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Relief Provided for Flexible Spending Account Plans in Stimulus Bill

On December 27, 2020, the President signed the Consolidated Appropriations Act for 2021. This new law provides relief options related to Flexible Spending Accounts (FSAs). As an Employer, you can choose to adopt any of these provisions or to keep your plan the same.

Optional provisions include:

  • Full carryover of all unused funds for plan years ending in both 2020 and 2021. This is applicable to all health and dependent care FSAs.
  • Grace period extension: Increase from 2 ½ months to 12 months for plan years ending in both 2020 and 2021. This is applicable to all health and dependent care FSAs.
  • Post termination reimbursements: Terminated employees or employees who choose not to participate in the plan during 2020 or 2021 can spend down unspent balances through the end of the plan year in which they terminate (and through the end of the grace period for that plan year, if applicable). Reimbursements would be limited to unused contributions, similar to a dependent care FSA. This is applicable to all health FSAs.
  • Mid-year election changes to FSA elections can continue to be allowed on a prospective basis during plan years ending in 2021 without regard to any change in status requirements. This is applicable to all health and dependent care FSAs.
  • A special carryforward for dependent care FSAs, where the age limit for qualifying children may be extended from age 13 to 14 for a plan year. To be eligible for this special carryover feature, the employee must have been enrolled in the dependent care FSA for the last plan year for which open enrollment ended on or before January 31, 2020 (e.g., for the 2020 plan year for a calendar year plan); and the employee must also:
    • (i) have one or more qualifying children that attained the age of 13 during that plan year, or
    • (ii) have an unused balance for that plan year that is available to the employee during the following plan year and have one or more qualifying children that will attain the age of 13 during that following plan year (the amount available in the following plan year for the dependent who turns 13 in that following plan year for expenses incurred after the child reaches age 13 is limited to the unused balance carried over from the prior plan year).

We encourage you to contact your Lifetime Benefit Solutions service representative if you would like to adopt any of the provisions listed above. We appreciate your patience as we work diligently to update our systems to implement these provisions as quickly and as seamlessly as possible.

Note: Plan amendments are required for any of these changes by the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective. For example, if the plan has a calendar year plan year, the amendment must be adopted no later than December 31, 2022 if the amendment is effective for the 2021 plan year. This gives employers ample time to adopt the amendments after they make a decision on the new provisions. For a fee, we can prepare plan amendments to your plan document. Contact us for more information.