In 2014, the Internal Revenue Service (IRS) expanded the events that would allow employees to drop their health plan coverage under their employer’s cafeteria plan. As a reminder, the general rule is that once an employee enrolls in his or her employer’s group health plan through a cafeteria plan – which is what allows the employee to pay his or her required premiums on a pre-tax basis – that enrollment is irrevocable for the entire plan year unless a qualifying “change in status” event occurs. In order for an employee to change his enrollment election, the change in status event also must affect the employee’s (or his spouse’s or dependent’s) eligibility for the health plan coverage. Typical change in status events include marriage, divorce, birth of a child, change in status from full-time to part-time, etc.

The IRS added two new events that allow employees to drop health plan coverage, even if the events do not affect an employee’s eligibility under his or her employer’s health plan coverage:

• The first new event is relevant for employers who have adopted the look-back measurement period method for purposes of determining an employee’s full-time status under the Affordable Care Act rules. Typically, under this approach, an employee is treated as full-time, and thus eligible for health plan coverage, for the entire upcoming year if the employee averaged more than 30 hours of service during a prior 12-month measurement period. When such an employee’s hours fall below the more-than-30-hour threshold during that plan year, the employee typically continues to be treated as full-time and retains eligibility for coverage. Under these new cafeteria plan rules, the employee can nonetheless drop the employer’s health plan coverage when his or her hours drop below 30 per week, as long as the employee represents to the employer that he or she will enroll in another health plan by the second month after dropping coverage.

• The second new event permits an employee to drop the employer’s health plan coverage when the employee is eligible for special enrollment on the Marketplace, or when the employee seeks to enroll in Marketplace coverage during its open enrollment period. In order to drop coverage, the employee must represent that he or she will have Marketplace coverage in effect immediately after dropping coverage.

An employer is not required to allow employees to drop coverage due to these new events, but if an employer wishes to do so, an amendment to its cafeteria plan is required. Employers who have already permitted employees to take these actions since 2014 have until the last day of the cafeteria plan’s 2015 plan year (for most employers, December 31, 2015) to retroactively amend their cafeteria plan to reflect these rules. Employers who wish to add these rules on a go-forward basis, such as for the 2016 plan year, must amend their cafeteria plans by the last day of the plan year in which the elections are first allowed, provided the amendment is retroactively effective.