Section 125 elections are meant to be irrevocable for the plan year. That is the trade for taking the contributions pre-tax. The regulations then carve out a set of circumstances in which an employee may change an election mid-year — and those carve-outs, not the general rule, are where administrators get into difficulty.
The irrevocability rule exists to prevent employees selecting benefits with hindsight — enrolling in a health FSA the week before surgery and dropping it afterwards. Every permitted exception is written to allow genuine adjustment to changed circumstances without opening that door.
Understanding that purpose is the most reliable guide when a request does not fit neatly into a category. If granting it would let someone benefit from information they did not have at open enrollment, treat it skeptically.
Marriage, divorce, legal separation, annulment or death of a spouse.
Birth, adoption, placement for adoption, or death of a dependent.
Termination or commencement of employment for the employee, spouse or dependent; a change between full and part-time status; a strike or lockout; the start or end of an unpaid leave — anything that affects benefit eligibility.
Most commonly a child aging out of coverage.
Where the move affects plan eligibility — for instance, moving outside a network service area.
Including a qualified medical child support order requiring coverage for a child.
Gaining or losing entitlement permits a corresponding change.
Applies to some benefits but not to health FSAs, which is a distinction administrators miss regularly.
Which carry their own timing rules.
A qualifying event does not permit any change the employee would like. The change must be consistent with the event — it must correspond to the gain or loss of eligibility the event caused.
So an employee whose child ages out may drop that child's coverage. They may not use the occasion to switch plan options for unrelated reasons, or increase an election in a way the event does not justify. If the requested change does not track the event, it is not permitted, however sympathetic the circumstances.
Health FSAs follow stricter rules than other benefits. The significant cost and coverage change exceptions do not apply to them, and the uniform coverage rule means the full annual election is available from day one regardless of contributions made to date. That combination is precisely why the mid-year change rules are tighter here.
Dependent care assistance accounts, by contrast, do permit changes on cost or coverage changes in some circumstances — including a change in provider or a change in the cost charged by a provider who is not a relative.
Plans typically require the employee to request the change within a set window after the event — 30 days is common, and HIPAA special enrollment has its own statutory periods. The window must be stated in the plan document, and it must be applied consistently.
Keep, for every mid-year change: the event, its date, the date requested, the documentation supporting it, the change made, and a note of why the change is consistent with the event. That last item is the one most often missing and the one an auditor will ask for.
The regulations set the outer boundary of what a plan may permit. They do not require a plan to permit all of it. Your plan document may be narrower — and if it is, the document controls. Administrators who work from a general list of permitted events, rather than from their own document, end up granting changes their plan does not allow.
A cafeteria plan that fails to operate in accordance with Section 125 can lose its tax-favoured status, which would make elections taxable to participants. The exposure is not the individual change; it is the pattern of loose administration that an examination uncovers.
Every mid-year change should leave a short record showing the event, its date, the date requested, the documentation relied on, the change made, and a sentence explaining why the change is consistent with the event.
That final sentence is what auditors look for and what administrators most often omit. It takes moments to write at the time and is effectively impossible to reconstruct later.
Requests arrive with whoever the employee happens to speak to, and inconsistent handling at that first point creates most of the problems.
The instruction to give is to accept the request, record it, and route it — not to assess it. Front-line staff who make eligibility judgments produce exactly the inconsistency that creates discrimination exposure alongside the qualification issue.
No. Regret is not a qualifying event.
A change made under another employer's plan during its open enrollment period can support a corresponding change, where the plan permits it and the consistency rule is satisfied.
Keep election and change records for the period specified in your plan's record retention policy and applicable law; in practice, administrators retain them well beyond the plan year because examinations look back.
For the full administration picture, see our Section 125 cafeteria plans page. Employers coordinating cafeteria plan changes alongside leave and continuation coverage should also look at the COBRA training and certification program.
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