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.
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.
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).