The IRS recently issued Notice 2020-29, in response to the COVID-19 pandemic. The notice offers employers greater flexibility with respect to mid-year election changes under a Section 125 cafeteria plan, including an election under a health flexible spending account, a limited purpose health flexible spending account (collectively referred to as “Health FSA”) and dependent care flexible spending account (“Dependent Care FSA”). It also offers greater flexibility with respect to the use of any unused amounts remaining in an FSA at the end of a grace period ending in 2020 or a plan year ending in 2020 to reimburse expenses incurred through December 31, 2020. Notice 2020-29 generally allows employers to adopt a plan amendment that will permit employees to:
1. make the following mid-year election changes, with respect to pre-tax contributions for health coverage:
a. make a new election if the employee previously declined enrollment,
b. revoke an existing election and make a new election under a different benefit plan option offered by the employer, or
c. revoke an existing election; provided the employee attests that he/she is enrolled in or will enroll in other health coverage not sponsored by the employer.
2. make the following mid-year election changes under a Health FSA or Dependent Care FSA:
a. revoke an existing election,
b. make a new election, or
c. decrease or increase an existing election.
3. apply any unused Health FSA and Dependent Care FSA amounts remaining at the end of a grace period ending in 2020 or a plan year ending in 2020 to reimburse expenses incurred through December 31, 2020. This is effective for grace periods and plan years that end on or after January 1,
Any mid-year election changes described in (1) and (2) above may only be made on a prospective basis; however, the amendment can be retroactive to January 1, 2020. Employers may require that amounts elected mid-year be no less than amounts already expensed/reimbursed for the plan year.
In addition to the above, the IRS also recently issued IRS Notice 2020-33, which permits employers to increase the carryover provision, if any, in a Health FSA to $550 for a carryover from the 2020 plan year (and to provide for automatically adjusting the carryover amount for later plan years based on inflation).
The provisions listed above are optional, and an employer is not required to adopt them. If an employer does permit any of the above provisions (other than the increase in the carryover), the employer must inform all employees as soon as possible regarding the changes it intends to adopt and must amend its affected plan(s) by no later than December 31, 2021. If an employer wishes to adopt an amendment to increase the carryover amount, that amendment must be adopted no later than the end of the 2020 plan year.
If you would like to implement any of the above changes, please contact your administrator. If Lifetime Benefit Solutions, Inc. prepares your plan document and summary plan description, we can also prepare the amendment and Summary of Material Modification (SMM). If you would like us to provide this service to you, please contact us. In your request, please include what optional provisions are being adopted. A Welfare Benefit Plan Specialist may contact you for additional information after we receive your request.
**The information provided in this communication does not, and is not intended to, constitute legal advice. All information provided is for general informational purposes only**