IRS Proposes New Changes to Cafeteria Plan Elections and Lookback Period

On September 18, 2014, the Internal Revenue Service (IRS) issued two new notices—one proposing changes for when a taxpayer can revoke healthcare coverage in a cafeteria plan and enroll in a plan on the health insurance marketplace exchanges; the second notice proposes an approach for how to measure the lookback period for determining who is a fulltime employee when an employee changes positions within the same employer group.

Cafeteria Plan Elections
In Notice 2014-55, the IRS proposed amendments to Regs. Sec. 1.125-4 to permit employees to revoke their election of employer-sponsored healthcare coverage under a cafeteria plan and purchase a qualified health plan through an exchange in two situations.

The first situation involves an employee whose hours are reduced below 30 hours so that he or she is no longer considered full-time, but whose employer’s plan will still cover the employee. The second situation involves an employee enrolled in an employer’s group health plan who would like to cancel coverage under the employer’s plan and purchase coverage through an exchange without a period of duplicate coverage or no coverage.

Lookback Period
Notice 2014-49 proposes an approach for applying the lookback measurement period used to determine if an employee is a full-time employee for purposes of the large-employer health coverage shared-responsibility penalty under Sec. 4980H when the measurement period for a particular employee changes.

The IRS explains this change might occur when an employee transfers within the same applicable large employer (or within the same applicable large employer member [ALE member]) from a position to which one measurement period applies to a position to which a different measurement period applies. This situation may also arise when the ALE member modifies the measurement period applicable to a position.

The IRS in inviting comments on this proposed approach. In the meantime, the IRS says employers can rely on Notice 2014-49.