We have a sponsor that wants the option for the participant to be able to drop any or all elections anytime during the cafeteria plan year and cease payroll deductions, but they cannot re-enter until the anniversary date, is this allowed under IRS rules?

I believe that this is NOT allowed. You cannot drop your elections without a qualifying change in status. There are no hardship provisions in Section 125.

I agree with SLuskin.

I agree- but there is an exception for HSA contributions made thru a Sec 125 Plan.

I agree with MARYMM--payroll reduction contributions to an HSA, elected through a cafeteria plan, may be stopped, changed or initiated effective the first day of the calendar month beginning after the instruction from the employee is provided to the plan administrator.