• Section 125 Plan Documents - No action is necessary if your Section 125 plan document eligibility language currently refers to section 152 and section 21 (as modified by section 105(b), section 125(e)(1)(D), and section 129(c)(2) as applicable). The documents were updated automatically when the tax code changed. However, if your Section 125 plan documents currently do not reference section 152 (as modified), but instead define the eligibility, then you may need to update the language. You should review the eligibility requirements to make sure that the plan includes only those individuals that are eligible to participate on a pre-tax basis. Additionally, if your Section 125 plan document just refers to section 152 without including the changes for benefit purposes, you should take the opportunity to correct the language now.
  
  
• Dependents Losing Eligibility - Identify which individuals can no longer participate in the plan on a pre-tax basis. The most common occurrences are:
  
  
  • A dependent child (who is not away at school) that does not live with his/her parent, unless there is a prior written agreement.
    
  • Children of domestic partners

The employer must decide how to treat individuals that are no longer eligible to participate in the plan on a pre-tax basis. An employer’s options include:

• Allow the dependents to continue to participate in the benefit plans. If this option is elected, the employer must either:
  
  • Report as imputed income to the employee the value of coverage that is either paid for by the employer or paid for by the employee with pre-tax income; or
    
  • Have the employee pay for the benefits with post-tax dollars.
    
• Do not allow the individuals to remain in the benefit plans. The eligibility provisions of the health plan documents should be amended to exclude these dependents from coverage. If these individuals are eligible for COBRA, they should be provided the opportunity to enroll in COBRA. 
  

• Dependents Gaining Eligibility - Identify which individuals may gain eligibility from the changes to Section 152. While these individuals are permitted to participate in the employee benefit plans on a pre-tax basis, an employer must decide whether they want to allow these individuals to participate. An employer should also work with their insurance carriers to make sure they are allowed to enroll in the plans. The most common example of an individual gaining eligibility for the plan is:
  
  
  • A child that lives with the participant and is the participant’s child, grandchild, niece, nephew or sibling, but who is supported by someone else.
    
    
• Open Enrollment Opportunity - Employers must decide how to communicate the revised requirements to employees. Employers must consider whether an open enrollment opportunity should be permitted for employees to adjust their elections. 
  
  
• Employee Certification - Employers may want to begin using election forms that require employees to certify that all dependents covered under the benefit plans are qualified as tax dependents. The signed election form limits the employer’s liability for improper tax reporting that results from covering ineligible participants under the Section 125 plan.