Qualifying life events and "change in coverage under other employer plan"


The Section 125 rules say that a cafeteria plan can allow participants to make certain election changes midyear due to a change in coverage under another employer’s plan. This event allows election changes in two separate circumstances: 1) when the other employer’s plan permits a change that’s allowable under the regulations (e.g., other employer’s plan increases or decreases coverage); and 2) when the other employer’s plan has a different coverage period (typically, a different plan year). In either situation, a consistency requirement has to be satisfied. In other words, the new election has to correspond with and be on account of a change in the other employer’s plan. This basically solves the election-lock problem that would happen when an employee and a spouse or dependent are covered under plans with different plan years. Without this rule, neither spouse could change to the other spouse's plan without either having double coverage or no coverage for a certain period. For example, an employee covers himself and his wife under his employer’s medical plan, which has a September 1–August 31 plan year. In the past, his wife has waived coverage under her employer's medical plan, which has a January 1—December 31 plan year. During her employer’s open enrollment, his wife decides she would like to add coverage instead of being on his plan, but does not want to be double covered. Under the “change in coverage under other employer plan” event, the employee can make a corresponding midyear election change to drop health coverage for his wife under his employer's plan since the spouse is adding coverage under her employer's plan (if his employer’s cafeteria plan allows it) because the two plans have different plan years. However, the employee could not change plan options under this event—he would have to remain on the same plan option until his employer’s open enrollment, unless he experiences some other qualifying event. 

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