IRS Liberalizes Section 125 Election Change Menu for Non-Calendar Year Plans to Allow “Transition Relief” for Participants to Drop Coverage and Elect Coverage Through an Exchange

November 1, 2013 at 11:28 am | Posted in Affordable Care Act, Cafeteria Plans, Compliance, Federal Laws, Flexible Spending Accounts, Health Care, Health Insurance Exchanges, Health Insurance Marketplace, IRS, Medical, PPACA, Regulations | Leave a comment
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The IRS has announced that it will allow, subject to an employer’s amendment of its non-calendar year cafeteria plan, the decision of an employee to change his/her Section 125 Cafeteria Plan health care election to drop coverage from his/her employer and obtain coverage through a health insurance exchange created under the Affordable Care Act.

According to the IRS: “An employer may amend its § 125 cafeteria plan to allow an employee who elected to salary reduce through the § 125 cafeteria plan to pay for accident and health plan coverage under the § 125 cafeteria plan with a non-calendar plan year beginning in 2013 to prospectively revoke or change his or her election with respect to the accident and health plan once, during a limited period (for example, the first month of 2014 only rather than the entire plan year) without regard to whether the employee experienced a change in status event described in Treas. Reg. § 1.125–4.”

IRS Issues Guidance on Flexible Spending Arrangements for Plan Years Starting After December 31, 2012

June 5, 2012 at 2:34 pm | Posted in Cafeteria Plans, Flexible Spending Accounts, PPACA | Leave a comment
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This week the Internal Revenue service (“IRS”) issued guidance on Flexible Spending Arrangements (“FSA”) regarding, among other things, when to implement the $2,500 FSA cap legislated under the Patient Protection Affordable Care Act (“PPACA”). The guidance was necessary because of confusion over the FSA reference in PPACA which implemented the $2,500 cap for a “taxable year” which, of course, does not always align with a plan year.
The IRS advised that:
*The $2,500 limit on health FSA salary reduction contributions in a cafeteria plan applies on a plan year basis and is effective for plan years beginning after December 31, 2012.

  • If a cafeteria plan has a short plan year (that is, fewer than 12 months) that begins after 2012, the $2,500 limit must be prorated based on the number of months in that short plan year.
  • The $2,500 limit applies on an employee by employee basis. Thus two employees who are married can each elect to make salary contributions up to $2,500 each.
  • The $2,500 limit is exclusive of any non-elective flex credit contributions an employer may wish to make to an employee’s health FSA. Accordingly, an employee’s $2,500 health FSA salary contribution limit can be supplemented by, for example, a $1,000 non-elective flex credit to the FSA extended by the employer. 
  • The $2,500 limit does not apply to FSA dependent care or adoption care contributions, health savings accounts, or health reimbursement arrangements.
  • If a plan provides for a grace period (which can be no longer than two months and 15 days) for a plan year, unused salary reductions contributions to the health FSA for the plan year that are carried over into the grace period do not count against the $2,500 limit applicable to the subsequent plan year. The employee may use amounts remaining from the previous plan year to pay for expenses incurred for certain qualified expenses during the grace period.
  • Finally, the IRS invited comments by August 17th on modifying or abolishing the health FSA “use it or lose” rule.

A copy of the complete IRS announcement is here:

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