125 Plans/Flexible Spending Arrangement: Can I change my section 125 elections during the year or do I have to wait until the enrollment period?

You cannot normally stop, start, or change your election to a cafeteria plan during the plan year unless a qualifying event has occurred and the plan permits for the mid-year change to the election. Treasury Regulation 1.125-states that the election must be made before the beginning of the plan year, or the date that you become eligible, and that the election is irrevocable during the plan year.

The IRS has offered guidance that where there is clear and convincing evidence that you made a mistake in good faith and the election you made was for something that was “impossible”, or if your employer made an administrative mistake, you may be able to correct the election mid-year. However the regulations do not specifically allow for the mid-year correction in the event of a mistake, so correcting a mistake mid-year is not a sanctioned correction. Please check with your employer or TDS to determine if they will or will not allow a correction due to a mistake.

An example of an” impossible election” is an employee’s election for dependent care assistance when the employee does not have any dependents and is not expecting any dependents during the year.

Treasury Regulation 1.125-4 lists events that would be considered a qualifying event which an election can be made or changed mid-year as follows. The Treasury regulation does not require the plan to allow for the changes mid-year so you should check with TDS or your Employer to determine the plan terms regarding mid-year changes:

The following events are considered qualifying events per the regulation:

• Group health enrollment:  A change to your group health plan election, or a mid-year enrollment, may be permitted when there has been a change in the right to enroll in a group health plan due to loss of the other coverage or due to certain family events, such as death of a spouse or dependent, divorce, marriage, birth or adoption and the change corresponds to the new enrollment requested.

• Change in status: If you have had a change in one of the following you may be permintted to revoke or change an election during mid-year as long as it is being made due to and correlates with the change in status.

  • A change in legal marital status (marriage, divorce or death of spouse)
  • A change in the number of dependents (birth or adoption of a child, or death of a dependent)
  • A change in employment status of the participant, spouse or dependent
  • An event causing the dependent to satisfy or cease to satisfy an eligibility requirement for benefits requested
  • By Judgment, decree or order: If you have received a judgment, decree, or order (order) resulting from a divorce, legal separation, annulment, or change in legal custody (including a qualified medical child support order that requires accident or health coverage for an employee’s child or for a foster child who is a dependent of the employee) then your plan may permit the change if it:

(i) Changes your election to provide coverage for the child if the order requires coverage for the child under the employee’s plan; or
(ii) Permits you to make an election change to cancel coverage for the child if:

(A) The order requires the spouse, former spouse, or other individual to provide coverage for the child; and
(B) That coverage is, in fact, provided.

  • Entitlement to Medicare or Medicaid: If you or your spouse or dependent is enrolled in an accident or health plan of the employer and becomes entitled to coverage under Medicare or Medicaid (other than simply for pediatric vaccines) then the plan may permit the change mid-year. The plan may also permit you to enroll in the employer section 125 plan if you or your spouse or dependent loses eligibility for Medicare or Medicaid mid-year.
  • Significant cost or coverage changes: You may be allowed to change your election if there is an increase or decrease in the cost for the coverage requiring an increase in employee premiums. You may also be permitted to make a mid-year change if there is a significant change or curtailment in the coverage provided such as co-pays or deductibles or cost sharing limits. The change of a physician is not a significant change of coverage but the change of a major hospital or HMO network may be significant. You may also be entitled to change if there is a significant cost or coverage change in you spouse’s coverage under another plan.
  • For dependent care changes in costs: You may be permitted to make changes mid-year to your election when an independent, third-party provider (other than a relative) significantly increases or decreases the cost of dependent care or when there is a coverage change, such as using another provider.
  • Family and Medical Leave Act (FMLA): You may be permitted to make mid-year changes if you take leave under FMLA.
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