IRS allows mid-year changes to FSA, DCA & Cafeteria Plans for 2020
On May 12, 2020, the IRS issued guidance that allows employers to amend their plan to allow the following:
- Enrollment changes, including new elections and election changes, without a qualified event.
- Increased time to spend Flexible Spending Accounts (FSA) and Dependent Care Flexible Spending Accounts (DCA) balances for plans ending in 2020 or plans that have a grace period ending in 2020.
- Increased carryover limits to $550 for plans starting in 2020.
Enrollment Changes
The notice allows employers to amend their plan so that employees can prospectively elect to change their health insurance, enroll in an FSA and/or DCA account, change, or cancel their election for the remainder of 2020. Employers can specify a shorter time frame in which changes can be made.
Increased Time to Utilize Funds and Submit Claims
The notice allows employers to amend their plan permitting members to incur and claim from available balances for any plan ending in 2020 OR plan that had a grace period ending in 2020. The extended timeframe allows claims to be incurred and submitted through December 31, 2020. This applies to clients offering a grace period or carryover.
Example: Employer ABC adopts this provision. Employee Joe works for Employer ABC and was enrolled in an FSA in 2019 that had a $17 remaining balance at the end of the grace period which ended on March 15, 2020. The employer can amend the plan so that Joe can submit a claim for dates of service through December 31, 2020 for the $17. The claim must be submitted by December 31, 2020.
How to Adopt an Amendment to the Plan
If you wish to amend your plan to allow members to change elections (including new elections and adding additional time for participants to use unspent dollars), please execute this amendment AND provide back to your Account Manager. Once received by the Difference Card, your claim protocols will be updated. Employers will need to notify the Difference Card of enrollment or election changes. Please note that you can distribute this amendment to your employees.
Carryover Limits Increased
For clients that have a carryover, Treasury increased the FSA maximum carryover to $550 for plan years starting in 2020. The Difference Card will automatically be increasing the limit to $550 for any plans that start in 2020. Please see the amendment here.
Resources:
1. COVID-19 GUIDANCE UNDER 125 CAFETERIA PLANS AND RELATED TO HIGH DEDUCTIBLE HEALTH PLANS
2. NOTICE 2020-33: SECTION 125 CAFETERIA PLANS – MODIFICATION OF PERMISSIVE CARRYOVER RULE
Key Takeaways
- The IRS guidance (May 12, 2020) allows employers to amend plans so employees can make mid-year enrollment changes (new elections, changes, or cancellations) without a qualifying event for the remainder of 2020.
- Employers can extend the time to incur and submit claims for FSAs and DCAs for any plan ending in 2020 or any plan with a grace period ending in 2020; claims may be incurred and submitted through December 31, 2020.
- The FSA carryover limit for plan years starting in 2020 was increased to $550.
- To adopt these changes employers should execute the IRS amendment (linked in the notice) and provide it to their Account Manager/Difference Card so claim protocols can be updated; the amendment may also be distributed to employees.
- Employers must notify Difference Card of any enrollment or election changes; employers may specify a shorter window for permitted changes, and Difference Card will automatically increase 2020 plan carryover limits to $550.
