Section 125 cafeteria plan elections are irrevocable for the plan year unless the participant experiences a change in status or other event that allows an election change under the Section 125 regulations.
Common status change events that may be occurring due to the pandemic include the following:
- A commencement of an unpaid leave of absence. If an employee is placed on an unpaid furlough or temporary layoff but is not terminated, an employee may have the right to change elections if he/she loses eligibility for coverage under a group-term life insurance or group health plan. Any change must be on account of and correspond to the change in status, typically to drop coverage.
- Special enrollment right. An employee may make an election change if he/she experiences a special enrollment right under the HIPAA portability rules, including marriage; birth or adoption; and loss of other group health coverage. Normally, the employee has a 30-day time period to notify the employer of a special enrollment right. However, under the Notice issued jointly by the DOL and IRS on April 29, 2020, the period from March 1, 2020 until 60 days after the announced end of the COVID-19 national emergency is disregarded in determining whether an employee has timely exercised a special enrollment right. For example, if the employee has a baby on April 30, 2020 and the end of the COVID-19 emergency is May 31, 2020, the 60-day period ends on July 30, 2020 and the employee would have until August 29, 2020 to add the baby to his/her health plan coverage. The baby’s coverage would be effective as early as April 30, 2020 and the employee would be required to make all required premium payments. Presumably, pre-tax contributions under a cafeteria plan are allowed as, under these facts, the employee has timely exercised his/her special enrollment right.
- Dependent care flexible spending account (“dependent FSA”). An employee may change a dependent FSA election due to a cost or coverage change. For example, the employee may be furloughed at home with children who are out of school and no longer need after-school child care. Under these circumstances, the employee may wish to drop or reduce his/her dependent FSA election. Or, the employee may have to seek alternate child care if the normal day care provider closes due to the pandemic. If the new day care provider charges a higher price for care, the employee may wish to increase his/her dependent FSA election.
Participants may be asking if the plan could refund amounts they have already contributed to a health FSA or dependent care FSA. For example, the participant may have been contributing to a health FSA to pay for an elective surgery that will now not take place, or may have been contributing to a dependent FSA to pay for summer day camp that may be cancelled. Once made, FSA contributions may generally not be refunded to participants. If permitted by the cafeteria plan, unused funds up to $500 in a health FSA may rollover to the next plan year. Alternatively, participants may have a 2 ½ month grace period after the end of the plan year in which to incur expenses that may be submitted against the prior year’s health FSA or dependent FSA balance.
As always, the starting point for whether an employee is permitted to change an election is to review the terms of the cafeteria plan document. If an employer wishes to change its practices (for example, to give employees 90 days rather than 30 days to make a dependent FSA election change), the employer should amend the plan document as necessary and communicate with participants.
This post is a part of the All Things HR Blog’s multi-part series on frequent issues and questions faced by employers during the COVID-19 crisis.
Read Part 4: Reimbursement of Over-the-Counter Medications
About the Author:
Cynthia A. Moore is a Member in Dickinson Wright’s Troy office where she assists clients in all areas of employee benefits law, including qualified retirement plans, welfare benefit plans, and non-qualified deferred compensation programs. Cyndi can be reached at 248-433-7295 or firstname.lastname@example.org and you can visit her bio here.