(2) Example. For purposes of adoption assistance provided through a cafeteria plan, the commencement or termination of an adoption proceeding. While allowing a mid-year election change is a matter of plan design, the plan can only allow a mid-year election change as permitted by the IRS. 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. (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. New COVID-19 Guidance for Section 125 Mid-year Election Change Rules When can employees make midyear election changes to their group health insurance?]. 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. Section 125 Cafeteria Plans Notice 2022-41 PURPOSE This notice expands the application of the permitted change-in-status rules for health coverage under a section 125 cafeteria plan (cafeteria plan). Here's how employers and employees can successfully manage generative AI and other AI-powered systems. 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. (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. "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.". 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. If the cost charged to an employee for a benefit package option (as defined in paragraph (i)(2) of this section) significantly increases or significantly decreases during a period of coverage, the cafeteria plan may permit the employee to make a corresponding change in election under the cafeteria plan. dependent care FSA maximum, which is set by statute and not adjusted annually for inflation, is $5,000 a year for individuals or married couples filing jointly, or $2,500 for a married person filing separately, subject to earned income limits. Placement for adoption means placement for adoption as defined in regulations under section 9801. Significant curtailment with loss of coverage. Our NFT Playbook is a roadmap to addressing IP rights, business infrastructure and risk for media & entertainment companies and others. 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. Section 125 Plan Mid-Year Election Changes. var currentLocation = getCookie("SHRM_Core_CurrentUser_LocationID"); roll over all unused amounts in these accounts from 2020 to 2021 and from 2021 to 2022. Permitted Election Changes in Cafeteria (Section 125) Plans (2) Delayed effective date for certain provisions. (3) Dependent. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. Update: IRS Allows Mid-Year Enrollment and Election Changes for Health Plans and FSAs. Paragraphs (f)(2) through (5) of this section set forth rules for election changes as a result of changes in cost or coverage. b) irrevocable for the plan year unless the employee experiences a Section 125 permitted election change event. For 2020, The amendment may be retroactive as along as it is adopted no. Please purchase a SHRM membership before saving bookmarks. (4) Disability coverage. Unless otherwise provided, the definitions in paragraphs (i)(1) though (8) of this section apply for purposes of this section. Notice 2020-29 Mid-Year Election Changes Under Section 125 of the Internal Revenue Code, elections for qualified benefits are generally irrevocable for the plan year unless one of the permitted election change events applies. Please log in as a SHRM member. cannot be changed) unless a permitted status change event occurs allowing them to make changes. As a general rule, participant elections under a Section 125 cafeteria plan are irrevocable during the plan year or coverage period. SHRM Online, May 2019, Commuter Benefits Are an Investment in Employees, "I think that the limited amount of the increase means that the IRS and Treasury Department were concerned that they did not have the authority under the Internal Revenue Code to provide for a larger carryover amount," he suggested. To allow the new permitted election changes under the notice, an employer must amend a cafeteria plan to provide for these election changesbut such an amendment cannot allow an election to revoke coverage to be made on a retroactive basis. (iv) A Foreign government group health plan. (ii) In this Example 8, under the facts and circumstances, a principal purpose of the termination of employment was to alter the election, and reinstatement of employment was understood at the time of termination. At Grant Thornton, we dont just understand your business. The amendment may be retroactive as along as it is adopted no later than the last day of the calendar year following the year in which the amendment is effective. Employees use commuter benefit plans to pay mass transit or parking costs, funded monthly by employees and/or employers with pretax dollars. Therefore, a related individual enrolled in a non-calendar year cafeteria plan might not be able to synchronize the change in coverage to avoid either a gap in coverage or an overlapping period of coverage. An FSA means a qualified benefits plan that is a flexible spending arrangement as defined in section 106(c)(2) . Consolidated Appropriations Act that President Trump signed at the end of 2020 allows employers that sponsor health or dependent care flexible spending accounts (FSAs) to permit participants to Innovative strategies can show that you recognize work today while creating a path to tomorrow. (8) Qualified benefits plan. (iii) Application of consistency rule. For dependent care FSAs, "the rules allow changes in pretax contributions under circumstances where the need for dependent care changes midyear. (1) In general. (3) Consistency rule(i) Application to accident or health coverage and group-term life insurance. 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. Therefore, an employee who is working from home or working less and does not need, or have access to, dependent care can be allowed to change (stop or reduce) his or her pretax contribution election," Daley noted. While The (ii) Under paragraph (f)(4)(ii) of this section, N's cafeteria plan may permit A to change A's election prospectively to family coverage under that plan effective September 1, 2001. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. Employers Can Now Permit Mid-Year Election Changes and Claim - Sequoia 1.125-4 Permitted election changes. - CODE OF FEDERAL REGULATIONS Electronic Code of Federal Regulations (e-CFR), CHAPTER IINTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY, Employee Retirement Income Security Act of 1974. What options does an employer have with unused FSA funds?]. A revocation of C's election for family coverage and new election for employee-only coverage corresponds with the change in status. How we work matters as much as what we do. Plan amendments thatextend the claims period for health and dependent care FSAs may be effective retroactively to Jan. 1, 2020. PDF SECTION 125 PERMITTED MID-YEAR ELECTION CHANGES - CHR Partnership Furthermore, this chart assumes that the organization's Section 125 Cafeteria Plan Document is drafted to allow all of the available permitted election ch ange events recognized by the IRS. ), (c) Changes in status(1) Change in status rule. Please log in as a SHRM member before saving bookmarks. (ii) The divorce is a change in status under paragraph (c)(2)(i) of this section. "Many employers are struggling with employee requests for election changes and whether such a change would be permitted under IRS guidance," Dickens wrote. Here, we invite you to bring your own self BYOSelf to a career that goes beyond the expected. (ii) D's loss of eligibility for coverage under the terms of the health plan is a change in status under paragraph (c)(2)(iv) of this section. Our survey said you need more than money to recruit, engage and retain talent in technology. 2020 set a new high in annual PE software deal value. The new guidance carves out an exception for changes made during 2020 due to the COVID-19 pandemic. (iii) Addition or improvement of a benefit package option. Accordingly, under paragraph (f)(3)(ii) of this section, the cafeteria plan may permit eligible employees to make an election change to elect the indemnity plan or the new HMO option. 1.125-4. PDF Leave of Absence Guidelines With Section 125 Plans Update: Appropriations Act Extends FSA Relief. 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. Employer P's plan may not permit C to change C's health FSA election. Attorneys at the IRS and the Treasury "understand the issues at hand, and they are considering this and other issues relating to the health care and economic impact of the pandemic; however, it is hard to say what the agencies can do," he noted. However, these allowances wouldn't have been permitted under Section 125 regulations because COVID-19, in and of itself, is not a "qualified life event" that would permit employees to make mid-year election changes. dependent care FSA maximum, which is set by statute and not adjusted annually for inflation, is $5,000 a year for individuals or married couples filing jointly, or $2,500 for a married person filing separately, subject to earned income limits. Elective contributions under a qualified cash or deferred arrangement. In 2020, Protect your assets and investments with the right amount of personal liability coverage. 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. Automation used to be a possibility a goal for the future. SHRM Online, November 2019, 2020 HSA Limits Rise Modestly, IRS Says, The following example illustrates the application of this paragraph (d): (ii) Under this paragraph (d), M's cafeteria plan may change A's election from employee-only health coverage to employee-plus-one-dependent coverage in order to cover C. (e) Entitlement to Medicare or Medicaid. A change in the place of residence of the employee, spouse, or dependent. Except as provided in paragraph (j)(2) of this section, this section is applicable for cafeteria plan years beginning on or after January 1, 2001. All eligible employees should be informed of the changes. For plan years ending before Dec. 31, 2020, employers can amend a health or dependent care FSA plan to permit participants to "spend down" through year-end 2020 any remaining amounts from 2019 that would otherwise be forfeited. SHRM's HR Knowledge Advisors offer guidance and resources to assist members with their HR inquiries. Nevertheless, approximately 1 in 10 say they will allow these types of changes. Section 125 Issues Addressed by This Guidance The guidance addresses two issues that have arisen relative to the interaction between current Section 125 rules and coverage requirements/availability under the Affordable Care Act (ACA). PDF I. PURPOSE AND OVERVIEW - Internal Revenue Service "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. Thus, M's cafeteria plan may permit A to make either election change. $(document).ready(function () { Accordingly, pursuant to paragraph (f)(4)(i) of this section, P's cafeteria plan may permit C to revoke C's health coverage election if D actually elects family health coverage under Q's accident or health plan. Date. Please enable scripts and reload this page. IRS Allows Midyear Enrollment and Election Changes for Health Plans and FSAs. 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. Alternatively, the cafeteria plan may prohibit H from returning to the plan during that plan year. A qualified benefits plan means an employee benefit plan governing the provision of one or more benefits that are qualified benefits under section 125(f). We specialize in personal and flexible strategies to support multiemployer (Taft-Hartley) health, retirement and insurance needs. Members may download one copy of our sample forms and templates for your personal use within your organization. This paragraph (f) does not apply to an election change with respect to a health FSA (or on account of a change in cost or coverage under a health FSA). The opposite holds for employer-sponsored group health, dental and vision plans. A dependent means a dependent as defined in section 152, except that, for purposes of accident or health coverage, any child to whom section 152(e) applies is treated as a dependent of both parents, and, for purposes of dependent care assistance provided through a cafeteria plan, a dependent means a qualifying individual (as defined in section 21(b)(1)) with respect to the employee. Such technology is already a part of many workplaces and will continue to shape the labor market. The new guidance will extend the grace period to the end of 2020. See the If employees subsequently return to their regular onsite work schedule, "another election change can be allowed to increase contributions, assuming that the need for dependent care increases.". IRS Expands Section 125 Mid-year Election Change Rules
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