Cafeteria Plans, HSA and HRAs are allowed to offer coverage to Adult Children to age 27 Retro to 3-30-10

By Ric Joyner, MBA, CEBS, GBA, CFCI

This is great news for plan sponsors and employers. The quick synopsis is that employers must amend their plans to reflect the offering to adult children to age 27. eflex plan documents allow for the changes already however we are researching the exact process to engage this option.

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 comply, check your plan document, and make the amendment to engage this benefit.

Look for other updates on developing regulations.

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