Cafeteria plans can make a significant difference in the employee benefits landscape due to their triple tax-advantaged nature. But as with just about everything else in the benefits space, cafeteria plans do have their restrictions. A case in point is mid-year election changes. Justification for such changes is limited.

Employee elections are made prior to the start of the new plan year. Under IRS regulations, there are only three acceptable reasons for making mid-year election changes:

  1. To correct problems discovered during a plan test.
  2. To correct an administrative error.
  3. To account for a permitted election change event (PEC).

Correcting administrative errors and problems uncovered during tests usually has little effect on employees. As for PECs, they are events that always impact employees directly. Making changes due to a PEC dictates that an employee has experienced some sort of significant life invent.

7 Types of Events

The types of events that qualify as PECs are divided into seven categories. BenefitMall, a Dallas general agency representing more than one hundred benefit carriers nationwide, advises brokers, benefits administrators, and HR personnel to familiarize themselves with these categories. Some of them are fairly straightforward, while others cover events that are open to interpretation. Here they are:

1. Change in Status Events

Change in status events include things that would be considered more routine. They are things common to the largest group of affected employees. Examples include marriage, divorce, adding a dependent, a change in residence, an adoption, and even a change in employment status. Although such events do not always require mid-year election changes, they often do.

2. Civil Court Events

Next in line are events that occur as the result of civil court action. A good example is a civil judgment rendered against an individual. A civil judgment might result in wage garnishment or other actions that would facilitate a mid-year election change.

3. Public Insurance Enrollment

With very limited exceptions, Medicaid and Medicare subscribers are not allowed to participate in most cafeteria plan options. Therefore, enrolling in either public insurance program during a plan year would necessitate mid-year election changes.

4. Leaves of Absence

Leaves of absence sometimes result in having to make mid-er changes. The most common scenario is A leave of absence taken under the Family and Medical Leave Act (FMLA). Such leaves enjoy certain protections under the law.

5. Exchange Enrollment

Enrolling in a health plan via a state or federal exchange could dictate how an employee could participate in a cafeteria plan. Furthermore, mid-end year election enrollments might be necessary if a covered employee’s family member enrolls in an exchange plan.

6. Changes in Cost and Coverage

Certain events can significantly impact insurance cost and coverage. Such changes are likely to require mid-year election changes in cafeteria plans. Examples include significant loss of coverage, significant cost increases, and improvements to benefit options.

7. COBRA Qualifying Events

A COBRA qualifying event would be any event that leans to an employee continuing to purchase health insurance under the COBRA option. The most common scenario is one of an employee being laid off. Although that employee might be able to continue COBRA coverage, he may no longer be eligible for cafeteria plan benefits.

Mid-year election changes are limited so as to reduce errors, minimize risk, and streamline administration. The rules regarding mid-year changes are fairly rigid; there isn’t a whole lot of wiggle room to get around elections once made. However, any qualifying events within the seven categories described in this post open the door to mid-year changes. If it sounds complicated, that is because it is.

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