IRS Confirms That Cafeteria Plan Not Required to Allow Mid-Year Election Change

In IRS Information Letter 2019-0028, the IRS reiterated that while participants in a Section 125 cafeteria plan may change their pre-tax contribution elections due to the occurrence of certain qualifying events, there is no requirement for plans to make this option available.


Cafeteria plan qualifying events

If allowed for in its provisions, a cafeteria plan may permit participants to make a mid-year election change when certain qualifying events occur, including:

  • Change in marital status (marriage, divorce, death of a spouse, separation, annulment);
  • Change in number of dependents (birth, adoption, death);
  • Change in employment status of the plan participant, spouse, or dependent if eligibility is affected by this change;
  • Curtailment of coverage affecting the participant, spouse, or dependent;
  • If the participant, spouse, or dependent is eligible for health coverage through a Health Insurance Marketplace during open enrollment or a special enrollment period; and
  • If the participant, spouse, or dependent becomes eligible or ineligible for CHIP.

IRS Letter 2019-0028

The IRS stated that generally, the terms of a cafeteria plan must provide that employees elect benefits before the beginning of the plan year and those elections cannot change during the coverage period.  However, “a plan may, but is not required to” adopt provisions allowing an employee to rescind an election during the coverage period and make a new election for the remaining coverage period if the participant experiences any of the qualifying events listed above and if the election change is related to the event.

In addition, the letter states that a plan must be operated in accordance with its terms and that, “A plan is not required to permit an employee to revoke or make a new election outside of the enrollment period if the employee experiences a significant change in coverage or a significant increase or decrease in the cost of coverage.”

The experienced, responsive employee benefits attorneys at Hall Benefits Law help plan administrators understand what regulations and rulings are relevant to them and how best to apply these rulings in practice. Learn more by calling 678-439-6236.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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