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As the calendar year comes to an end, group health plan sponsors must remember that if they took advantage of the Affordable Care Act (ACA) relief of IRS Notice 2014-55, amendments to their cafeteria plans by year end are needed.
Notice 2014-55 was effective as of Sept. 18, 2014, and it allowed participants to revoke a cafeteria plan election for group health coverage that is not a health flexible spending account (FSA), and that provides minimum essential coverage, for two specific situations that occur when participating employees want to purchase a Qualified Health Plan through a competitive ACA marketplace (exchange or Marketplace coverage).
Scenario 1: Change in Status
The first set of circumstances addressed by Notice 2014-55 was that employees experiencing a change in employment status where they no longer expect to average 30 hours of service per week, but remain eligible for employer-provided coverage, may revoke a cafeteria plan election and elect other minimum essential coverage.
This situation would ordinarily arise with group health coverage designed to avoid the employer shared responsibility penalties of Internal Revenue Code § 4980H. Determining whether an employee has experienced a reduction of hours may be done by using scheduled or expected hours instead of actual hours worked by the employee.
Plan sponsors should also keep in mind that a reduction of hours that does not result in a change in employment status—moving from full-time to part-time status—may not present the participant with a revocation opportunity.
Scenario 2: Enrollment in Marketplace Coverage
The second scenario arises when participants who made a cafeteria plan election for group health coverage intend to enroll in Marketplace coverage during either a special enrollment period or the Marketplace’s annual enrollment period (for non-calendar year plans). The employee’s (and related individuals’) Marketplace coverage must begin no later than the day immediately following the revocation of the group health coverage.
Without the new election change permitted for Marketplace enrollment, participants may have had to continue their participation in employer-sponsored health coverage despite becoming eligible to enroll on the exchange. Permitting an election change under these circumstances allows participants to adjust their coverage as their eligibility for Marketplace coverage changes.
Notice 2014-55 also provided that plan sponsors could rely on its provisions immediately and plan amendments were not required at the time. Moving forward, cafeteria plans must be amended (if they choose to implement these permitted change rules) by the last day of the calendar year in which the revocations were made, unless the election was made in 2014. If the revocation occurred in 2014, the cafeteria plan is allowed to amend as of the last day of the following plan year.
Amending cafeteria plans for the two new permitted changes also provides a good opportunity for plan sponsors to evaluate the method used for measuring employees’ hours of service for its effectiveness (that is, are most of the people initially designated as a full-time employee remaining in that classification) and consistency (for example, how hours are counted while employees are taking leave under the Family and Medical Leave Act. We anticipate that sponsors should have more clarity as to the effectiveness and consistency of their group health plan design and administration after working through this year’s ACA reporting requirements, which are also just around the corner.
B. Tyler Philippi is an associate in the Omaha office of Jackson Lewis P.C. © 2015 Jackson Lewis PC. All rights reserved. Reposted with permission.
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