September 17, 2019
Yes, a change in eligibility mid-plan-year that makes domestic partners eligible as dependents under the plan constitutes a Section 125 qualifying event. As background, Section 125 applies to any benefits that can be paid for on a pre-tax basis and it allows for only election per year, unless the employee or covered dependent experiences a qualifying event.
The qualifying event that would apply to the change to cover domestic partners is “addition or significant improvement of a benefit package option.” That event allows employees to change their election if a plan adds a new benefit package or coverage option or if coverage is significantly improved during a period of coverage (the plan year). Unfortunately, the related rules contain no specific definition of “significantly improved”; employers are left to determine that on their own. The general barometer is whether a reasonable participant might think that the change is a big deal or not.
Adding an entire class of dependent eligibility would likely be considered a big deal for most participants (even if many participants aren't actually going to add a domestic partner). So, since most employees would consider that eligibility change as significant, an employer would be on solid ground in allowing an election change in that situation. However, employers would want to ensure that the election change is consistent with the change under the plan. The consistent change in this situation would be for the employee to add coverage for a newly eligible domestic partner.
Now, many of the Section 125 qualifying events (of which the addition/significant improvement of benefit package options is a part) are optional for employers. (We call these the permissible qualifying events.) Only HIPAA special enrollment rights are mandatory. So the Section 125 plan document should be reviewed to ensure it allows these types of election changes. Most employers allow all of the events allowed by Section 125 — they want to give employees flexibility to change elections in certain scenarios. But the permissible Section 125 qualifying events are not mandates: The employer does not have to allow them. So the employer would want to confirm that the Section 125 plan document allows the permissible Section 125 qualifying events; if so, employees could change their coverage mid-year to add coverage for a newly eligible domestic partner.