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  • Making Changes to Elections and Correcting Errors

    Yes, changes and corrections can be made in certain situations (for example, the birth of a child). This month’s article can help you stay compliant with IRS requirements if you have an employee who requests a change to an election or reports an error in their enrollment.

    Flexible Spending Account (FSA) Changes

    As you may know, flexible spending account elections, also known as cafeteria plan elections, are irrevocable during the coverage period (generally the 12-month plan year). Elections must be determined prior to the plan year start date or the effective date of the member. The enrollment form must be signed and dated prior to the plan year or the participant's effective date. To change, add, or revoke an FSA election, a qualifying event must occur and the change must be permitted by the plan. For detailed information on what meets the requirements of a qualifying event, or if a plan allows mid-year changes, refer to your plan documents. 

    To determine if a change is permissible, you must consider the following questions:

    • Do the IRS Regulations recognize the event for the benefit in question? 
    • Is the request 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.
    • Does the FSA plan permit changes as outlined in your plan document?  
    • Does the underlying benefit permit the change? For example, Health FSA plans cannot permit more changes than the IRS allows, but may be structured to permit fewer changes.

    Examples of permitted election change events for FSAs include, but are not limited to, the following:

    • Change in status:
      • 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 (FMLA)

    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 changed)
    • Change in coverage under other employer plan

    Transportation Fringe Benefit Plan Changes

    Parking and transit elections have fewer restrictions and can be made more easily during the coverage period (generally the 12-month plan year), but must still be made prior to the member’s effective date. Common reasons for changes include:

    • Significant cost changes (rate increase or decrease)
    • Increased or decreased need for the expense (for example, the member changing their mode of transportation due to a change in seasons)

    Errors at Enrollment and Resolving Election Mistakes

    Although the election change regulations don’t directly address mistakes, informal IRS guidance indicates an election may be corrected when there is clear and convincing evidence a mistake has been made. For example, if an employee with no eligible dependents makes a dependent care election, rather than a health FSA election, there is clearly an error.

    If there is 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.