Several changes in laws impacting Section 125 plans have been made in recent years.  The most important of these are changes to medical flexible spending accounts (FSAs) features in Section 125 plans. 

Now is the time to check your plan documents to be sure your documents are up to date for these changes.

Certain FSA changes must be documented by December 31, 2014. These are the changes to check for in your plan documents: 

  • The $2,500 cap on salary reductions for health FSAs, which went into effect for 2013, must be documented by December 31, 2014 in the FSA plan documents.
  •  Employers that permitted carryovers of health FSA amounts up to $500 in 2013 or 2014 must document the carryover by December 31, 2014. (See our previous article “IRS Allows $500 Carry Forward of Medical Flexible Spending Accounts” here.)
  • Plans may need to be amended, depending on the definition of “spouse” in the plan, to allow same-sex married participants to pay health insurance and other premiums on a pretax basis for spousal coverage, to allow these spouses to be beneficiaries of the health FSA, and to treat them as spouses under dependent care accounts. (See "What About Health and Welfare Plans" in our previous article on DOMA by clicking here.)
  • Non-calendar year plans were permitted to allow participants to revoke or change their employer group major medical coverage election so that the employee could enroll in exchange coverage effective January 1, 2014, during the first open enrollment period for the purchase of coverage on an exchange.  If this was allowed, the 125 plan needs to be amended by December 31, 2014 to document that this change was permitted.
  • The IRS also recently issued new rules allowing mid-year Section 125 plan changes for major medical coverage for an employee who changes employment status, where the employee was previously expected to average 30 hours per week and after the change in status will no longer average 30 hours per week. An employee in this circumstance can be allowed to drop employer coverage if the employee will enroll in other coverage.  A special mid-year change is also now allowed to permit an employee to enroll in exchange coverage where the employer's plan year is not a calendar year or the employee has a change in family status and wishes to elect exchange coverage.  These changes do not need to be adopted in plan amendments until December 31, 2015.