Qualifying Life Event - QMCSO rescinded

Is it permissible for an employee to cancel his coverage when he enrolled solely because a court issued a QMCSO requiring him to cover his dependent and such order was subsequently rescinded?  Employee was not previously enrolled and had to enroll for coverage to comply with the original order to cover the child.  

If your question is about what a particular health plan or cafeteria plan provides, you might read the plan’s governing documents and consider what ought to be the administrator’s interpretation of them.

If your question is about whether a § 125 cafeteria plan, could, for the circumstances you describe, allow an election change, you would consider Internal Revenue Code § 125 and the Treasury department’s rules interpreting § 125.

26 C.F.R. § 1.125-4(d) explains some interpretations about election changes a § 125 plan might allow regarding a qualified medical child support order.

Among them, it might matter why the QMCSO was rescinded and whether other coverage for the child is provided.

https://www.ecfr.gov/current/title-26/part-1/section-1.125-4#p-1.125-4(d)

This is not advice to anyone.

First of all, I'm assuming the employee is paying the employee-share of the premium pre-tax through the Section 125 cafeteria plan.  That's just about always the case, but making that assuming clear up front.

This is an interesting question because the -4 regs that apply here only specifically address mid-year enrollment of a child to accommodate a newly imposed QMCSO/NMSN.  They don't say anything about the employee's ability to drop the election for the employee upon the QMCSO/NMSN terminating (or in this case being rescinded) and the employee no longer being required to cover the child (and by necessity, the employee). 

The only opportunity to drop they recognize is when a QMCSO/NMSN is requiring coverage for the child under the other parent's plan, and even then it only recognizes the ability to drop the child's coverage.

So I'd say that unfortunately there doesn't appear to be any permitted election change event here that would allow the employee to revoke the election mid-year on account of a QMCSO/NMSN terminating.  In other words, the irrevocable Section 125 cafeteria plan pre-tax payment must remain in effect through the rest of the plan year, or until an earlier permitted election change event.

It doesn't feel fair to the employee, but I can't see a way to accommodate the election change in the rules.  Would love for someone to point out one that I'm missing, though.

Treas. Reg. §1.125-4(d):

(d) Judgment, decree, or order.

(1) Conforming election change. This paragraph (d) applies to a judgment, decree, or order order) resulting from a divorce, legal separation, annulment, or change in legal custody (including a qualified medical child support order as defined in section 609 of the Employee Retirement Income Security Act of 1974 (Public Law 93-406 (88 Stat. 829))) that requires accident or health coverage for an employee's child or for a foster child who is a dependent of the employee. A cafeteria plan will not fail to satisfy section 125 if it—

(i) Changes the employee's election to provide coverage for the child if the order requires coverage for the child under the employee's plan; or

(ii) Permits the employee to make an election change to cancel coverage for the child if:

(A) The order requires the spouse, former spouse, or other individual to provide coverage for the child; and

(B) That coverage is, in fact, provided.

Brian Gilmore, thank you sharing your thinking.

Could subparagraph (ii) support a participant’s election change from employee+child to employee-only if:

a court order rescinding the order that had commanded the participant to cover the child also commands the child’s other parent to cover the child; and

the child is covered under the other parent’s health plan?

Hey Peter.  I don't think that would happen, but I suppose the rules could be read to permit it. 

But the more interesting question is could any QMCSO/NSMN situation support an election change from employee + child to nothing.  In other words, is there any situation related to a QMCSO/NMSN that would allow the employee to revoke the employee's election.  That's what the original question here was driving at.

We recognize that youngbenefitslawyer asks about an election change from employee+child to no health coverage for either, but I share your doubt about whether the rule’s interpretation allows that much change.

Further, one wonders how the employee gets health coverage. If he no longer has a spouse, he might no longer have coverage with the former spouse’s employer. And if he’s old enough to have a child, he might no longer be eligible for coverage with his parent. (I recognize that these are not all the possible situations.)

But the potential situation I imagined might not be too fanciful. Domestic-relations courts try to see to it that a child gets health coverage somehow. So, a court order that rescinds a command to an employee might be the same as, or essentially contemporaneous with, an order that commands the child’s other parent to provide health coverage.

They could get an individual policy on the exchange or go uninsured.

Since 1978, the Treasury department has tried to form interpretations for § 125 to approximate, loosely, the notion that an insurance contract would not permit an insured to avoid paying one’s premium for an already bound coverage period.

One might read 26 C.F.R. § 1.125-4(d)(1)(ii) as allowing an employee to change one’s election because of a QMCSO to the extent of the child’s coverage but not for the employee’s coverage (unless there is some other event for which an employee may change the employee’s coverage).

The rule’s interpretations might not all be logically consistent, but one can read § 1.125-4(d)(1)(ii) as the Treasury’s attempt to honor how Treasury interprets Internal Revenue Code § 125 with insurance-like concepts.

That’s why my middle paragraph in my preceding post imagines Treasury’s view that the employee ought not to be permitted to escape his premium obligation merely because he chooses to forego coverage.

This back and forth is very interesting and I don't disagree with your analysis.  The only thing I would add is that I would be hesitant to not comply with a court order under these circumstances, specifically because of the possible ramifications that Peter laid out a couple of posts ago.