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IRS Regulations on Cafeteria-Plan Election Changes

IRC section 125 limits the extent to which participants in a benefit plan can make mid-year election changes.  Employees are allowed to revise their elections based on the following change-in-status events:

• Legal marital status.  This would include marriage, divorce, legal separation, and annulment.

• Number of dependents.  Includes any event that changes the number of an employee's dependents (e.g.  adoption, birth, or death of a child).

• Employment status.  Applies to the termination or commencement of employment for the employee, spouse or dependent.

• Work schedule.  Includes any reduction or increase in hours of employment by the employee, spouse or dependent.  Strikes, lockouts, and leaves of absence are specifically included.

• Changes that cause a dependent to become eligible for coverage or lose eligibility under the plan; for example, by reason of age or student status.

• Change of residence or work site by the employee, spouse or dependent.

• COBRA eligibility for employee, spouse or dependent (applies only to cafeteria-plan contributions to pay for COBRA coverage)

• Issuance of a family relations judgment, decree or order, such as a qualified medical child support order.

• Medicare or Medicaid entitlement for employee, spouse or dependent.

• Bona fide rehire of an employee during the same year as his or her termination (applies only to reinstatement of the benefit elections in effect before the termination).