Changing Your Group Health Plan Year: What Moves With It
Moving a plan year to line up with renewal, payroll or the budget cycle is allowed, but it creates a short plan year and touches the carrier contract, the cafeteria plan, the filings and the ACA measurement periods. Plan it as a project, not a date change.
A plan year change is a project with a carrier, a plan document and a calendar
The date you choose sets everything else. Start with who must approve it, then work through what the short year does to each plan and filing.
Fully Insured Plans
The policy year with the carrier and the plan year in your documents are separate things. Ask the carrier in writing whether it will move the policy year, how it will price a short period and whether deductible and out-of-pocket accumulators carry over or reset. Do not assume either answer.
Self-Funded Plans
A self-funded plan needs the stop-loss carrier, the TPA and the PBM to agree to the new dates. Contract periods, run-in and run-out terms and aggregate attachment points are tied to the old year and may need to be reset or prorated.
Plan Documents
The plan document, the summary plan description and the cafeteria plan document must state the new plan year and any short year. A summary of material modifications is generally due within 210 days after the close of the plan year in which the change was adopted, and sooner is better.
The short plan year changes four areas that need separate decisions
Cafeteria Plan and FSAs
A cafeteria plan year generally must run 12 consecutive months, but a short plan year is allowed for a valid business purpose. IRS guidance treats a change made mainly to delay a limit as not qualifying, and prorates the health FSA salary-reduction limit by the months in a short year. Employees need a fresh election opportunity for the short year.
Dependent Care Accounts
The dependent care assistance limit applies on a calendar-year basis, so contributions in the short year and the following months of the same calendar year are counted together. Confirm payroll tracks the combined total so no employee exceeds the limit.
Form 5500 and PCORI
A short plan year generally means an additional annual report for the short period, due on its own schedule. Fees owed under the Patient-Centered Outcomes Research Institute rules also follow plan years, so list each plan year ending in the calendar year when you set the filing calendar.
ACA Measurement Periods
Employers using look-back measurement periods must decide whether to keep their existing dates or realign them to the new plan year. Changing them can disturb stability periods already in progress, so many employers run old and new cycles in parallel until each employee has gone through one full cycle.
Deductibles and HSA limits are the most common surprise in a short year
Deductible and Out-of-Pocket Credit
Whether an employee gets a new deductible and out-of-pocket maximum for the short year is set by the carrier contract, not by the employer. Get the answer in writing before announcing a date, because employees will ask in the first week.
High-Deductible Plans and HSAs
Short years raise questions about how the deductible and annual HSA contribution limits apply to a high-deductible plan. Work through these with the carrier and a tax adviser before the change, and see the current limits.
Three steps in the right order keep the change clean
1. Get Approvals in Writing
Confirm the effective date, pricing, accumulator treatment and stop-loss terms with every carrier and vendor involved before you tell employees.
2. Amend the Documents
Update the plan document, SPD, cafeteria plan and any vendor agreements, and calendar the summary of material modifications and the extra filings.
3. Communicate and Re-Elect
Explain the short year plainly, open an election period for the cafeteria plan and give employees the dates, balances and deadlines they will use.
Common Questions
Is a plan year change allowed?
Yes. Employers can change the plan year, but the change creates a short plan year and must be handled in the plan documents, with the carrier and in the cafeteria plan. For cafeteria plans, IRS guidance requires a valid business purpose.
Do employees lose their deductible progress?
It depends on the carrier contract. Some carriers credit deductible and out-of-pocket amounts across the change and others reset them. Ask in writing before you announce the new date.
Does a short plan year mean an extra Form 5500?
Generally yes. A short plan year is a separate plan year for annual reporting, so it usually has its own report and due date. Confirm with your filer.
Can CFH manage a plan year change?
Yes. Book a free 30-minute call and we will map the carrier, document and filing steps for your plan.
Where These Rules Come From
IRS Notice 2012-40, Section 125 cafeteria plans
29 CFR 2520.104b-3, Summary of material modifications
IRS, Patient-Centered Outcomes Research Institute fee
U.S. Department of Labor, Employee Benefits Security Administration
CFH are licensed insurance brokers, not attorneys or tax advisors. This page is general information, so confirm your situation with your benefits attorney or tax advisor.
Related Guides
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents, two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
An independent employee benefits consulting firm. We look at the entire benefits program — cost, plan performance, risk and administration.
Switch to CFH. Unhappy with your broker? Your employees won’t notice. You will. →