Section 125 Election Changes: When an Employee Can Change Mid-Year
A cafeteria plan election is generally fixed for the year. The regulations allow changes only after specific status changes, and the change must match the event.
Employees ask to change benefit elections all the time. This guide covers what Section 125 and Treasury Regulation 1.125-4 allow, and the consistency rule that keeps a change from being too broad.
What a Cafeteria Plan Is
A written plan that lets employees choose between cash and benefits.
The definition. Under 26 U.S.C. 125(d)(1), a cafeteria plan is a written plan in which all participants are employees and participants may choose among two or more benefits consisting of cash and qualified benefits.
The tax result. The ability to choose between cash and qualified benefits does not by itself make the benefits taxable.
No deferred pay. A plan that provides deferred compensation is not a cafeteria plan, with exceptions such as certain 401(k) arrangements and HSA contributions.
Change-in-Status Events
The regulation lists the events that can justify a change.
The rule. A plan may let an employee revoke an election during a period of coverage only under the conditions in 26 CFR 1.125-4. No plan is required to allow these changes.
The events. The change-in-status events are a change in marital status, the number of dependents, the employment status of the employee, spouse or dependent, dependent eligibility and residence.
Unpaid leave. Employment status changes include starting or returning from unpaid leave, which is why FMLA leave often triggers an election change.
The Change Must Match the Event
The election change has to correspond with the status change.
On account of and corresponds with. The change must be on account of and correspond with the status change.
The divorce example. After a divorce, the employee may drop the former spouse’s coverage but not his or her own.
Document it. Keep the evidence of the event with the election change, since it supports the plan’s treatment if it is reviewed.
A Divorce in the Middle of the Plan Year
The status change opens a narrow door.
The facts. An employee asks to drop all of her health coverage after a divorce.
The result. The divorce is a change in marital status, so the plan may allow her to drop her former spouse. Dropping her own coverage does not correspond with the event, so the plan should not allow it under this rule.
The takeaway. Match each request to the event before approving it, and write the plan’s change rules into the plan document.
Related Rules and Sources
Where to read the rule in full.
HSA, FSA and Section 125 Limits
The dollar limits.
FMLA Premiums and Recovery
Paying premiums during leave.
FMLA and Leave Rules
Leave that triggers election changes.
26 U.S.C. 125, cafeteria plans · 26 CFR 1.125-4, permitted election changes
We keep your leave paperwork on schedule.
We review your FMLA notices, premium-payment terms and plan documents so leave and coverage stay in step.
Related pages.
HSA, FSA and Section 125 Limits
The dollar limits.
FMLA Premiums and Recovery
Premiums during leave.
FMLA Notices and Certification
The leave paperwork.
FMLA and Leave Rules
The federal baseline.
Leave Policy Design
Writing the policy.
Employer Benefit Limits 2027
The 2027 figures.
Questions that come up.
Short answers to the questions we hear most. Each links to the full page.
Can an employee change a cafeteria plan election mid-year?
Only after a qualifying change in status, and only if the plan allows it.
What are change-in-status events?
Marital status, number of dependents, employment status, dependent eligibility and residence.
Can an employee drop their own coverage after a divorce?
No. The change must correspond with the event, so the employee may drop the former spouse but not his or her own coverage.
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General information, not legal or tax advice. Plan-specific questions belong with the plan documents, the carrier and counsel.
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