COVID-19 Updates

Under IRS Notice 2020-29, employers can allow for mid-year changes to employer-sponsored health care coverage, health FSAs and Dependent Care Accounts for 2020 calendar plan years.  This provision is also extended to 2021 plan years under the Consolidated Appropriations Act of 2021.

• Employers may immediately allow participants in Health FSAs and Dependent Care FSAs to make changes to their elections including reducing or canceling their elections without the typically required change in life event, such as marriage or birth of a child.  Participants can also make a brand new election if none was made during Open Enrollment.  Important note: participants cannot cancel their election retroactively and receive a refund of their contributions.
• The minimum new election amount for the Health FSA would be the greater of the claims paid year to date or the salary reduction contributions year to date. For employees who have spent more in their Health FSA than they have contributed, salary reductions would continue through the end of the plan year to fund the negative balance.

Action Required

The above change is not mandatory.  Employers who want to allow election changes must make an amendment to their plan no later than 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 you have a calendar plan year and adopt this provision beginning January 1, 2021, the amendment will need to be completed by December 31, 2022.

Under the Consolidated Appropriations Act of 2021, employers can make the following changes to the carry forward feature:

• Temporarily remove the maximum limit on the Health FSA carry forward
• Temporarily add the carry forward to the Dependent Care account

These provisions apply to 2020 and 2021 plan years.

Action Required

The above changes are not mandatory. Employers who want to allow election changes must make an amendment to their plan no later than 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 you have a calendar plan year and adopt this provision beginning January 1, 2021, the amendment will need to be completed by December 31, 2022.

Under IRS Notice 2020-33, the Health FSA carryover limit increases from $500 to $550 for plan years starting in 2020. The increase will be indexed in future years (20% of the annual maximum, rounded to the next $10 increment).

Action Required

Employers will need to amend their FSA plan by the last day of the plan year starting in 2021. For example, if your plan renews on January 1, 2021, you would have to amend your plan by December 31, 2021.

Under the new 2021 legislation, employers can extend the grace period to 12 months after the end of the plan year. In 2020, the IRS permitted plans with grace periods ending before December 31, 2020, and non-calendar year plans ending before December 31, 2020 to extend their grace periods until the end of 2020.

Example: a July 1, 2019 – June 30, 2020 plan with a grace period could extend the grace period to December 31, 2020.
Under the new legislation, this same plan could be extended again to June 30, 2021.

Action Required

The above change is not mandatory. Employers who want to allow election changes must make an amendment to their plan no later than 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 you are applying this change to your July 1, 2021 – June 30, 2022 plan year, the amendment will need to be completed by June 30, 2023.

Dependent Care FSAs may temporarily allow for the reimbursement of eligible dependent care expenses for dependents until they reach age 14. This provision is available for plan years that end in 2020 or 2021 and is meant to provide additional relief for participants whose beneficiaries aged out during the pandemic.

Action Required

The above change is not mandatory. Employers who want to allow election changes must make an amendment to their plan no later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective.

Under the American Rescue Plan Act (ARPA), employers can also opt to temporarily increase the annual dependent care maximum contribution from $5,000 to $10,500 ($5,250 for married couples filing separately) for 2021.

Please note that if you adopt this provision, it will only be available to Dependent Care FSA participants who experience a change in status (i.e., birth of a child or a change in work hours) unless you have also adopted the temporary provision that allows for mid-year election changes.  The mid-year election provision allows for participants to make mid-year changes without experiencing a Qualifying Event.  Please see visit “FSA Mid Year Changes in Election” for more information, including how to add this provision to your plan.

Applicable Plans

This provision is only applicable for 2021 and does not apply to 2022.  For non-calendar year plans, the provision is still only applicable until December 31, 2021.

Action Required

Increasing the Dependent Care FSA contribution is optional and not required.  You will need to amend your plan to implement this relief by December 31, 2021.  Please contact your P&A representative to begin the amendment process.

Under new guidance released by the DOL and the IRS, the time periods in which participants can submit claims & file appeals for adverse determinations are extended. The extension relief provides additional time for impacted participants to file claims and appeals under the plan in accordance with ERISA section 503. This includes the run-out period for FSA/HRA plans. The rules extend the plan’s deadline to file a claim or appeal by disregarding the “Outbreak Period.” The excluded period starts March 1, 2020 and will end 60 days after the announced end-date of the current National Emergency, which is referred to in the guidance as the Outbreak Period.

Signed into law on March 27, 2020, the CARES Act provides additional relief on certain benefit options, including Flexible Spending Accounts and some Health Reimbursement Arrangements.

• Restrictions on over-the-counter (OTC) medications for FSAs and unrestricted HRAs are lifted under the CARES Act. OTC medications are now reimbursable without requiring a prescription or completing a Letter of Medical Necessity Form. This provision is retroactive to January 1, 2020. Previously, OTC items were repealed under the Affordable Care Act. The new CARES Act overturns that rule.
• Menstrual care products are also now reimbursable as eligible expenses, including tampons and pads.
• Not all merchants will have newly eligible OTC/menstrual care products coded immediately for a point-of-sale debit card purchase. Some merchants may take longer to update their system.

Action Required

Your plan document must be amended to reflect the OTC change summarized above. Additionally, a summary of the change must be provided to your participants. Please contact your P&A Group account manager for further assistance.
Important note: your FSA and unrestricted HRA will be administered with allowing OTC medications to be reimbursed. If you do not wish to allow OTC medications to be reimbursed under your plan, please contact your P&A Group account manager.