The Internal Revenue Service issued Notice 2014-55 which allows employers to amend their Section 125 plans to recognize several new change in status events.

Effective immediately, an employer may treat both open enrollment and special enrollment for Marketplace coverage as a change in status events, and allow an employee and other covered dependents to drop group medical coverage mid-year to enroll in a Marketplace plan. In both cases, Marketplace coverage must begin on the day after coverage under the employer’s plan ends.

The other new permitted change in status event is designed to address issues that may arise if the employer chooses to measure hours using the lookback (measurement and stability periods) method of determining hours for purposes of meeting the employer-shared responsibility requirements. In this situation, to avoid employer-shared responsibility penalties, the employer must offer the employee coverage throughout the following stability period if the employee averaged 30 or more hours per week during the measurement period, even if the employee’s hours are reduced below 30 hours per week. Maintaining the same coverage despite lower income may cause a financial hardship to the employee. Under the new change in status event, if the employee remains eligible for group medical coverage, even though he or she is now working fewer than 30 hours per week, the employee may revoke the group medical coverage election mid-year to enroll himself or herself (and any covered dependents) in either Marketplace or other employer-provided coverage.

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