If the change in status is the employee's divorce, annulment or legal separation from a spouse, the death of a spouse or dependent, or a dependent ceasing to satisfy the eligibility requirements for coverage, an employee's election under the cafeteria plan to cancel accident or health insurance coverage for any individual other than the spouse involved in the divorce, annulment or legal separation, the deceased spouse or dependent, or the dependent that ceased to satisfy the eligibility requirements for coverage, respectively, fails to correspond with that change in status. Section 125 Mid-Year Election Change Rules Expanded by IRS Monday, October 17, 2022 Compliance, Employee Benefits The IRS released Notice 2022-41 on October 11, 2022, expanding the situations in which individuals can change their health coverage elections mid-year under a Section 125 cafeteria plan. Addition or improvement of a benefit package option. Achieve a higher level of performance to protect your assets, health, and financial well-being. Employers may also allow employees to prospectively change their health or dependent care FSA contribution rates during 2021 without experiencing a permitted election-change event. A change in status that affects eligibility under an employer's plan includes a change in status that results in an increase or decrease in the number of an employee's family members or dependents who may benefit from coverage under the plan. For example, if the cost of an indemnity option under an accident or health plan significantly increases during a period of coverage, employees who are covered by the indemnity option may make a corresponding prospective increase in their payments or may instead elect to revoke their election for the indemnity option and, in lieu thereof, elect coverage under another benefit package option including an HMO option (or drop coverage under the accident or health plan if no other benefit package option is offered). If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Make a new election if initially declined coverage. This content supports Grant Thornton LLPs marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. Accordingly, H does not have a change in status under paragraph (c)(2)(iii) of this section. }); if($('.container-footer').length > 1){ (iii) The change in work location has no effect on A's eligibility under R's health FSA, so no change in A's health FSA is authorized under this paragraph (c). IRS Issues Mid-Year Election Change Relief & Clarifying - Sequoia The COVID-19 is having a huge impact on the global economy, with manufacturers and the travel industry bearing the initial brunt as the impact expands. Elective contributions under a qualified cash or deferred arrangement. (A) A substantial decrease in the medical care providers available under the option (such as a major hospital ceasing to be a member of a preferred provider network or a substantial decrease in the physicians participating in a preferred provider network or an HMO); (B) A reduction in the benefits for a specific type of medical condition or treatment with respect to which the employee or the employee's spouse or dependent is currently in a course of treatment; or. Savan said while there is very little downside in allowing dependent care FSA changes, employers should be mindful that there are some potential risks associated with allowing changes to health FSAs. Under paragraph (f) of this section, Employee J may change his or her salary reduction contributions to reflect the change from indemnity 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). However, an election change to cancel E's or G's health coverage does not satisfy the consistency rule under paragraph (c)(3)(iii) of this section regarding cancellation of coverage for an employee's other dependents in the event of divorce. $('.container-footer').first().hide(); Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. (3) Dependent. The permitted election change events are set forth in Treas. var temp_style = document.createElement('style'); Coverage for the same category of benefits for the same individuals (e.g., family to family or single to single). Because the FSA is a dependent care FSA rather than a health FSA, the coverage rules of this section apply and M's cafeteria plan may permit A to elect to revoke A's 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. Update: Appropriations Act Extends FSA Relief. No Results Found. A benefit package option means a qualified benefit under section 125(f) that is offered under a cafeteria plan, or an option for coverage under an underlying accident or health plan (such as an indemnity option, an HMO option, or a PPO option under an accident or health plan). We can harness the power of people, process, data and technology to transform your companys tax operating model into a strategic function of the business. Under tax code Section 125, elective contributions can only be changed within 30 days of a qualifying event as determined by the IRS, such as marriage, divorce, job change, birth or. (A's adoption of D is also a change in status, and the election of family coverage is consistent with that change in status. Treas. Because of the pandemic "some 829))) that requires accident or health coverage for an employee's child or for a foster child who is a dependent of the employee. SHRM Online article Delayed effective date for certain provisions. Section 125 does not re-quire a cafeteria plan to permit any of these changes. In IRS (ii) The change in the number of hours of work performed by Y is a change in coverage. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organizations culture, industry, and practices. Employer P may not permit J to change J's health FSA election. $("span.current-site").html("SHRM China "); "When commuting starts up again, it is advised that employees set up money in their commuter account two weeks before they will need the money.". In informal guidance, the IRS has indicated that two year elections may be used for separate dental and vision . GTIL does not deliver services in its own name or at all. (i) A State's children's health insurance program (SCHIP) under title XXI of the Social Security Act; (ii) A medical care program of an Indian Tribal government (as defined in section 7701(a)(40)), the Indian Health Service, or a tribal organization; (iii) A State health benefits risk pool; or. CFOs remain optimistic about growth even in a turbulent economy, but theyre also looking to cut costs and prioritizing ESG. The banking workforce is largely satisfied, but clarity on advancement opportunities and job security could further improve morale. Reg. Special requirements relating to the Family and Medical Leave Act. PDF PURPOSE - Internal Revenue Service (ii) Significant cost changes. "Employees made salary-reduction elections in 2019 to their flexible spending arrangements anticipating that those funds would be used to pay medical expenses in 2020, and now they find that it will be difficult or impossible to use those funds for medical services in 2020.". (C) Any other similar fundamental loss of coverage. Under the consistency rule in paragraph (c)(3) of this section, Y's cafeteria plan may permit C to change his or her salary reduction contributions to reflect the change from employee-only indemnity to HMO family coverage, and Z may permit D to revoke coverage under Z's cafeteria plan. Nevertheless, approximately 1 in 10 say they will allow these types of changes. (4) Examples. He advised employers to weigh these risks before liberalizing the terms of midyear enrollment in medical plans in 2020. To request permission for specific items, click on the reuse permissions button on the page where you find the item. Thus, a cafeteria plan may permit an employee to modify or revoke elections in accordance with section 401(k) and (m) and the regulations thereunder. Section 125 Cafeteria Plan Rules for Administering Mid-Year Employee Election Change Requests AccordingtoIRSguidelines(Treas. That general rule under Section 125 is that all elections (including an affirmative or default election not to participate) must be: a) made prior to the start of the plan year, and b) irrevocable for the plan year unless the employee experiences a Section 125 permitted election change event. 6)) may revoke an existing election of accident or health plan coverage and make such other election for the remaining portion of the period of coverage as may be provided for under the FMLA. if(currentUrl.indexOf("/about-shrm/pages/shrm-china.aspx") > -1) { Section 125 does not require a cafeteria plan to permit any of these changes. "Consequently, employers may want to consider the impact on HSAs as they decide whether to extend the claims period for health FSAs.". "Allowing participants to change their contributions to dependent care or health FSAs can be a relatively simple way for employers to support employees coping with COVID-19 related issues," said Jay Savan, a partner in Mercer's health business. The path to quality loyalty programs begins with adopting the right analytics looking deeper into customer purchase patterns to uncover true trends. For plan years ending in 2021, Section 214 and Notice 2021-15 permits employers to allow employees to make prospective mid-year changes to healthcare coverage, health FSA elections, and DC FSA elections, regardless of whether employees experience a permitted status change event. $('.container-footer').first().hide(); Elective contributions can be altered midyear for many payroll-deferred accounts. Dependent satisfies or ceases to satisfy eligibility requirements. As a result, the maximum unused amount from a plan year starting in 2020 allowed to be carried over to the immediately following plan year beginning in 2021 is $550, up from the previous limit of $500. However, an election to change to employee-plus-one-dependent health coverage would correspond with the change in status, and thus the cafeteria plan may permit E to elect employee-plus-one-dependent health coverage. temp_style.textContent = '.ms-rtestate-field > p:first-child.is-empty.d-none, .ms-rtestate-field > .fltter .is-empty.d-none, .ZWSC-cleaned.is-empty.d-none {display:block !important;}'; (iii) Application of cost changes. All references to Section, Sec., or refer to the Internal Revenue Code of 1986, as amended. GTIL is a nonpracticing umbrella entity organized as a private company limited by guarantee incorporated in England and Wales. Section 125 Plan Mid-Year Election Changes. (ii) Number of dependents. Coverage under a plan is significantly curtailed only if there is an overall reduction in coverage provided under the plan so as to constitute reduced coverage generally. A matrix outlining permitted election changes under IRS . As the likelihood of fraud rises in an economic downturn, its wise to understand construction fraud and watch for signs of malfeasance. The information contained herein is general in nature and is based on authorities that are subject to change. COVID-19 Midyear Election Change Attestation]. IRS However, IRS rules . Those permitted election change events include: Change in marital status. SHRM Online, November 2019, 401(k) Contribution Limit Rises to $19,500 in 2020, PDF 2018 Section 125 Cafeteria Plan: Permitted Election Change Event Chart cannot be changed) unless a permitted status change event occurs allowing them to make changes. If that parent loses employment, the cost of family COBRA is likely to be much more costly than changing to the working spouse/parent's employer sponsored plan. New COVID-19 Guidance for Section 125 Mid-year Election Change Rules (iii) 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. (ii) The election change satisfies the consistency rule of paragraph (c)(3) of this section. } employees can contribute $2,750 to a health FSA, including to a limited-purpose FSA restricted to dental and vision care services, which can be used in tandem with a health savings account (HSA). 1.125-4. When policy shifts, our insights and analysis can help you plan and respond. If the employee does not enroll in a QHP, the employee must elect self-only coverage (or family coverage including one or more already-covered related individuals) under the group health plan. Reg. 1.125-4. IRS Relaxes Section 125 Election Change Rules, Expands Grace Periods Build specialized knowledge and expand your influence by earning a SHRM Specialty Credential. (2) Examples. The potential is great what to know before taking action. } If an employee, spouse, or dependent who is enrolled in an accident or health plan of the employer becomes entitled to coverage (i.e., becomes enrolled) under Part A or Part B of title XVIII of the Social Security Act (Medicare) (Public Law 8997 (79 Stat. The increased salary reduction is permitted to reflect the cost of family coverage from the date of adoption. PDF DEPARTMENT OF THE TREASURY Internal Revenue Service While the rules for health, retirement and other core benefits are widely known, employee confusion is more common concerning voluntary or supplemental benefits. (iii) Application of consistency rule. 2023 Grant Thornton LLP - Grant Thornton refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. assistance program under the 125 cafeteria plan as of the end of a grace period or plan year ending in 2020, a 125 cafeteria plan may permit employees to apply those unused amounts to pay or reimburse medical care expenses or dependent care expenses, respectively, incurred through December 31, 2020; and 125 election change rules govern when pre-tax election changes are permitted, which is a separate consideration from whether coverage may be added or dropped mid-plan year. Members may download one copy of our sample forms and templates for your personal use within your organization. The COVID-19 pandemic has upended not only employees' lives but also the expectations they had at the start of 2020 for annual spending through their benefit programs. Notice 2020-33, also released May 12, increases the amount of funds that health FSA participants can carry over without penalty at the end of the year for plans that use the carryover option.

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