Due to the Affordable Care Act requiring that all individuals have health insurance in 2014 or pay a penalty tax, the Internal Revenue Service is allowing mid-year election changes to non-calendar year cafeteria plans.

Currently, Section 125 only allows employees to change their enrollment elections mid-year due to specific events, such as a change in marital status, number of dependents, employment status, residency, or plan eligibility requirements. This would prohibit employees who are currently enrolled in an employer-sponsored fiscal-year health insurance plan that began in 2013 and ends in 2014 from making a status change in order to enroll in the Health Insurance Marketplace (Exchange).

However, the IRS is providing relief by allowing cafeteria plans to be retroactively amended to allow employees the option to cease participation in the employer-sponsored plan and enroll in the Exchange, which will open on Oct. 1, 2013, with an effective date of Jan. 1, 2014. This amendment is an optional provision.

If employers choose to enact the amendment to the cafeteria plan, it must be adopted by Dec. 31, 2013. Employers with non-calendar year plans should consider amending their plans as soon as possible to ensure employees and dependents have the timely option to enroll in the Exchange. If the above amendment is adopted, this will also allow employees and their dependents who had previously waived employer-sponsored coverage an opportunity to elect coverage mid-year to avoid the individual penalties for lack of appropriate insurance coverage.

If you have further questions, please contact your Stellar representative.