the year to fund coverage under

the health FSA for up to $600 of reimbursements for the year. Bridget’s

spouse, Carson, has employee-only coverage under an accident or health

plan maintained by his employer. During the year, Carson terminates

employment and loses coverage under that plan. Bridget now wants to

elect family coverage under Alfaco’s accident or health plan and increase

her health FSA election.

Carson's termination of employment is a change in status, and the

election change satisfies the consistency rule. Therefore, the Alfaco Plan

may permit Bridget to elect family coverage under its accident or health

plan and to increase Bridget's health FSA coverage.

Example #2:

Ed is married to Faith and they have one child, Grace. Ed’s employer,

Universe Inc., maintains a cafeteria plan under which Employees may

elect no coverage, employee-only coverage, or family coverage under a

group health plan maintained by Universe Inc., and may make a separate

vision coverage election under the cafeteria plan. Before the beginning of

the calendar year, Ed elects family health coverage and no vision

coverage under Universe Inc.'s cafeteria plan. Faith’s employer, Vesper,

maintains a cafeteria plan under which employees may elect no coverage,

employee-only coverage, or family coverage under a group health plan

maintained by Vesper, and may make a separate vision coverage election

under the plan. Before the beginning of the calendar year, Faith elects no

health coverage and employee-only vision coverage under Vesper's plan.

During the year, Faith terminates employment with Vesper and loses

vision coverage under Vesper's plan. Ed now wants to elect family vision

coverage under Universe Inc.'s group health plan.

Faith's termination of employment is a change in status, and the election

change satisfies the consistency rule. Therefore, Universe Inc.'s cafeteria

plan may permit Ed to elect family vision coverage (covering Ed and Grace

as well as Faith) under Universe Inc.'s group health plan.



16


Permitted Actions


Example #3:

Before the beginning of the year, Harvey elects to participate in a

cafeteria plan maintained by his Employer, Star Inc. However, in order to

cancel coverage, and by prior understanding with Star Inc., Harvey

terminates employment and returns one week later. Under the facts and

circumstances, a principal purpose of the termination of employment was

to alter the cafeteria plan election, and reinstatement of employment was

understood at the time of termination. Accordingly, Harvey does not have

a legitimate change in status.

However, Harvey's termination would constitute a change in status,

permitting a cancellation of coverage during the period of unemployment,

if Harvey’s original election for the period of coverage was reinstated upon

his return (for example, if Star Inc.'s cafeteria plan requires an Employee

who resumes employment within 30 days, without any other intervening

event that would permit a change in election, to return to the original

election).

If, instead, Harvey terminates and cancels coverage during a period of

unemployment, and then returns to work more than 30 days following

termination, the Plan may permit Harvey to return to his election in effect

prior to termination, or make a new election. Alternatively, the Plan may

prohibit Harvey from returning to the Plan during that plan year.


17


Permitted Actions


Dependent satisfies or ceases to satisfy eligibility requirements:

Attains the Plan’s limiting age

Ceases to satisfy other eligibility

requirements


All Qualified Benefits (including health FSA)



The change “corresponds” to the eligibility change of the dependent, or

In the case of qualified benefits other than health or life insurance, the

change in eligibility affects eligibility for coverage under an employer’s

plan or affects dependent care or adoption expense benefits.

With respect to health/group term life coverage, an event that increases or

decreases the number of an Employee’s family members who may benefit

from coverage is a status change “affecting eligibility.”

Notes:

It appears that where a dependent satisfies the Plan’s eligibility criteria

and the Employee rolls the new dependent under his Employer’s Plan,

the IRS will permit the Employee to enroll other eligible dependents that

could have been enrolled previously but were not.


employee-only to employee-plus-spouse), under this rule he may also


other option.

For dependent care expenses, a dependent ceases to satisfy the Tax

Code definition of “dependent”—therefore he ceases to satisfy eligibility for

dependent care expenses—if he is no longer considered a “qualifying

individual” under Code § 21(b)(1).


coverage or disability or AD&D coverage as a result of a change in

employment status described in this section. Note that the only life insurance

that can be offered under a cafeteria plan is group-term life insurance for the

Employee. Dependent life insurance cannot be offered under a cafeteria

plan. However, dependent AD&D insurance may be offered.

Example #1:

Cameron, a single parent, elects family health coverage under a calendar

year cafeteria plan maintained by his employer, Onyx. Cameron and

Cameron's 25-year old child, Dara, are covered under Onyx's health plan.

During the year, Dara attains age 26 and loses eligibility for coverage.

Cameron wants to revoke his election for family health coverage and

obtain employee-only coverage.

Dara's loss of eligibility for coverage under the terms of the health plan is

a change in status. A revocation of Cameron's election for family

coverage and new election for employee-only coverage corresponds with

the change in status. Thus, Onyx's cafeteria plan may permit Cameron to

elect employee-only coverage.


18


Permitted Actions


Example #2:

Ashley has one child, Bailey. Ashley’s Employer maintains a calendar year

cafeteria plan that allows Employees to elect coverage under a

dependent care FSA. Prior to the beginning of the calendar year, Ashley

elects salary reduction contributions of $4,000 during the year to fund

coverage under the dependent care FSA for up to $4,000 of

reimbursements for the year. During the year, Bailey reaches the age of

13, and Ashley wants to cancel coverage under the dependent care FSA.

When Bailey turns 13, she ceases to satisfy the definition of qualifying

individual under section 21(b)(1) of the Internal Revenue Code.

Accordingly, Bailey's attainment of age 13 is a change in status that

affects Ashley's employment-related expenses. Therefore, Ashley may

make a corresponding change under her Employer’s cafeteria plan to

cancel coverage under the dependent care FSA.


19


Permitted Actions


Employee or dependent changes place of residence:


All Qualified Benefits Other Than Health FSA



The change “corresponds” to the change in residence, and

The change in residence affects eligibility for coverage under a benefit

plan, or (in the case of qualified benefits other than health or life

insurance) either affects eligibility, or affects dependent care or adoption

expense benefits.

Notes:

An effective loss of eligibility is sufficient in this context, even if there’s

no literal loss of eligibility. For example, an Employee who moves in or

out of an HMO service area would be considered to have “gained” or

“lost” eligibility for the HMO.

It appears that where the change in residence leads an Employee to

enroll a new dependent under his Employer’s plan, the IRS will permit

the Employee to enroll other eligible dependents that could have been

enrolled previously but were not, even though the change in residence

event did not literally affect their eligibility.

Where the Employee makes a coverage tier change (e.g. switches from

employee-only to family coverage) under this rule he may also change

coverage options (e.g. from PPO to HMO), if eligible for the other option.

Example:

Raintree maintains a calendar year cafeteria plan under which full-time

employees may elect coverage under one of three benefit package

options provided under an accident or health plan: a PPO option or either

of two HMO options for Employees who work in the respective service

areas of the two HMOs. Anna, who works in the service area of HMO #1,

elects the HMO #1 option. During the year, Anna is transferred to

another work location which is outside the HMO #1 service area and

inside the HMO #2 service area.

The transfer is a change in status (relating to a change in worksite), and,

under the consistency rule, the cafeteria plan may permit Anna to make

an election change to elect the PPO option or HMO #2 or to cancel

accident or health coverage.

The change in work location has no effect on Anna's eligibility under

Raintree’s health FSA, so no change in Anna's health FSA is authorized.


20


Permitted Actions


Employee commencing or returning from USERRA leave:


Medical (including Health FSA), Dental and Vision

The Plan may permit an Employee to revoke his salary reduction election and

make a new election consistent with his commencement of or return from

USERRA leave.

Employee commences or terminates an adoption proceeding:

Election change for the following Benefits:

Adoption Assistance


and make a new election with respect to adoption assistance; he may make

an election for adoption assistance if he commences the adoption

proceeding, or may terminate his election for adoption assistance if he

terminates the adoption proceeding.

The Employee may increase or decrease group term life insurance coverage

or disability or AD&D coverage as a result of a change in employment status

described in this section. Note that the only life insurance benefit that can be

offered under a cafeteria plan is group-term life insurance for the Employee.

Dependent life insurance cannot be offered under a cafeteria plan. However,

dependent AD&D insurance may be offered.


21


Permitted Actions


Changes in cost of coverage:



The Employer may make unilateral, prospective changes in Employees’ salary

reduction elections to increase or decrease the Employees’ contributions if:

The cost of benefits changes during a coverage period, and

Under the cafeteria plan, Employees are required to make a

corresponding change in their salary reductions.

If the cost of a benefit package option significantly increases or significantly

decreases during a period of coverage, the Plan may permit the Employee

to:

Cancel mid-year his or her election and elect to receive prospective

coverage under another benefit package option providing similar

coverage (e.g., cancel coverage under PPO option and elect less

expensive HMO option),

or

Cancel all coverage if there’s not another option available with similar

coverage.

Notes:

There is no guidance on what amounts to a “significant” change in cost.

The COBRA rules allude to a premium payment shortfall as

“insignificant” if it is not more than the lesser of $50 or 10% of the

amount due. Conventional wisdom applies this standard to the cafeteria

plan context.

The cost change may result from an action by either the Employer or the

Employee.

It appears that where the change in cost leads an Employee to enroll a

new dependent under his Employer’s plan, the IRS will permit the

Employee to enroll other eligible dependents that could have been

enrolled previously but were not, even though the change in status

event did not literally affect their eligibility.

With respect to dependent care assistance, a significant cost increase

does not include an increase imposed by a dependent care provider who

is a relative of the Employee.

Examples on next page


22


Permitted Actions


Example #1:

A calendar year cafeteria plan is maintained pursuant to a collective

bargaining agreement for the benefit of Maverick’s Employees. The

cafeteria plan offers various benefits, including PPO health insurance

and a health FSA. As a result of mid-year negotiations, premiums for

the PPO health insurance are reduced in the middle of the year,

insurance co-payments for office visits are reduced under the PPO plan

by an amount which constitutes a significant benefit improvement, and

an HMO option is added.

Under these facts, the reduction in health insurance premiums is a

reduction in cost. Accordingly, the cafeteria plan may automatically

decrease the amount of salary reduction contributions of affected

participants by an amount that corresponds to the premium change.

However, the plan may not permit Employees to change their health

FSA elections to reflect the mid-year change in copayments under the

PPO plan.

Also, the decrease in co-payments is a significant benefit improvement

and the addition of the HMO option is an addition of a benefit package

option. Accordingly, the cafeteria plan may permit eligible Employees to

make an election change to elect the PPO plan or the new HMO option.

However, the plan may not permit Employees to change their health

FSA elections to reflect differences in co-payments under the HMO

option.

Example #2:

Reverse Company maintains a cafeteria plan under which Employees

may elect accident or health coverage under either a PPO plan or an

HMO. Before the beginning of the year, Reverse Company’s Employee,

Evelyn, elects coverage under the HMO at a premium cost of $100 per

month. During the year, Evelyn, decides to switch to the PPO plan,

which charges a premium of $140 per month.

Evelyn’s change from the HMO to PPO plan is not a change in cost or

coverage, and none of the other election change rules apply. Although

Reverse Company's health plan may permit Evelyn to make the change

from the HMO to the PPO plan, Reverse Company's cafeteria plan may

not permit Evelyn to make an election change to reflect the increased

premium. Accordingly, if Evelyn switches from the HMO to the PPO

plan, Evelyn may pay the $40 per month additional cost on an after-tax

basis.



23


Permitted Actions


Example #3:

Andrew is married to Blair and they have one child, Carrie. Andrew’s

Employer, Morning Glory, maintains a calendar year cafeteria plan that

allows Employees to elect coverage under a dependent care FSA. Carrie

attends Valley View's onsite child care center at an annual cost of

$3,000. Prior to the beginning of the year, Andrew elects salary

reduction contributions of $3,000 during the year to fund coverage

under the dependent care FSA for up to $3,000 of reimbursements for

the year. Andrew now wants to revoke his election of coverage under

the dependent care FSA, because Andrew has found a new child care

provider.

The availability of dependent care services from the new child care

provider (whether the new provider is a household Employee or family

member of Andrew or Blair or a person who is independent of Andrew

and Blair) is a significant change in coverage similar to a benefit

package option becoming available. Because the FSA is a dependent

care FSA rather than a health FSA, the coverage rules of this section

apply and Morning Glory’s cafeteria plan may permit Andrew to elect to

revoke his previous election of coverage under the dependent care FSA,

and make a corresponding new election to reflect the cost of the new

child care provider.

Example #4:

Daniel is married to Lynn and they have one child, Finn. Daniel’s

Employer, Newhouse, maintains a calendar year cafeteria plan that

allows Employees to elect coverage under a dependent care FSA. Finn is

cared for by Kari, Daniel’s household Employee, who provides child care

services five days a week from 9 a.m. to 6 p.m. at an annual cost in

excess of $5,000. Prior to the beginning of the year, Daniel elects salary



the year. During the year, Finn begins school and, as a result, Kari's

regular hours of work are changed to five days a week from 3 p.m. to 6

p.m. Daniel now wants to revoke his election under the dependent care

FSA, and make a new election under the dependent care FSA to an

annual cost of $4,000 to reflect a reduced cost of child care due to

Kari's reduced hours.

The change in the number of hours of work performed by Kari is a

change in coverage. Thus, Newhouse's cafeteria plan may permit Daniel

to reduce his previous election under the dependent care FSA to

$4,000.



24


Permitted Actions


Example #5:

Garrett is married to Hannah and they have one child, Jake. Garrett’s

Employer, Onboard, maintains a calendar year cafeteria plan that allows

Employees to elect coverage under a dependent care FSA. Jake is cared

for by Zoe, Garrett's household employee, who is not a relative of

Garrett and who provides child care services at an annual cost of

$4,000. Prior to the beginning of the year, Garrett elects salary



the year. During the year, Garrett raises Zoe's salary. Garrett now

wants to revoke his election under the dependent care FSA, and make a

new election under the dependent care FSA to an annual amount of

$4,500 to reflect the raise.

The raise in Zoe's salary is a significant increase in cost, and an increase

in election to reflect the raise corresponds with that change in status.

Thus, Onboard's cafeteria plan may permit Garrett to elect to increase

his election under the dependent care FSA.

Example #6:

Pinnacle maintains a calendar year cafeteria plan that allows Employees

to elect employee-only, employee-plus-one-dependent, or family

coverage under a PPO plan. During the middle of the year, Pinnacle

gives its Employees the option to select employee-only or family

coverage from an HMO plan. Pinnacle Employee, Jan, who had elected

Employee plus-one-dependent coverage under the PPO plan, decides to

switch to family coverage under the HMO plan.

Pinnacle’s midyear addition of the HMO option is an addition of a benefit

package option. Jan may change her salary reduction contributions to

reflect the change from PPO to HMO coverage, and also to reflect the

change from employee-plus-one-dependent to family coverage

(however, an election of employee-only coverage under the new option

would not correspond with the addition of a new option).

Pinnacle may not permit Jan to change her health FSA election.


25


Permitted Actions


Changes in extent or nature of coverage:



Without loss of coverage: If coverage under the Plan is significantly

curtailed (but not terminated) during a period of coverage, the Plan may

permit the Employee to revoke his salary reduction election mid-year and

make a new election for prospective coverage under another coverage option

providing similar benefits (canceling all coverage does not appear to be an

option). Coverage under a health plan is “significantly curtailed” only if

there’s an overall reduction in coverage provided to participants under the

Plan so as to constitute reduced coverage to participants generally. Thus,

termination of an Employee primary care doctor from the health plan’s

network is not a significant curtailment. Coverage may be considered

significantly curtailed if there is a significant increase in deductible, co-pays,

out-of-pocket maximums, etc.

With loss of coverage: If the significant curtailment is a loss of coverage,

the Plan may permit the Employee to revoke his salary reduction election

mid-year and make a new election for prospective coverage under another

coverage option providing similar benefits, or elect no coverage if no option

with similar coverage is available.

“Loss” of coverage means a complete loss, including an HMO ceasing to

provide coverage in the service area. The Plan may also treat the following

as losses of coverage:

Substantial decrease in providers available under the option (such as a

major hospital leaving the network, or a significant number of physicians

leaving the network),

Reduction in benefit limits for benefits for a specific condition or

treatment with respect to which the covered person is currently involved

in a course of treatment, and

Any similar fundamental or effective loss of coverage.

Addition or significant improvement of a benefit option: If the Plan

adds or improves a benefit option during a coverage period, the Employee

may elect mid-year the newly added or improved option (even if the

Employee did not to that point have any coverage).

Notes:

It appears that where the change in nature or extent of coverage leads

an Employee to enroll a new dependent under his Employer’s plan, the

IRS will permit the Employee to enroll other eligible dependents that

could have been enrolled previously but were not, even though the

change in coverage did not literally affect their eligibility.

For dependent care, finding a new dependent care provider is treated

as the addition of a new coverage option. Further, a change in the

number of hours worked by a dependent care provider is treated as a

change in coverage.


26


Permitted Actions


Example:

Princeton Inc. sponsors a calendar year cafeteria plan under which

Employees may elect either employee-only or family health coverage.

Before the beginning of the year, Princeton Inc., Employee, Charlie, elects

family coverage under Princeton Inc.’s cafeteria plan. Charlie also elects

coverage under the health FSA for up to $200 of reimbursements for the

year to be funded by salary reduction contributions of $200 during the

year.

Charlie is married to Dina, who is employed by Quest. Quest does not

maintain a cafeteria plan, but does maintain an accident or health plan

providing its employees with employee-only coverage. During the calendar

year, Quest adds family coverage as an option under its health plan. Dina

elects family coverage under Quest's plan, and Charlie wants to revoke his

election for health coverage and elect no health coverage under Princeton

Inc.'s cafeteria plan for the remainder of the year.

Quest's addition of family coverage as an option under its health plan

constitutes a new coverage option. Accordingly, Princeton Inc.'s cafeteria

plan may permit Charlie to revoke his health coverage election if Dina

actually elects family health coverage under Quest's accident or health

plan.

Princeton Inc.’s plan may not permit Charlie to change his health FSA

election.


27


Permitted Actions


Change in coverage under other plan:

E.g., open enrollment under

spouse’s plan that has a

different plan year

E.g., legitimate (permissible

under these rules) change in

coverage election under

spouse’s plan



The Plan may permit the Employee to make a salary reduction change that is

on account of and corresponds with a change made under another plan

(cafeteria plan or other plan) sponsored by the Employee’s Employer or

another employer (e.g., a spouse’s employer) if:

The other plan permits an election change that would be permitted

under IRS regulations, (i.e., the other employer allows a change under

its cafeteria plan, and the change is permitted by IRS rules), or

The cafeteria plan of the Employee’s Employer has a different coverage

period (i.e., plan year) than the coverage period under the other plan.

Example:

Neverland sponsors an accident or health plan under which Employees may elect

either employee-only coverage or family health coverage. The 12-month period of

coverage under Neverland's cafeteria plan begins January 1, 2017. Neverland's

Employee, Avery, is married to Brian. Avery elects employee-only coverage under

Neverland's plan, for a January 1, 2017 effective date.

Brian's Employer, Omni, offers health coverage to Omni's employees under its

accident or health plan under which employees may elect either employee-only

coverage or family coverage. Omni's plan has a 12-month plan year/period of

coverage beginning September 1. Brian maintains employee-only coverage under

Omni's plan, and wants to elect no coverage for the Omni plan year beginning on

September 1, 2017. Avery wants to add Brian to her coverage effective

September 1, 2017. Avery certifies to Neverland that Brian will elect no coverage

under Omni's accident or health plan for the plan year beginning on September 1,

2017 and Neverland has no reason to believe that Avery's certification is

incorrect.

Neverland's cafeteria plan may permit Avery to change her election prospectively

to family coverage under that Plan effective September 1, 2017.


28


Permitted Actions


Change from full-time to part-time employment:

Employee moves from a position

where he is reasonably expected

to work at least 30 hours per

week, to a position in which he’s

expected to work fewer hours

per week on an indefinite or

extended basis.


Qualified Healthcare Benefits Providing at Least Minimum Essential Coverage (will exclude most dental and vision coverage, and most Health FSAs)

The Plan may permit the Employee to make a salary reduction change that is

on account of and corresponds with a change in employment status where:

The Employee has been in a position in which he was reasonably

expected to average at least 30 hours of service (as defined under the

Affordable Care Act and its regulations) per week, and

Changes to a position in which he is reasonably expected to average less

than 30 hours of service per week , and

The revocation of the Employee’s salary reduction election under the

Plan corresponds with his intended enrollment of the Employee (and any

other individuals who also cease coverage as a result of the Employee’s

revocation of his election) in other minimum essential coverage, with an

anticipated coverage effective date not later than the first day of the

second month following the month that includes the date the original

election is revoked.

Notes:

The reduction in hours does not have to affect the Employee’s eligibility

under the Employer’s medical plan.

The Employer may accept the Employee’s representation regarding

intended enrollment in other minimum essential coverage.

The other minimum essential coverage does not have to be Marketplace

coverage under the Affordable Care Act. It could be governmental

coverage (e.g., Medicare Part A) or other employer-based group

coverage.

Example:

Wornall Company maintains a calendar year cafeteria plan that allows

Employees to elect coverage under an accident or health plan. John is

employed by Wornall Company and has been in an employment status

under which John was reasonably expected to average at least 30 hours

of service per week. Prior to the beginning of the calendar year plan,

John elects family health coverage under the Wornall Company group

health plan and elects salary reduction contributions accordingly.

On October 1, 2016, John changes positions with Wornall and will

reasonably be expected to average less than 30 hours of service per

week after the change. John is currently in an ACA stability period in

which he is considered an ACA full-time employee, and John continues to

be eligible under the Wornall group health plan.


29


Permitted Actions


John wishes to enroll in family coverage under his wife’s employer’s plan

effective November 1, 2016, which provides minimum essential coverage

(MEC) for John and all of his dependents currently enrolled under the

Wornall Company group health plan.

John’s reduction in hours is an event permitting a salary reduction

election change under the Wornall Company cafeteria plan, and pursuant

to the reduction in hours and John’s reasonable representation that he

and all of his dependents currently covered under the Wornall Company

group health plan will be enrolled in other MEC coverage no later than

the first day of the second month following the month the original

coverage is revoked, Wornall Company’s cafeteria plan may by its terms

permit John to cancel coverage under the Wornall Company group health

plan and reduce his cafeteria plan election accordingly.


30


Permitted Actions


Intent to enroll in marketplace coverage under marketplace special or open enrollment period:


Qualified Healthcare Benefits Providing at Least Minimum Essential Coverage (will exclude Health FSAs and nearly all dental and vision coverage)

The Plan may permit the Employee to revoke his salary reduction election on

account of and corresponding with an intended enrollment in Marketplace

coverage where:

The Employee is eligible for Marketplace open or special enrollment, and

The revocation of the Employee’s salary reduction election under the

Plan corresponds with his intended enrollment of the Employee (and any

other individuals who also cease coverage as a result of the Employee’s

revocation of his election) in a qualified health plan through a

Marketplace, with an anticipated coverage effective date not later than

the first day immediately following the last day of the Employer-based

coverage that is revoked.

Notes:

The Employer may accept the Employee’s representation regarding

intended enrollment in Marketplace coverage.

Marketplace special enrollment rights may be triggered by a number of

events including:

Loss of minimum essential coverage

Gaining a dependent (or becoming a dependent) through marriage,

birth, adoption, placement for adoption or in foster care, or a child

support or other court order

Gaining status as a citizen or lawfully present alien

Gaining eligibility for Marketplace subsidies (or a change in eligibility

for cost-sharing reductions)

Employer coverage is no longer affordable or no longer provides

minimum value for the upcoming plan year

Gaining access to Marketplace coverage due to a permanent move,

and

Other exceptional circumstances as determined by the Marketplace.

Example #1:

Allied Company sponsors a health plan for its Employees providing both

individual and family coverage. Allied also maintains a cafeteria plan under

which qualified benefits, including health coverage, are funded through

salary reduction. Both the health plan and cafeteria plan years run from

January 1- December 31.


31


Permitted Actions


Before the beginning of the calendar year plan, Jane elects employee-only

health coverage under Allied Company’s cafeteria plan and elects salary

reduction contributions in accordance with that election. On March 1,

2016, Jane marries Sam. Jane wishes to enroll in family coverage under

the Marketplace. Jane’s marriage qualifies as a special enrollment event

under the Marketplace and an event permitting the Allied Company

cafeteria plan, to the extent provided by that Plan, to allow Jane to cancel

her coverage under Allied Company’s health plan and reduce her current

cafeteria plan election accordingly, in order to enroll in Marketplace family

coverage.

Example #2:

Avenue Company sponsors a health plan for its Employees providing both

individual and family coverage. Avenue also maintains a cafeteria plan

under which qualified benefits, including health coverage, are funded

through salary reduction. Both the health plan and cafeteria plan years

run from July 1 to June 30.

Before the beginning of the plan year, Employee Jim elects employee-only

health coverage under Avenue’s plan and elects salary reduction

contributions for premium payments. On November 30, 2016, during the

Marketplace open enrollment period, Jim decides to enroll in Marketplace

individual health coverage with coverage beginning January 1, 2017.

Jim’s eligibility and intent to enroll in Marketplace coverage is an event

permitting the Avenue Company cafeteria plan to allow Jim to cancel his

salary reduction election, to the extent provided by the cafeteria plan.

Therefore, if allowed by the cafeteria plan, Jim can cancel his health

coverage under the Avenue Company plan and change his current

cafeteria plan election accordingly in order to enroll in Marketplace

coverage.


32

Notes


33

Notes

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