Section 125 Facts vs Fiction

Can Employees Change Their Elections Anytime They Want?

If you’ve ever heard someone say, “You can change your Section 125 elections whenever you need to,” they’re either misinformed—or repeating one of the most persistent myths in benefits administration. It sounds appealing: flexibility, control, and the freedom to adjust payroll deductions whenever circumstances change. But that idea runs directly against how the IRS designed these plans to work.

Section 125 plans are governed by one core principle: elections are made before the plan year begins and are locked in for that year. The rule exists for a reason. If employees could change deductions or benefit elections at will, the tax advantage would collapse. The IRS treats cafeteria plan elections as binding contracts for the plan year, allowing tax savings only because the elections are irrevocable except under very specific conditions.

Those exceptions are called “qualified life events.” They include major changes like marriage, divorce, birth or adoption of a child, loss or gain of other coverage, or significant employment changes such as a move from part-time to full-time status. Outside those circumstances, midyear changes simply aren’t allowed.

This structure protects both the employee and the employer. It prevents selective participation - where someone might opt into a benefit only when they expect heavy medical use - and it ensures the plan remains compliant under Treasury regulations. The restrictions are not arbitrary; they are what make the plan legally valid.

Unfortunately, some of the less reputable programs on the market gloss over this entirely. They promise employees the ability to opt in, opt out, or modify participation month to month. That kind of flexibility sounds modern and convenient, but it directly violates IRS rules and risks disqualifying the entire plan. When that happens, every participant’s tax advantage can be reversed, leading to retroactive payroll tax liability for both sides.

The Lighthouse handles this exactly the way it should be handled: with structure, documentation, and compliance first. Every participant makes elections before the plan year begins. Those elections are stored in the plan document and cannot be altered unless a legitimate qualifying event occurs. Employees are guided through the process so they understand when changes are permitted and what documentation is required.

This approach may feel more rigid than what some marketers promise, but it’s precisely what keeps the plan legal and defensible. By adhering to true pre-tax standards and ensuring elections align with federal guidance, Patriot protects both the employer and the employee from accidental violations that could trigger costly reclassification of income.

It’s worth noting that these restrictions aren’t meant to limit flexibility—they’re meant to preserve tax advantage integrity. Without them, Section 125 plans would be little more than creative accounting. The Patriot Plan preserves the letter and spirit of the law, allowing participants to enjoy the intended savings while avoiding the risks that come from cutting corners.

Fact: Section 125 elections are binding for the plan year, except under qualified life events.
Fiction: You can change your elections whenever you want.

Next in the series, we’ll address another popular misconception: that “wellness programs under Section 125 are automatically disqualified.” We’ll explain why that myth persists, how legitimate wellness models fit inside the rules, and what separates compliance from creative marketing.