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IRS Notice 2022-41 Expands Mid-Year Cafeteria Plan Changes

On October 11, 2022, the Internal Revenue Service (IRS) issued Notice 2022-41 (Notice), which effectively expands the existing application of the change-in-status rules under a Section 125 Cafeteria Plan.

Under the prior cafeteria plan rules employees were not permitted to change their family coverage election mid-year so that the employee’s family members could enroll in a Marketplace plan. With the issuance of this Notice, as of January 1, 2023, participants in a Section 125 Plan (other than a Flexible Spending Arrangement (FSA)) may be permitted to revoke or modify an existing election for family coverage during a plan year in order for one or more family members to enroll instead in Marketplace coverage, if certain conditions are met.

Plans are not required to adopt this change; these provisions are optional.

Next Steps for Employers

Employers who choose to adopt this allowance will be required to amend their Section 125 Cafeteria Plans to formally adopt these changes. Amendments must be adopted on or before the final day of the plan year in which the elections are allowed, and the amendment may be effective retroactively back to the first day of the plan year. For plan years beginning in 2023, the employer has until the last day of the 2024 plan year to amend the plan.

Because the adoption of this amendment may be considered ‘material,’ employers will need to ensure compliance with providing a Summary of Material Modifications (SMM) to the plan and providing notice to plan participants.

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