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Distributed November 20, 2013
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| In this Edition: |
| • |
Mid-year Changes in Salary Reduction Elections |
| • |
Plan Limits for 2014 |
| Mid-year Changes in Salary Reduction Elections |
| Generally, Section 125 cafeteria plan elections must be made before the start of the plan year and cannot be changed during the plan year, unless a participant experiences a qualified life status event and the employer’s plan allows a status change. However, health care reform regulations pose issues since obtaining coverage through a Marketplace is generally not considered a life status event. |
| As a result, employees who have coverage under a non-calendar plan would not be able to change their salary reduction elections. For example, an employee would not be able to stop his mid-year election for group health plan coverage and purchase a subsidized individual plan from the Marketplace. |
| In the Federal Register distributed on January 2, 2013, the IRS provided proposed regulations that included a transition rule for employee health coverage under a cafeteria plan with a non-calendar plan year. The proposed regulations noted the transition rule applied to applicable large employers. The Treasury Department and the IRS recently released Notice 2013-71 that clarifies the transition rule, which applies to an employer’s cafeteria plan with a non-calendar plan year beginning in 2013 — regardless if the employer is an applicable large employer. |
| The transition rule provisions permit employers to amend one or more of their cafeteria plan documents to allow mid-year salary reduction elections, even though an individual may not have experienced a life status event. An employer may amend its plan to allow employees to make one or both of these salary reduction changes through a non-calendar cafeteria plan on a prospective basis: |
| 1. |
Change or revoke his or her election for accident and health plan coverage one time during the plan year; and/or |
| 2. |
Make a one-time prospective election for accident and health coverage if the employee failed to make an election before the non-calendar plan began in 2013. |
| The employer’s cafeteria plan amendment may be more restrictive than the Notice guidance, but it may not be less restrictive. For example, an employer may limit the time period an employee may have to make the changes noted above instead of allowing the remainder of the plan year. These election changes are only permitted one-time during the plan year and only apply to employees’ accident and health coverage (not applicable to health FSAs). |
| Please note: Before adopting the provisions noted above, an employer should check with its health insurance carrier(s) to ensure the carrier(s) will allow election changes without qualified life status events. |
| Employers choosing to update their cafeteria plans may find our sample plan amendment helpful. For additional information, please visit the IRS website for the full Notice text, and for details regarding when to adopt the amendment, see the proposed regulations issued in January 2013. |
| Plan Limits for 2014 |
| The IRS recently released Revenue Procedure 2013-35 that provides guidance for 2014 plan limits, including adjusted maximum limits for qualified parking and transit benefits. The new limit for qualified parking benefits provided by an employer to its employees increases to $250 per month in 2014, up $5 from the 2013 monthly maximum limit. However, the temporary increase for pre-tax transit benefits extended under the American Taxpayer Relief Act (ATRA) will expire at the end of 2013. Unless Congress takes action to extend the ATRA provision, the monthly maximum limit for pre-tax transit benefits under a Section 132 transportation plan decreases from $245 to $130 per month on January 1, 2014. |
| Since many Section 132 plans require that participants purchase their transit passes or other media in advance, it’s critical to communicate this information to plan participants in advance of the ordering period for January passes. CONEXIS recently notified our commuter participants of the new monthly maximums. |
| Additional plan limits issued by the IRS are noted below. |
| 2014 IRS Plan Limits |
| Plan Year |
2014 |
2013 |
2012 |
| Health FSA Maximum Annual Salary Reduction |
1$2,500 |
1$2,500 |
No Limit |
Dependent Care Assistance Program
(Unless Married Filing Separately) |
2$5,000 |
2$5,000 |
2$5,000 |
Dependent Care Assistance Program
(If Married Filing Separately) |
2$2,500 |
2$2,500 |
2$2,500 |
| Transit Passes and Vanpooling (Combined) Monthly Maximum |
3$130 |
3$245 |
3$240 |
| Parking Monthly Maximum |
$250 |
$245 |
$240 |
Highly Compensated Employee —
Section 414(q) |
$115,000 |
$115,000 |
$115,000 |
| Key Employee — Section 416(i) |
$170,000 |
$165,000 |
$165,000 |
| HSA Maximum Annual Contribution Limit (Self-only) |
4$3,300 |
4$3,250 |
4$3,100 |
| HSA Maximum Annual Contribution Limit (Family) |
4$6,550 |
4$6,450 |
4$6,250 |
| HSA Catch-up Contribution Limit |
$1,000 |
$1,000 |
$1,000 |
HDHP Minimum Annual Deductible
(Self-only) |
$1,250 |
$1,250 |
$1,200 |
| HDHP Minimum Annual Deductible (Family) |
$2,500 |
$2,500 |
$2,400 |
| HDHP Maximum Out-of-pocket (Self-only) |
$6,350 |
$6,250 |
$6,050 |
| HDHP Maximum Out-of-pocket (Family) |
$12,700 |
$12,500 |
$12,100 |
| 1As a result of the Affordable Care Act (ACA), health flexible spending account (FSA) salary reductions are limited to $2,500 effective for taxable years beginning on or after January 1, 2013 (the maximum limit may be indexed for inflation each year). |
| 2Under Code Sections 129 and 21, the deemed income of a spouse who is incapable of self-care or a full-time student is $250 per month for one qualifying individual or $500 per month for two or more qualifying individuals. |
| 3The American Taxpayer Relief Act (ATRA) made a retroactive change to the monthly pre-tax limit for eligible transit expenses incurred in 2012, and on January 1, 2013, the 2012 limit increased from $125 to $240 per month. That amount was indexed for inflation in 2013. As of January 1, 2014, the amount adjustment is due to the expiration of the temporary increase under the ATRA. |
| 4An employee is treated as being eligible for the entire calendar year as long as he or she is eligible during the last month of the calendar year. However, failure to maintain eligibility during the "testing period" will result in adverse tax consequences (including an additional excise tax). The testing period begins in December of the year in which the employee becomes eligible and ends the last day of December of the following year. |
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