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  • Cafeteria Plan Elections and Permitted Changes

    To assist our clients in the proper administration of their cafeteria plans (Flexible Spending Accounts or FSAs) in regard to potential mid-year election changes, we have compiled the following information to help you determine whether or not a requested change is permissible.

    Cafeteria plan elections are irrevocable during the coverage period (generally the 12-month plan year). Elections must be determined (enrollment signed and dated) prior to the plan year start date unless a qualifying event occurs and the change is permitted by the cafeteria plan.

    To Determine If an Election Change Is Permissible, Consider the Following Questions:

    • Do the IRS regulations recognize the event for the benefit in question?
    • Is the request consistent with the event?
    • Does the cafeteria plan permit the change as outlined in your plan document?
    • Does the underlying benefit permit the change?

    Examples of Permitted Election Change Events for FSAs

    • Change in status, including:
      • Change in employee’s legal marital status
      • Change in number of employee’s dependents
      • Change in employment status of employee, spouse, or dependent, if it affects eligibility for cafeteria plan or underlying benefit
      • Dependent satisfies (or ceases to satisfy) eligibility requirements
      • Change in residence of employee, spouse, or dependent that affects eligibility for cafeteria plan or underlying benefit
    • COBRA qualifying event
    • Legal judgment, decree, or order
    • Medicare or Medicaid gain of entitlement or loss of eligibility
    • Family Medical Leave Act (FMLA) leave
    • Pre-tax Health Savings Account (HSA) election changes
      • Must be allowed at least monthly and when HSA eligibility is lost; exception to general rule that plans need not allow all election changes permitted under IRS regulations

    Additional Permitted Election Change Events for Dependent Care and Supplemental Premium FSAs

    • Significant cost changes (for example, day care provider rate increase or decrease)
    • Significant coverage removal with or without loss of coverage (for example, provider change, daycare needs change)
    • Change in coverage under other employer plan

    Transportation Accounts

    • Election changes are not limited by a plan year, but must apply going forward. Changes may not apply retroactively.

    Is the requested change consistent with the event?

    Even if the event is listed in the IRS regulations, the requested change must be consistent with the event. For example, if losing a spouse is the event, a change to drop the spouse from coverage is consistent, but dropping coverage for the employee is not.

    Election Changes Generally Must Apply Going Forward

    The cafeteria plan should specify when changes take effect (for example, next payroll period after change is approved).

    Health Insurance Portability and Accountability Act (HIPAA) special enrollment rules require retroactive coverage for birth, adoption, or placement for adoption. In these circumstances cafeteria plan changes may cover the cost of retroactive coverage.

    Resolving Election Mistakes—Clear and Convincing Evidence Required

    Although the election change regulations don’t address mistakes, IRS officials have informally commented. An election may be corrected when there is clear and convincing evidence that a mistake has been made (for example, making a dependent care election, instead of a health FSA election, when there are no eligible dependents).

    If there is clear and convincing evidence that an individual has made a mistake in an election or that the employer has made an administrative mistake in recording that election, then the election can be undone, even retroactively, to correct the mistake.


    If you have questions about this notice, please contact our Membership Department at (541) 225-2761 or toll-free at (800) 422-7038, or by email at psamembership@pacificsource.com. You may also refer to your current Summary Plan Description for specific details.