HR Question of the Week:

Q:  If an employer significantly reduces coverage during the middle of the Section 125 plan year, can an employee change his or her elections?
Yes. If the employer significantly reduces coverage, affected plan participants may

  1. Revoke their existing election; and/or
  2. Elect another similar plan, if available.

As with most election changes, the change must be consistent with the event and be made effective going forward.

In the past, health plan coverage must have been provided by an independent third party in order for plan participants to be allowed to make a mid-year change in election following a significant reduction in coverage. Thus, self-funded plans were not able to allow mid-year election changes following a significant change in benefits. Under the proposed IRS rules for Section 125 plans, self-funded plans may now take advantage of the cost or coverage change rules.

Note: The rules do NOT allow a mid-year election change to a Health FSA in response to a significant reduction in coverage.