New Rules for Cafeteria Plans

On September 18, 2014, the IRS provided guidance on several ACA issues. One such guidance was Notice 2014-55, which seeks to clarify and expand options for cafeteria plans. Specifically, it allows for two new revocations to these plans based on two situations.

Situation #1:

An employee averaging 30 or more hours of service per week (i.e., a full-time employee per ACA guidelines) experiences an employment status change that results in an average of less than 30 hours of service per week, whether or not the employee has lost eligibility under the plan.

This employee may now revoke the cafeteria plan and enroll in another plan through a Health Insurance Marketplace offering minimum essential coverage. Note that the employee (and related individuals) must enroll in other coverage with an effective date of no later than the first day of the second month after the revoked coverage ends. For example, if an employee revokes coverage in May, new coverage must be effective by July 1.

Situation #2:

An employee covered under a non-calendar year cafeteria plan becomes eligible for open or special enrollment through a Health Insurance Marketplace.

The employee may now revoke the cafeteria plan and enroll in another plan through a Health Insurance Marketplace offering minimum essential coverage. Note that the employee (and related individuals) must enroll in other coverage with an effective date of no later than the day immediately following the last day of coverage under the revoked plan. For example, if an employee ends coverage on May 12, new coverage must be effective May 13.

Background

The need for these election changes is twofold. For one, the Employer Shared Responsibility provision mandates an employee who was determined to be full-time during the measurement period must be offered coverage as a full-time employee during the stability period, even if that employee experiences a reduction in hours within the stability period, which would be contrary to precedence. Secondly, previous rules did not allow employees to revoke coverage from a non-calendar year cafeteria plan to enroll in a public Marketplace mid-year, so these election changes provide that option to affected employees.

Effective date

These changes outlined in Notice 2014-55 are effective immediately. They are not required, but if a plan wishes to permit for the changes, the plan must be amended to allow them. Retroactive effective dates for this amendment are allowed, but retroactive revocations are not. To request a plan amendment, contact your BPA representative.