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New Permitted Election Changes for Cafeteria Plans

The IRS has released Notice 2014-55 containing two additional permitted change rules for health coverage under Internal Revenue Code Section 125 cafeteria plans. These election change rules for the premium portion of the plan are welcome changes for many employers with non-calendar cafeteria plan years and employees moving from full-time to part-time employment resulting in a reduction in hours.


These permitted election change rules allow employees to revoke their elections to the group health insurance premium and seek coverage elsewhere under certain conditions, but does not include election changes to the health FSA portion of the plan.

Reduction of Hours
Notice 2014-55 allows employees to change their elections under the cafeteria plan during their period of coverage, the plan year, due to moving from full-time to part-time employment resulting in a reduction in hours. They may revoke their election if they are still eligible or ineligible for the group health plan coverage.

Conditions for revocation due to reduction in hours of service:

  • An employee who previously was reasonably expected to average at least 30 hours of service per week now is reasonably expected to average less than 30 hours of service per week; even if the reduction in hours does not result in the employee ceasing to be eligible under the group health plan; and
  • The revocation of election from the group health plan corresponds to the intended enrollment of employee and spouse and dependents, if applicable, in another plan that provides minimum essential coverage with the new coverage effective no later than the first day of the second month following the month that includes the date the original coverage is revoked.

Marketplace Enrollment
Participants may now revoke elections for employer health coverage during a Marketplace open enrollment period or a Marketplace "Special Enrollment Period." For instance, this allows participants in non-calendar year cafeteria plans to switch from employer to Marketplace coverage with no double coverage or loss in coverage for the transition period. Another example entails employees that may have a change in status event such as marriage or birth. They may not want to add new family members to their existing employer-provided coverage, but seek coverage for the family at the Marketplace.

Conditions for revocation due to enrollment in Marketplace Qualified Health Plan (QHP):

  • employee is eligible for a Special Enrollment Period to enroll in a QHP through a Marketplace or employee seeks to enroll in QHP through a Marketplace during the Marketplace's annual open enrollment period; and
  • The revocation of election from the group health plan corresponds to the intended enrollment of employee and spouse and dependents, if applicable, in a QHP through the Marketplace for new coverage effective no later than the day immediately following the last day of the original coverage that is revoked.

In either situation, the plan can rely on the reasonable representation of an employee that the employee and spouse and dependents, if applicable, have enrolled or intend to enroll in another plan that meets the above requirements.

The effective date of this notice is September 18, 2014. To allow the new permitted election changes under this notice, a cafeteria plan must be amended to provide for such election changes. The amendment must be adopted on or before the last day of the plan year in which the elections are allowed, and may be effective retroactively to the first day of that plan year.

That means, for a plan year that begins in 2014, at any time on or before the last day of the plan year that occurs in 2015. However, in no event may participant elections to revoke coverage be allowed to occur on a retroactive basis.

We will let you know when amendments are available for download and implementation for your plan.

Click here to download this update