By: HUB’s EB Compliance Team

Though employer sponsored benefit plans are not required to operate based on the calendar year, many do. For these calendar year plans, annual open enrollment will soon be underway. This piece highlights several important reminders for employers related to open enrollment. A more detailed open enrollment checklist can be found here.

Annual Elections

Open enrollment is the time each year where eligible employees can make changes to their benefits elections. Employees who previously waived coverage can enroll, while those who previously enrolled can choose to waive. Likewise, employees may change their election from one plan option to another, such as from an HMO to a PPO.

Many such elections are made pursuant to a Cafeteria Plan or Section 125 Plan (named after the applicable Internal Revenue Code (“IRC”) section). Cafeteria Plans allow employees to pay for certain benefits on a pre-tax basis, which reduces the employee’s taxable income as well as the payroll tax obligations for the employer and employee. Under the cafeteria plan rules, outside of open enrollment, participant elections are generally irrevocable for the next 12 months unless the employee or an eligible dependent experiences a qualifying event as defined by the plan.

Active or Passive Enrollment

Employers may structure their open enrollments as either active or passive. An active enrollment requires participants to make affirmative elections for the benefits they choose to enroll in. A passive enrollment does not require affirmative elections and allows eligible employees to keep their existing elections for the next plan year without taking any action.

To illustrate this, imagine George works for ABC Corp, whose open enrollment is active. For 2025, George was enrolled in medical, dental and vision coverage. If he wishes to keep these elections for 2026, he must affirmatively elect this coverage again during ABC Corp’s open enrollment period. Now imagine Louise works for XYZ Corp, whose open enrollment is passive. Louise was also enrolled in medical, dental and vision coverage for 2025. Since her open enrollment is passive, Louise can keep her same benefits elections for 2026 without taking any action. If she wishes to change her existing elections, she must take action during open enrollment.

Looking at this another way, if George and Louise both take no action during open enrollment, George will not have coverage in 2026 but Louise will. Because of this, employers need to clearly communicate (ideally multiple times using varying methods) whether open enrollment is active or passive. This is especially important for employers who only periodically hold active open enrollments as employees may become used to keeping their benefits by taking no action at all.

The Open Enrollment Window

Employers also need to clearly communicate when the open enrollment period starts and ends. This puts employees on notice of when they can make changes to their elections. Employers often struggle with the end of open enrollment more than the beginning. This is due to the fact that inevitably, no matter how long they allow for open enrollment, some employees will not make elections in a timely manner.

When employees fail to make elections during the open enrollment window, they often ask for exceptions in the form of additional time to make elections. Section 125 of the IRC allows changes to be made prior to the plan year — thus, employers are allowed to allow election changes (including electing coverage) prior to the start of the plan year, even if open enrollment has ended. Although such changes are permitted, they are not required to be allowed. If they are allowed, they need to be allowed uniformly for all plan participants.

Newly Eligible Employees

Employers should be conscious of those who newly become eligible for their plans around the time of open enrollment as there may be confusion around the timing of elections. This can arise when an employee may need to elect coverage for the current plan year in close proximity to when they elect coverage during open enrollment. Being aware of these issues may help employers and employees avoid potential enrollment issues.

Assume Acme Corp’s waiting period for full-time eligibility is the first of the month following 30 days of employment. Employee Z is hired on October 12, 2025 and thus, becomes eligible for coverage on December 1, 2025. Acme Corp requires new enrollees to complete their enrollment by the 20th of the month prior. Thus, Z must complete their initial enrollment by November 20, 2025.

Now assume Acme Corp’s open enrollment period is from October 28, 2025 through November 12, 2025, and their enrollment is active. If Z wants coverage starting December 1, 2025 and also wants coverage for 2026, they must enroll during both their initial enrollment and open enrollment in a short period of time. If Z does not understand how enrollment works, they may inadvertently end up with coverage for December only or starting in 2026, which may not be their desired outcome.

Account Based Plans

Open enrollment also allows employees to make changes to their elections under account-based plans. Chief among these are Flexible Spending Accounts (“FSA”), both health and dependent care. Annual contribution limits are updated by the Internal Revenue Service (“IRS”), which means plan sponsors can in turn update their contribution limits to align with the IRS limits. While the IRS determines the allowable limits under the tax code, employers determine the allowable contribution limits under their plans.

FSAs are not the only account-based plans that employers offer their employees. Health Savings Account (“HSA”) and commuter benefits accounts are two other such plans. Although these accounts allow for pre-tax contributions, these elections are not irrevocable and can be changed at any time during the year.

ACA Affordability

Under the applicable large employers (“ALEs”) are generally required to offer at least one health plan that provides affordable, minimum value coverage to its full-time employees (and minimum essential coverage to their dependents) or pay a penalty. For this purpose, “affordable” means the premium for self-only coverage cannot be greater than a specified percentage of the employee’s household income. For the 2026 calendar year, the percentage is 9.96%.

Open enrollment provides employers with an opportunity to ensure their offers of coverage meet the ACA affordability requirement for the next plan year. Since the affordability percentage changes from year to year, leaving rates the same as the prior plan year will not always result in coverage continuing to be affordable. Employers frequently experience changes, such as hiring employees in a state with lower minimum wage requirements, which can directly impact affordability calculations. Employers should also be familiar with common affordability myths.

Conclusion

This article is not designed to be exhaustive but rather highlights certain important open enrollment related items for employers. Understanding these items and how they impact plans can help employers avoid challenges at open enrollment.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither HUB International Limited nor any of its affiliated companies is a law or accounting firm, and therefore, they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on HUB International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect, and HUB International does not have an obligation to update this information. You should consult an attorney, accountant or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.