With our workforce becoming more global, employers need to understand how to handle internationally located dependents.
Question: What election changes are permitted where an employee’s spouse moves into or out of the country?
Compliance Team Answer:
Change in Residence Affecting Eligibility
A change in residence of the employee, spouse, or dependent creates a permitted election change event for the employee where the move affects the employee’s, spouse’s, or dependent’s eligibility for coverage. Where the move affects eligibility, the employee can make an election change that is on account of and consistent with the event (the change in residence).
If the move changes the plan options available, it will create a permitted election change event allowing the employee to change the plan options(s) for which the move caused the employee to be newly eligible or lose eligibility.
For example, if the move makes the employee eligible for a Kaiser HMO that wasn’t available in Pennsylvania, the employee could change to that Kaiser HMO upon making the move. If the move causes the coverage to be of no value to the employee, spouse, or dependent (e.g., moving outside the HMO regional service area or outside the country), the employee can drop coverage for the affected family members.
Spouse Moves Into Country
In this example, the employee’s spouse is moving into the country from an area where the plan does not provide full coverage. The employee’s spouse therefore will have a change in residence affecting eligibility for the plan. This means that the employee may change his or her election to cover the spouse upon the spouse’s change in residence to the U.S.
Spouse Moves Out of Country
In this example, the employee’s spouse is moving out of the country to an area where the plan does not provide full coverage. The employee’s spouse therefore will have a change in residence affecting eligibility for the plan. This means that the employee may change his or her election to revoke coverage for the spouse upon the spouse’s change in residence outside the U.S.
What is a Change in Residence?
There’s no formal definition or exact timeframe to determine “residence” that applies here. The analysis is based on all facts and circumstances.
In other words, if the spouse is going somewhere on vacation, there’s no permitted election change event. If the spouse is changing residence for some period to the foreign country, then relocating to reside back in the U.S., there will be permitted election change event upon each event.
This isn’t very precise, but it’s also generally not an issue in practice. The employee will certify to the change in residence in most cases, and there is no reason for the employer to question that certification unless the employer suspects fraud. Fraud would likely only be an issue if the employer had reason to believe that the dropping/re-enrolling request was really a based on the spouse’s short vacation.
No Change Permitted for Health FSA
Note that a change in residence is never a permitted election change event for purposes of the health FSA.
ABD Section 125 Permitted Election Change Event Chart
Our Section 125 Permitted Election Change Event Chart summarizes this event (page 3): https://iln.sharepoint.com/EB/EB%20Documents%20General/Compliance/Cafeteria%20Plans/2016%20Section%20125%20Permitted%20Election%20Change%20Event%20Chart.pdf
Treas. Reg. §1.125-4(c)(2)(v):
(c) Changes in status.
(1) Change in status rule. A cafeteria plan may permit an employee to revoke an election during a period of coverage with respect to a qualified benefits plan (defined in paragraph (i)(8) of this section) to which this paragraph (c) applies and make a new election for the remaining portion of the period (referred to in this section as an election change) if, under the facts and circumstances—
(i) A change in status described in paragraph (c)(2) of this section occurs; and
(ii) The election change satisfies the consistency rule of paragraph (c)(3) of this section.
(iii) Application to other qualified benefits. [Reserved]
(2) Change in status events. The following events are changes in status for purposes of this paragraph (c):
(i) Legal marital status. Events that change an employee’s legal marital status, including the following: marriage; death of spouse; divorce; legal separation; and annulment.
(ii) Number of dependents. Events that change an employee’s number of dependents, including the following: birth; death; adoption; and placement for adoption.
(iii) Employment status. Any of the following events that change the employment status of the employee, the employee’s spouse, or the employee’s dependent: a termination or commencement of employment; a strike or lockout; a commencement of or return from an unpaid leave of absence; and a change in worksite. In addition, if the eligibility conditions of the cafeteria plan or other employee benefit plan of the employer of the employee, spouse, or dependent depend on the employment status of that individual and there is a change in that individual’s employment status with the consequence that the individual becomes (or ceases to be) ligible under the plan, then that change constitutes a change in employment under this paragraph (c) (e.g., if a plan only applies to salaried employees and an employee switches from salaried to hourly-paid with the consequence that the employee ceases to be eligible for the plan, then that change constitutes a change in employment status under this paragraph (c)(2)(iii)).
(iv) Dependent satisfies or ceases to satisfy eligibility requirements. Events that cause an employee’s dependent to satisfy or cease to satisfy eligibility requirements for coverage on account of attainment of age, student status, or any similar circumstance.
(v) Residence. A change in the place of residence of the employee, spouse, or dependent.
(vi) Adoption assistance. For purposes of adoption assistance provided through a cafeteria plan, the commencement or termination of an adoption proceeding.
(3) Consistency rule.
(i) Application to accident or health coverage and group-term life insurance. An election change satisfies the requirements of this paragraph (c)(3) with respect to accident or health coverage or group-term life insurance only if the election change is on account of and corresponds with a change in status that affects eligibility for coverage under an employer’s plan. A change in status that affects eligibility under an employer’s plan includes a change in status that results in an increase or decrease in the number of an employee’s family members or dependents who may benefit from coverage under the plan.
Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).