If your company permits employees to pay for certain benefits, such as health coverage, on a pre-tax basis under an Internal Revenue Code Section 125 plan (also known as a “cafeteria plan”), you may be required to amend that cafeteria plan by December 31, 2014.

Windsor v. United States Changes.  The Supreme Court’s 2013 decision in Windsor v. United States held that:

• employees are now permitted to pay for health coverage of same-sex spouses on a pre-tax basis,
• employees may be reimbursed from a healthcare flexible spending account (“FSA”) for eligible expenses incurred by same-sex spouses, and
• same-sex spouses may be treated as spouses under dependent care FSAs.

Action Item: To the extent same-sex spouses are covered, cafeteria plans that limit coverage to opposite-sex spouses should be amended by December 31, 2014 to reflect the Windsor decision.

Healthcare FSA Limit.  Healthcare reform imposed a $2,500 limit (as indexed for inflation) on an employee’s annual salary reduction contributions to a healthcare FSA offered through a cafeteria plan.

Action Item: Although plans were required to operationally comply with this requirement effective for plan years beginning on and after January 1, 2013, plan documents must be amended to reflect the new limit by December 31, 2014.

In addition, the IRS recently announced that the healthcare FSA annual salary reduction contribution limit will increase to $2,550 for 2015.  The $2,550 limit is a maximum limit and employers are not required to adopt the increase.  A company may choose whether to amend its plan by December 31, 2014 to permit an increased annual salary reduction contribution limit in 2015.

Optional $500 Carryover.  Pursuant to guidance issued last year and subject to certain rules, cafeteria plans may (but are not required to) permit a carryover of up to $500 of unused healthcare FSA contributions to be applied to reimburse a participant’s eligible medical expenses in the subsequent year.

Action Item: A company that chooses to permit the $500 carryover must amend its plan by the last day of the plan year from which amounts may be carried over (for example, calendar year plans must be amended by December 31, 2014 to permit carryovers into 2015).  In addition, if a company permitted carryovers from 2013 to 2014 under a special transition rule that did not require a plan amendment at the time, the plan also must be amended to reflect this change by December 31, 2014.

Optional New Mid-Year Election Changes. The IRS also recently issued guidance expressly permitting cafeteria plans to allow employees to prospectively revoke group health plan coverage mid-year in the event of two additional circumstances:

• a reduction in an employee’s hours of service below 30 hours per week (even if there is no adverse effect on eligibility for coverage) if the revocation corresponds to the employee’s intended enrollment of the employee in another plan that provides minimum essential coverage; and

• the employee’s intended enrollment in a qualified health plan through the Health Insurance Marketplace during a Marketplace special enrollment period or open enrollment period.  These additional mid-year changes are optional—cafeteria plans are not required to permit these election changes.

Action Item: If a company decides to allow changes in these circumstances, its cafeteria plan must be amended by the end of the plan year in which the changes are allowed.  For 2014 only, plans that permit these changes must be amended by the last day of the 2015 plan year (e.g., December 31, 2015 for calendar year plans). However, if other changes are being made to a cafeteria plan pursuant to any of the bullets above, the company may decide to include this amendment with its other 2014 cafeteria plan amendments.