June 2000

IRS RELEASES FINAL REGULATIONS FOR SECTION 125 CAFETERIA PLANS

In March, the IRS and Treasury Department released final regulations and additional proposed regulations relating to cafeteria plans under section 125.

The final regulations consider a change in the employment status of the employee, spouse, or dependent that affects the individual's eligibility under a cafeteria plan to be a change in status. In addition, a change in the employee's marital status or a change in the employment status of the employee's spouse or dependent may allow an increase or decrease in group term life insurance.

Under the proposed regulations (REG-117162-99), employees are allowed to make changes in election due to cost and coverage changes including the following:

* The addition of a new benefit package option or the elimination of an option
* A coverage change made under a plan of the spouse's or dependent's employer
* A significant increase in cost of coverage.

Furthermore, changing the number of qualifying individuals will constitute a change in status for dependent care assistance, and the commencement or termination of an adoption proceeding will constitute a change in status for adoption assistance. *



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