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ACA: Amendment to Section 125 Plans & Election Rules for Non-Calendar Plan Years

By November 2, 2013February 19th, 2015No Comments

On January 1, 2014, the Affordable Care Act (ACA) will require most individuals to obtain acceptable health insurance coverage for themselves and their family members or pay a federal penalty. This rule is often referred to as the “individual mandate.” For those of us living in Massachusetts, this is not a new concept. Massachusetts residents over the age of 18 have been subject to a similar mandate since 2008.

“Individual Mandate” Deadlines Looming

Under the individual mandate, a penalty will be assessed against an indi vidual for any month during which he or she does not maintain “minimum essential coverage,” beginning in 2014 (unless an exemption applies). A taxpayer is also liable for the penalty for any nonexempt individual whom the taxpayer may claim as a dependent.

With this deadline looming over both individuals, employees will most likely be requesting to enroll in their employer’s group plan off-cycle on January 1, 2014 to avoid penalties. However, employers who offer Section 125 Plans on a pre-tax basis cannot allow employees to enroll in or cancel coverage mid-year unless the employee experiences a “change in status” also known as a “qualifying event”.

IRS “Transition Relief” Period

In general, most employer-sponsored plans do not permit employees to enroll or make changes mid-plan year unless certain triggering events occur, such as a change  in employment status.

IRS Notice 2013-42 provides transition relief from the individual mandate penalty for certain months in 2014 for individuals who are eligible to enroll in eligible employer -sponsored health plans with plan years other than the calendar year (non-calendar year plans). Under the transition relief in IRS Notice 2013-42:

“The transition relief applies to an employee, or an individual having a relationship to the employee, who is eligible to enroll in a non-calendar year eligible employer-sponsored plan with a 2013-2014 plan year. The transition relief begins in January 2014 and continues through the month in which the 2013-2014 plan year ends.”

Employer Plan Amendments

Most employer Section 125 plan documents do not allow for a mid-year cancellation due to the availability of the Marketplace. The ACA regulations contain “pre-tax election” transitional relief for non-calendar year cafeteria plans and will allow eligible employers to amend their written Section 125 plan document to permit a plan participant to prospectively revoke/change their election once during the plan year that straddles 2013 and 2014. Eligible plans must be amended by December 31, 2013 to be effective retroactively to the first day of the 2013 Section 125 plan year.

For More Information

Read the HR Knowledge client advisory at

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