The IRS recently announced changes to its rules about cafeteria plans – and the changes could affect your clients. In September, the IRS announced immediately effective amendments to its rules about why and when employees can change their election in their company’s cafeteria plans. Both changes are a result of rules related to the Patient Protection and Affordable Care Act and allow employees opportunities to seek health care through a marketplace after revoking election to an employer’s cafeteria plan.
According to the new rules, if an employee’s hours are reduced below 30 hours a week, but the employee is still eligible for the employer’s group plan, he or she can revoke election to the plan. Or, if an employee wishes to purchase coverage through a marketplace without duplicating coverage within an employer’s group plan or going through a gap period with no coverage, he or she can also revoke election to an employer’s plan.
The IRS announced these amendments in an effort to make it possible for employees to pursue purchasing plans on the health marketplace without being limited by their employers’ plans. “These changes will provide employees more flexibility in selecting coverage on the marketplace, without increasing the employer’s exposure for the ‘play or pay’ penalty to the employer,” Lori Oliphant writes for www.jdsupra.com. “Recall, the penalty does not apply if a full-time employee voluntarily elects to forego employer-provided coverage that satisfies the minimum value and affordability requirements of healthcare reform.”
One specific way these changes will affect your clients: employers will have to amend their cafeteria plans and let their employees know about the changes. “Generally, the amendment must be adopted on or before the last day of the plan year in which the elections are allowed and may be effective retroactively to the first day of that plan year, provided the cafeteria plan is operated in accordance with this guidance,” Oliphant writes. “However, an amendment relating to the 2014 plan year may be adopted at any time on or before the last day of the plan year that begins in 2015. Although the amendment may be adopted retroactively to the first day of the plan year, the cafeteria plan may not allow a participant to make a retroactive election to revoke coverage.”
This is an important distinction, writes Keith R. McMurdy for Employee Benefits Adviser, one your clients need to know about. Benefits professionals will need to guide clients through the amendment process. “It is not automatic,” he writes. “The plan has to be amended to permit these election changes.”