Health Care Reform Law - Year End Cafeteria Plan Amendments

President Obama signed the Patient Protection and Affordable Care Act on March 23, 2010, which was subsequently amended by the Health Care and Education Reconciliation Act of 2010. While making sweeping changes in the area of health care, these two acts, collectively referred to as "PPACA," require plans that offer coverage to children on their parents' group health plan to make the coverage available until the adult child reaches age twenty-six (26).

Employers who permit pre-tax payments of medical premiums under a cafeteria plan must review and amend their cafeteria plans to permit such pre-tax payments on account of these adult children until age twenty-six (26). By law, cafeteria plans may only permit mid-year election changes in certain limited circumstances, and PPACA did not amend the cafeteria plan rules to permit mid-year election changes accordingly. IRS Notice 2010-38 states the IRS and Treasury intend to amend the regulations for this purposes, however, in the meantime, the Notice allows employers who permit participants to elect to pay for medical benefits on a pre-tax basis under a cafeteria plan to amend their cafeteria plans to permit pre-tax payments and election changes on account of these adult children until age twenty-six (26) on a retroactive basis provided the amendment is made no later than December 31, 2010.

In any case, cafeteria plans must be amended on a prospective basis to permit pre-tax payments on account of adult children until age twenty-six (26) before the first date that such payments would be permitted. For calendar year plans, the requirement to provide health coverage to these adult children begins on January 1, 2011. Thus, cafeteria plans that will permit pre-tax payments of premiums on account of these adult children on and after January 1, 2011 (calendar year plans) must be amended no later than December 31, 2010. 

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IRS Circular 230 Disclosure: As required by United States Treasury Regulations, you should be aware that this communication is not intended or written by the drafter to be used, and it cannot be used, by any recipient for the purpose of avoiding penalties that may be imposed on the recipient under United States federal tax laws.