Employee with pre-tax health care premium wants to drop coverage

[Guest nlmc18]

We have a client that allows the employee's portion of their health care premium to be withheld pre-tax via a 125 plan. An employee wants to drop his health care coverage, thus discontinuing his pre-tax premium. Can the employee drop the coverage prior to the end of the 125 plan year end without jeopardizing the favorable tax status of the plan?

[QDROphile]

Does the health plan allow the employee to elect to drop coverage mid year? If so, the employee can drop coverage. Then ask the same question about changing the salary reduction election under the 125 plan. Did something happen that allows the employee to change the election and is the change timely? It is possible, but unlikely, that the employee can drop the health coverage but be unable to change the salary reduction. It is unlikely that the employee can make a change under either plan just becuase the employee wants to make a change.

Or are you asking about the consequences of allowing violations of the 125 plan terms and rules? If the terms of the plan are knowingly not enforced, then the IRS could treat the entire plan as not meeting the requirements of section 125, with adverse tax effects to everyone.