Section 125 event

hrbanker

I have an employee who's EX-husband changed insurance. The new coverage doesn't offer any doctors or hospitals in the area where their kids live, and out-of-network coverage has a $2,000 deductible.

Our insurance carrier will allow her to add the children to her coverage here without waiting for open enrollment, but I can't find anything that would justify changing her pre-tax election to include the family coverage.

Any help would be appreciated.

ritaanz

My understanding of the IRS rules regarding mid-year changes depends on the CHANGE IN STATUS. This includes legal marriage status, number of dependents, employment status, change of residence, dependent ceases to satisfy eligibility requirements.

I could not find any language that would allow a change in insurance as a permitted circumstance.

KathiHR

I got my hand slapped for this very thing. EE had a qualifying event, so she added her daughter to her insurance, and I allowed her to change the pre-tax deduction as well. After the fact, I was nicely told to never do that again... that they can't make any changes until the open enrollment period regardless of a qualifying event.

But this doesn't make sense to me. If it happened the opposite way, & she dropped her daughter due to a qualifying event, surely we wouldn't keep on taking out the higher deduction pre-tax. I've got this on my list of things to research further. I wondered if they weren't confusing the pre-tax insurance deductions with the FSA, which I know can't be changed. I'm interested to see what others say.

System

Kathi I believe you're right and they're wrong. When the employee pre-tax amount for premiums changes, under section 125 the pre-tax deduction changes. I've done it for years and it's never been picked up as a violation by the auditors. The qualifying event is the trigger.

Now this post is making me second-guess myself.

AJ SPHR

Whoever slapped your hand is wrong! If the IRS considered nothing during the year as qualifying life status changes then there wouldn't be a term "qualifying life status events and changes"!

Here is info from IRS on what constitutes life status events, and outlines the 31 days to make corresponding change to benefits which includes pre-tax deduction!

[url]http://www.irs.gov/pub/irs-utl/irc_section_125.pdf[/url]