Section 125 Plan Mid-Year Election Changes

What is it? An employer, in its discretion, may amend one or more of its Section 125 plans (including limiting the period during which election changes may be made) to allow each employee who is eligible to make salary reduction contributions under the plan to make prospective election changes (including an initial election) during calendar year 2020 regarding employer-sponsored health coverage, a Healthcare FSA, or a Dependent Care Account, regardless of whether the basis for the election change satisfies the criteria set forth in regular election change rule.

How does it work? In particular, an employer may amend one or more of its Section 125 plans to allow employees to: 

(1) make a new election for employer-sponsored health coverage on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage;

(2) revoke an existing election for employer-sponsored health coverage and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis (including changing enrollment from self-only coverage to family coverage);

(3) revoke an existing election for employer-sponsored health coverage on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer;

(4) revoke an election, make a new election, or decrease or increase an existing election regarding a Healthcare FSA on a prospective basis; and

(5) revoke an election, make a new election, or decrease or increase an existing election regarding a Dependent Care Account on a prospective basis.

To accept an employee’s revocation of an existing election for employer-sponsored health coverage, the employer must receive from the employee an attestation in writing that the employee is enrolled, or immediately will enroll, in other comprehensive health coverage not sponsored by the employer. The employer may rely on the written attestation provided by the employee, unless the employer has actual knowledge that the employee is not, or will not be, enrolled in other comprehensive health coverage not sponsored by the employer.

What you need to know as an employee:

If your employer allows this change to its Section 125 Plan, your employer can restrict the Healthcare FSA election changes to an amount equal to or higher than the amount already reimbursed. An election cannot be changed to $0 if there have been contributions made or claims reimbursed.

What you need to know as an employer:

If you have subscribed to American Fidelity’s Risk Policy for your Healthcare FSAs, the policy restricts mid-year election changes to permit a change triggered by termination of employment only. No other mid-year election changes are permitted. Therefore, in order for you to allow your employees to make a change to their Healthcare FSA, you would need to notify your American Fidelity account representative to cancel the Risk Policy. Cancelling the policy would mean you are now assuming the risk. In the event your overall account balance is negative at the end of your plan year, you would be responsible for that negative balance. If you are unsure who holds the risk, you may contact your American Fidelity account representative or review your Section 125 Plan Document. In your Section 125 Plan Document, it is indicated whether you as the Employer assume the Uniform Coverage Risk or if American Fidelity assumes that risk for you. It is located under Item 7 Medical Expense Reimbursement Plan in the Adoption Agreement (usually page 5). If it reads, “As outlined in Policy G-905/R1” next to Restrictions, it means that American Fidelity assumes the risk.

 

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