Also, the guidance allows employers with cafeteria plans to treat coverage for adult children as a pretax benefit as of March 30, 2010.

Most cafeteria plans will need to be amended to address adult children. However, under the current cafeteria plan regulations, cafeteria plan amendments must be effective prospectively. Under the Notice from the IRS, as of March 30, 2010, employers may permit employees to make or change pretax elections for accident or health benefits (including to a health care Flexible Spending Account) under a cafeteria plan for adult children, even if the cafeteria plan has not yet been amended to cover these individuals.

IMPORTANT: A retroactive amendment to a cafeteria plan to cover adult children must be made no later than December 31, 2010, and must be effective retroactively to the first date in 2010 when employees are permitted to make or change pretax salary reduction contributions to cover adult children.

Cafeteria plan elections are generally effective for the full plan year, and can be changed only under specific circumstances as defined in the regulations. These rules currently don't permit employees to change their elections when their adult children either gain or lose eligibility under the tax rules. In the guidance, the IRS states that the cafeteria plan election change regulations for dependent eligibility will be revised to address these situations. This means that, assuming an employee meets the consistency rules, employees are permitted to change their elections to add or increase contributions to a cafeteria plan (including a health care FSA) for an adult child who is gaining coverage under the plan.

As a result of PPACA's changes and the IRS guidance, employers now have the option to provide pretax benefits to more individuals under their plans.