The IRS announced on 5/12/2020 in Notice 2020-29 that due to COVID-19, they are allowing employers the option to offer increased flexibility with respect to mid-year elections under a Section 125 cafeteria plan during calendar year 2020. The Section 125 cafeteria plan is related to employer-sponsored health coverage, health Flexible Spending Arrangements (health FSAs), and dependent care assistance programs. An employer must amend their Section 125 documents to allow this change if they choose to adopt it.
What does this mean for employees?
The method of estimating the amount of money you want to save in an FSA (which has historically been effective) for many contributors has shifted. Due to childcare needs being adjusted, and healthcare expenses being modified (largely due to the lack of access to elective procedures), you now have the opportunity to make mid-year adjustments.
Employees may make the following changes regarding:
- Health Coverage –make a new election, switch plans if more than one is offered, switch who is on your plan, or cancel an existing election by providing, in writing, that other health coverage has started or will start immediately
- Health Flexible Spending (FSA) – make a new election, revoke an election, or decrease / increase the amount of an existing election
- Dependent Care – make a new election, revoke an election, or decrease / increase the amount of an existing election
What if there are unused amounts in FSA?
If your FSA plan has a grace period that ends or ended this year, your employer could give you until the end of 2020 to incur qualified expenses and get reimbursed from the account. For example, if a calendar-year plan ended December 31, 2019 had a grace period that ended March 15, 2020 and you forfeited money in the account, your employer may now allow you to spend the forfeited amount by the end of this year and get reimbursed. Similarly, if your plan ends June 30, 2020 and has a grace period that ends July 15, 2020, you could have until December 31, 2020 to spend the money and get reimbursed from the account. All of this is contingent on your employer updating the plan document to allow for the change.
What do I do now?
We encourage you to contact your Human Resources professional, or whoever is responsible for administering your health care plans/ Flexible Spending Arrangements to see what changes you are able to make to your elections. This opportunity is based solely on what changes your employer chooses to make in regards to their Section 125 cafeteria plan and may not be the same at every employer.
If you have questions about how this impacts your business, or how to communicate this to your staff, contact our experts today.
