Grace Period Extension

Under the new 2021 legislation, employers can extend the grace period to 12 months after the end of the plan year.  Earlier this year, 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.   

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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.