With the outbreak of the coronavirus pandemic, the IRS has released new provisions to provide relief for FSA account holders. Below is an overview of each provision, along with actions required by employers if they want to make changes to their plan.
2020 FSA Mid Year Changes in Election
Under IRS Notice 2020-29, employers can allow for mid-year changes to employer-sponsored health care coverage, Health FSAs and Dependent Care FSAs for 2020 calendar plan years.
Employers may immediately allow Health FSA and Dependent Care FSA participants 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 they didn’t make one during Open Enrollment.
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.
Important note: participants cannot cancel their election retroactively and receive a refund of their contributions.
Amendment Required: Employers who want to allow election changes must make an amendment to their plan by December 31, 2021. This provision is optional. Please contact P&A Group for more guidance.
Additional Time to Use FSA Funds
Notice 2020-29 also allows plans to extend the normal deadline for incurring eligible expenses to December 31, 2020.
Employers and plan sponsors “may permit” employees to continue spending their balances until December 31, 2020.
The extension is available for plans with plan years or claims submission “grace periods” ending on or after January 1, 2020 but before December 31, 2020. Plan years ending on December 31, 2019 with no grace period are not subject to this optional provision.
Example: A plan year ending on June 30, 2020, also has a two and a half month grace period. So, the last day for incurring eligible expenses for the plan year would normally be September 15, 2020. With the new relief provided, the last day to incur an eligible expense would now be December 31, 2020.
Amendment Required: Extending the period for incurring eligible expenses is also optional. Employers will need to amend their plan to implement this relief.
2020 FSA Carryover Increase
Under IRS Notice 2020-33, employers can increase the Health FSA carryover limit from $500 to $550 for plan years starting in 2020. The carryover increase will be indexed in future years (20% of the annual maximum, rounded to the next $10 increment).
Amendment 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, your amendment must be completed by December 31, 2021.
Extension for Certain Timeframes for Employees
Under new guidance released by the DOL and the IRS, participants will experience extended time periods in which they can submit claims and file appeals for adverse determinations. 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 plans, as well as Health Reimbursement Arrangements (HRAs).
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. So far, the outbreak period has not yet been announced. We will keep you informed when an update is made.
No Amendment Required: This provision is automatic for ERISA plans and employers do not need to complete an amendment.
IMPORTANT: If you have a non-ERISA plan, or offer a Dependent Care FSA, please confirm how you would like to proceed with the above provision. Please contact your P&A Group account manager for further assistance.
CARES Act OTC Update
The CARES Act overturns the repeal on over-the-counter (OTC) medications previously passed under the Affordable Care Act. This applies to FSAs, HSAs and unrestricted HRAs. Those participants can purchase OTC medications with their accounts without needing a prescription or Letter of Medical Necessity Form. Additionally, menstrual care products are also eligible for reimbursement.
Amendment Required: Your plan document needs to be amended to reflect the OTC provision. Additionally, you should provide your participants with a summary of the change. Please contact your P&A Group account manager to obtain a copy of the summary notification.
Learn more about the CARES Act update.
Implementing 2020 FSA Changes
During this unprecedented time, P&A Group is here to help you navigate important benefit decisions. We will continue to keep you updated and informed on any new IRS changes. If you have questions about your plan, we are happy to assist you. Contact your P&A Group account manager, or submit a contact us request.