a-98-105.pdf

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Part IV. Items of General Interest
Cafeteria Plans Election Changes
Announcement 98-105
PURPOSE
The purpose of this document is to announce that the Internal Revenue Service
will delay the effective date of the cafeteria plan temporary regulations (1.125-4T) and
proposed regulations (1.125-4) published on November 7, 1997 at 62 FR 60165 and 62
FR 60196, respectively.
BACKGROUND
In 1984, the Service issued proposed regulations that address certain issues
under section 125 of the Internal Revenue Code. See 49 FR 19321. The proposed
regulations were amended in 1989. See 49 FR 50733. The proposed regulations
include rules relating to the circumstances under which an employer can permit a
cafeteria plan participant to revoke an existing election with respect to accident or
health coverage or group term life insurance coverage and make a new election during
a cafeteria plan year. In 1997, the Service issued proposed and temporary
regulations that modify and clarify the change in election provisions of the pre-1990
proposed regulations. The 1997 temporary regulations provide that they will become
effective for plan years beginning after December 31, 1998. The preamble to the 1997
temporary regulations states that, pending this effective date, taxpayers can rely on the
1997 temporary regulations as well as the pre-1990 proposed regulations.
The Service will amend the effective date of the 1997 temporary regulations and

the 1997 proposed regulations so that they will not be effective before plan years
beginning at least 120 days after further guidance is issued. Thus, for example, in the
case of a calendar year plan, the 1997 temporary and proposed regulations will not be
effective for 1999. Until further guidance is issued, taxpayers can rely on the change in
election provisions of the 1997 temporary regulations as well as the change in election
provisions of section 1.125-2 of the pre-1990 proposed regulations, and both
alternatives are available regardless of whether the plan document has been amended
to conform with the 1997 temporary regulations.
Questions regarding this announcement may be directed to Felix Zech in the
Office of Associate Chief Counsel (Employee Benefits and Exempt Organizations) at
(202) 622-4606 (not a toll-free number).