Does an employee or their dependent experience a qualifying event when they relocate to another city, state, or country?

Under Section 125, employees make annual elections under a cafeteria plan that are irrevocable during the plan year. However, regulations allow midyear changes to those elections when an employee or their dependents experience specific qualifying events. One of these events occurs when an employee, their spouse, or their dependent experience a change in status, such as a change in residence. However, there are limits to the change in residence qualifying event.

The change in residence becomes a qualifying event when that change affects the employee’s or dependent’s eligibility for coverage. Unless the relocation makes the moving individual ineligible or newly eligible under the plan, the move would not be considered a change in status qualifying event.

On the other hand, there would likely be a qualifying event if the relocation resulted in the employee or dependent moving outside of a network that would provide service. For example, if the plan were an HMO and the employee or dependent moved out of the HMO service area and therefore couldn't receive any coverage where they lived, then that move would be a qualifying event. However, if the employee or dependent is eligible under the plan before and after the move (which is often the case for PPO plans or HDHPs with a national network), then a change in residence is not a qualifying event.

It is important to understand these limits. Employers that allow midyear changes without a qualifying event risk disqualifying the entire plan. If the plan is disqualified, then neither the employer nor employees can pay for their coverage on a pretax basis.

That said, there could be other qualifying events that would apply, given the circumstances. For example, a cafeteria plan may permit a qualifying event for a loss of coverage under any group health coverage sponsored by a governmental or educational institution, including a foreign government group health plan. If the relocating dependent has coverage through their government and will lose it by virtue of moving to the US, then that could make the move a qualifying event.

There are a few other points to keep in mind. Changes in residence and the loss of coverage under a governmental health plan are permissible qualifying events, which means that employers can choose whether to include them in their plan. Additionally, these events do not apply to health FSAs, so the employee could not change their health FSA election on account of either of those qualifying events.