The IRS has released a notice which allows Cafeteria Plans to offer coverage to adult children to age 27, even if those children are not tax qualified dependents of the employee. The coverage is retroactive to March 30th 2010. In order to adopt this provision, employers must amend their Section 125 plan documents to reflect the offering to adult children to age 27.
The IRS released this notice http://www.irs.gov/pub/irs-irbs/irb10-20.pdf which has details of the program.
1. A cafeteria plan (POP, FSA, DCAP etc) may allow for adult children to have coverage under an FSA or POP plan. in
2. The IRS is making changes to the “change in status rules” to allow employees to revoke a election and make new elections only in limited circumstances.
See Treas.Reg. § 1.125–4(c). A change in status event includes changes in the number of an employee’s dependents. The regulations under § 1.125–4(c) currently do not permit election changes for children under age 27 who are not the employee’s dependents.
IRS and Treasury intend to amend the regulations under § 1.125–4, effective retroactively to March 30, 2010, to include change in status events affecting nondependent children under age 27, including becoming newly eligible for coverage or eligible for coverage beyond the date on which the child otherwise would have lost coverage. In general, a health reimbursement arrangement (HRA) is an arrangement that is paid for solely by an employer (and not through a § 125 cafeteria plan) which reimburses an employee for medical care expenses up to a maximum dollar amount for a coverage period. Notice 2002–45, 2002–2 C.B. 93. The same rules that apply to an employee’s child under age 27 for purposes of §§ 106 and 105(b) apply to an HRA.
In order to implement this dependent coverage eligibility change employers should amend their plan documents and SPD to include eligibility of adult children of the employee up to age 27. American Benefits Group will prepare the necessary amendments for employer clients to adopt this new coverage provision.