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Pay cuts not qualifying events for a change of election


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We have company that is reducing everyone's hours 20%. My understanding is that a reduction in pay such as this is not in and of itself a qualifying event for a (status) change of election. Rather, the change must be based on a change in eligibility for benefits (such as full time to part time) or a change in cost of benefits. It is unlikely that a company has written into their plan document that a pay cut constitutes a change in eligibility.

If true, then is this written in the tax code somewhere (the client wants to know) or is it by implication; the fact that a change must be based on eligibility or cost and nothing else is mentioned?

Perhaps is there something I'm missing and these employees can change their elections under circumstances I'm not aware of?


Edit: I forgot to ask: What about contributions the company is making to these elections? Are there any circumstances such as this one under which the company can change these amounts?

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YOu are correct. A pay cut is not a status change.

If the document so provides, an employer may change the contribution to the group medical/dental plan. The employee may change the election to pay the increased amount, may elect a less expensive plan if offered, or if the change is significant (not defined by the IRS) then the employee can drop coverage.

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