If you are taking employee contributions on a pre-tax basis, there are rules surrounding when employees can join coverage (annual enrollment period, special election period), and there are rules about when they can change or drop coverage.

Because the employee is getting a tax advantage, they have to follow these rules.  The rules, frankly, are designed to prevent an employee from joining the plan, have $50,000 of medical care on a condition, and then disenrolling two months later.  This would skew the actuarial basis of premium calculations, driving rates up for all.

Once in place, changes to the salary reduction agreement can only be made at the beginning of the plan year. Generally, the only exceptions are “change in status” events, which cannot be made retroactively, and include changes in:

    • marital status
    • number of dependents
    • employment status
    • eligibility requirements
    • residence
    • adoption proceedings
    • cost or coverage
    • other laws or court orders