IRS Adds Family Member Exchange Enrollment Section 125 Qualifying Event

Compliance, Employee Benefits

On October 13, 2022, the Internal Revenue Service (IRS) issued Notice 2022-41 permitting a new qualifying event that allows a mid-year change to an election under a Section 125 plan when a family member enrolls in a qualified health plan through a government-run Health Insurance Exchange. Section 125 is the portion of the Internal Revenue Code which allows for flexible spending arrangements (FSAs) and for health insurance premiums to be paid on a pre-tax basis.

Elections made under a Section 125 plan are irrevocable for the duration of the plan year unless there is a qualifying event. If a plan participant does not experience a qualifying event, they cannot change their Section 125 election.

Family Member Health Insurance Exchange Enrollment Qualifying Event

Beginning January 1, 2023, a cafeteria plan may allow a participant to revoke an election of family coverage under a group health plan that provides minimum essential coverage if the following conditions are met:

  • One or more related individuals are eligible for a special enrollment period to enroll in a qualified health plan through a Health Insurance Exchange, or one or more already-covered related individuals seeks to enroll in a qualified health plan during the Health Insurance Marketplace’s annual open enrollment period; and
  • The revocation of the election of coverage under the group health plan corresponds to the intended enrollment of the related individual or related individuals in a qualified health plan through the Health Insurance Exchange for new coverage that is effective beginning no later than the day immediately following the last day of the original coverage that is revoked.

Plan Sponsor’s Responsibility to Amend the Section 125 Plan

The employer, as the Section 125 plan sponsor, must decide whether they wish to allow the new qualifying event. Qualifying events are permissible, meaning plans can choose to allow them, but are not required to. If a plan sponsor wishes to allow family member exchange enrollment as a Section 125 qualifying event, they will need to amend their Section 125 plan document.

The plan must be amended no later than final day of the plan year. The amendment can be made retroactively to the first day of the plan year but participants are not allowed to retroactively revoke coverage.

Key Takeaways

This potential change applies to employers who sponsor a Section 125 cafeteria plan and wish to allow the new family member Health Insurance Exchange enrollment qualifying event. Those who wish to make this change will need to work with their cafeteria plan administrator to amend their Section 125 plan document. Employers in this position would be well-served to act quickly to allow plan participants to take advantage of this new qualifying event.

The information provided is a summary of laws and regulations relating to employee benefit plan compliance. This information should not be construed as legal advice. In all cases, employers should consult with their own legal counsel.

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