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New FSA Change in Status Regulations for Coordination with the Public Exchange

New official guidance (IRS Notice 2014-55) has been issued by the IRS on September 18, 2014 regarding a new qualified change in status for election changes for group health coverage under a Section 125 plan.  The new change in status allows an enrolled employee to revoke their election during the plan year if:

  • Their hours per week are reduced, and expected to average less than 30 hours per week, but continues to be eligible for coverage under the employer's group health plan; or
  • The employee would like to cease coverage under the employer’s group health plan in order to purchase coverage through the Exchange/Marketplace (and not have duplicate coverage).

The guidance can be relied upon immediately, but as with most qualified changes in status, an employee may only elect to cease coverage on a prospective (not retroactive) basis.

If an employer wishes to adopt this new change of status provision, an amendment to the Section 125 plan is required.  The plan must be amended on or before the last day of the plan year for which the change to elections will be allowed.  However, the amendment can be made retroactive to the first day of that plan year. 

Posted on September 22, 2014 by BEN COHEN, CEBS, PRACTICE LEADER, HEALTH AND WELFARE BENEFITS

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