IRS Issues New COVID-19 Guidance for Mid-Year Election Change Rules & Health FSA & DCAPs Flexibility
On May 12, 2020, the IRS released Notice 2020-29, providing temporary flexibility for mid-year election changes under a Section 125 cafeteria plan during calendar year 2020, and Notice 2020-33, providing more options for unused funds in flexible spending accounts (FSAs) and dependent care assistance programs (DCAPs).
The changes are designed to allow employers to respond to changes in employee needs as a result of the COVID-19 pandemic.
Many of the allowed changes outlined in these notices are optional for employers. Employers should consult their appropriate carrier on the timing and administration guidelines they may impose. All changes would need to be included in updated plan documents and communicated to employees.
For employer-sponsored health coverage, a Section 125 cafeteria plan may permit an employee to prospectively:
- Make a new election if the employee previously declined coverage;
- Revoke an existing election and enroll in different health coverage sponsored by the employer; or
- Revoke an existing election, if the employee is or will be enrolled in other health coverage.
Employers may also permit:
- An extended period for incurring health FSA or DCAP expenses; or
- The health FSA carryover limit increase to $550 for plan years beginning in 2020.
Action Steps for Employers
Employers should review both of the bulletins above.
If you have questions related to this update, please contact your North Risk Partners advisor. Don’t have an advisor? No problem. We’ll help you find one.
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This regulatory update is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.