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IRS Issues Guidance Permitting Additional Mid-Year Election Changes Under a Cafeteria Plan

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October 2014

The IRS issued Notice 2014-55, which permits cafeteria plans to allow participants to make mid-year election changes in two additional situations where a participant wishes to cease employer-sponsored coverage and purchase ACA marketplace-based coverage. Based on the new guidance, cafeteria plans may permit participants to prospectively revoke elections of employer-sponsored health coverage in these two situations, provided that the plan is not a health flexible spending account (FSA).

In the first situation, an employee whose hours are reduced from an average of at least 30 hours per week to less than 30 hours per week may prospectively revoke a coverage election in order to enroll in ACA marketplace-based coverage, even if the reduction in hours does not result in the employee losing eligibility under the employer’s group health plan. The second situation involves an employee who is eligible for and wishes to enroll in marketplace-based coverage. Such an employee is permitted to revoke his employer-sponsored coverage election as long as it does not result in duplicate coverage.

Notice 2014-55 was effective as of September 18, 2014. The IRS intends to amend the applicable regulations under Code Section 125 to reflect the guidance in the Notice.

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