For employers with health and welfare plans that renew on a calendar year basis, it's open enrollment season once again. And, despite all the planning that goes into making open enrollment a success — the  targeted communications, the employee meetings — it's inevitable that, after open enrollment closes, employee questions like these will start to roll in: "I missed the deadline, can I still make an election?" "I picked the wrong plan, can I change my election?" "I didn't realize I would be defaulted into a plan, can I drop coverage?" "I meant to elect FSA benefits, but I accidentally elected DCAP benefits," and so on…  When dealing with these kinds of participant requests or enrollment errors, employers often are inclined to grant corrections, but before doing so it is important to understand all the rules that come into play.  How you respond to these kinds of requests should take into account the following considerations:

• Code Section 125 election change rules: Section 125 of the Internal Revenue Code of 1986, as amended (Code) establishes the rules by which an employee can choose between receiving compensation in cash or as qualified (i.e., pre-tax) benefits. The most common Section 125 benefits (also called "cafeteria plan" benefits) are pre-tax payment of premiums, health flexible spending account (FSA) benefits, and dependent care assistance program (DCAP) benefits. The general rule is that Section 125 elections, once made, must be irrevocable during the plan year (the "irrevocability rule"). Accordingly, the Section 125 rules permit mid-year election changes only under very limited circumstances. And, importantly, the Section 125 rules do not specifically allow for election changes to correct an error. Failing to strictly adhere to the Section 125 election change rules could result serious adverse tax consequences for both the employer and employees.

However, IRS officials have indicated — in informal, non-binding comments — that certain mistakes may be corrected if there is clear and convincing evidence of the mistake. For example, the employee elects $2,850 of FSA benefits during open enrollment, but a data entry error by the employer results in a $285 election being input into the system. This is clearly an employer error that the IRS likely would view as correctable without violating the irrevocability rule. Another example: an employee makes an election for DCAP benefits, but has no children or other qualifying dependents. This also may be a correctable error, depending on the facts and circumstances.

Accordingly, when considering an employee's request to correct a mistaken election under a Section 125 plan, consider all the facts and circumstances: whose error was it — the employer's or the employee's? How far into the plan year is the correction request being made? (Corrections generally are more risky the farther into the plan year they are made.) Are there other facts or circumstances that indicate the election was truly made in error, as opposed to a circumvention of the irrevocability rule? And remember that the concept of correcting an election error under the Section 125 rules is based on informal, non-binding comments by IRS officials, and not authoritative IRS guidance. Accordingly, allowing a correction always comes with some risk that the IRS would disagree with your conclusion, and take enforcement action for violating the Section 125 election change rules.

• Plan terms: The Employee Retirement Income Security Act of 1974, as amended ("ERISA") requires that employee benefit plans be administered in accordance with the terms of their written plan documents. Therefore, when you receive a request to change a plan election, you should also review the terms of the applicable plan document to determine if the change is permitted or is specifically prohibited. Also, some plans provide for a default enrollment if the employee fails to make an affirmative election, or they may provide for "evergreen" elections, which are elections that automatically carry over from one plan year to the next unless the employee changes them. Employers may consider calling out these types of provisions for employees during open enrollment to minimize the likelihood of errors or unintended enrollments.

• Insurance carrier requirements: How you respond to an employee's request to change an election — particularly when it comes to adding coverage — should also be informed by whether the benefit plan at issue is fully-insured or self-funded.

In the case of a fully-insured plan (where the insurance carrier is responsible for funding the claims), the insurance carrier may not permit election changes outside of open enrollment because to do so would increase their financial risk. If a plan is fully-insured, the insurance carrier may need to grant approval before allowing any election change that falls outside of open enrollment or a required HIPAA special enrollment opportunity (i.e., following a loss of other coverage, the addition of a new dependent by marriage, birth, adoption, or placement for adoption, a loss of state Medicaid or children's health insurance program (CHIP) eligibility, or becoming eligible for state premium assistance under Medicaid or CHIP).