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Substantiation of Mid-Year Section Permitted Election Changes

Question: Are employers required to confirm a mid-year Section 125 permitted election change event with documentation from the employee that substantiates the event?

Compliance Team Response:

It’s fine if the company wants to make it a standard practice to confirm that the mid-year event at issue has actually occurred.  However, such documentation is not required.

In general, the Section 125 rules don’t require any specific substantiation procedures for an employer to confirm that an employee has experienced a permitted election change event.  In fact, it is almost always fine for the employer to rely solely on the employee’s certification that the event has occurred—without any form of documentation beyond the certification to support the certification.

The only time the rules specifically require supporting documents (beyond the employee’s certification) to substantiate the event is where the employer has reason to believe that the employee’s certification is fraudulent or otherwise incorrect.  In those circumstances, the employer must request documentation to substantiate the event before implementing the election change.

Regardless of which approach the company takes, it should a) apply the approach consistently, and b) keep a record of the employee’s certification of the event (e.g., the employee the online election change procedure that requires the employee to certify the event occurred) for all election changes.

Regulations:

66 Fed. Reg. 1837, 1838:

An example in the final regulations has been revised to make it clear that employers may generally rely on an employee’s certification that the employee has or will obtain coverage under the other plan (assuming that the employer has no reason to believe that the employee certification is incorrect).

Treas. Reg. Sec. 1.125-4(c)(4), Example 10:

Example (10). (i) Employer Y maintains a calendar year cafeteria plan under which full-time employees may elect coverage under either an indemnity option or an HMO. Employee C elects the employee-only indemnity option. During the year, C marries D. D has two children from a previous marriage, and has family group health coverage in a cafeteria plan sponsored by D’s employer, Z. C wishes to change from employee-only indemnity coverage to HMO coverage for the family. D wishes to cease coverage in Z’s group health plan and certifies to Z that D will have family coverage under C’s plan (and Z has no reason to believe the certification is incorrect).

(ii) The marriage is a change in status under paragraph (c)(2)(i) of this section. Under the consistency rule in paragraph (c)(3) of this section, Y’s cafeteria plan may permit C to change his or her salary reduction contributions to reflect the change from employee-only indemnity to HMO family coverage, and Z may permit D to revoke coverage under Z’s cafeteria plan.


Brian Gilmore

About the author

Brian Gilmore

Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law. Connect with Brian on LinkedIn.


The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Newfront shall have no liability for the information provided. While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.

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