***New IRS Guidance has allowed for Employers to offer more flexibility than below. While the rules posted below still apply unless employers take action, more opportunities for election changes now exist. Learn more here.***
With all the changes due to COVID-19, may employees are asking if they can change their pre-tax benefits elections. We’ll address each benefit for employees who are still actively employed and working the minimum number of hours for plan eligibility:
Commuter Benefits
Short answer: Yes.
Long Answer:
Commuter benefits elections can be changed at any point on a prospective basis. Since Commuter benefits can only be used to pay for expenses to commute to and from work, if your employees are working from home, there are no commuting expenses to reimburse. In this case, employees should consider pausing or reducing their contributions. If an employee is terminated, any funds remaining in the account after any run-out claims are processed are forfeited.
Dependent Care
Short Answer: Yes
Long Answer:
Dependent Care expenses are similar to Commuter benefits, in that they are very likely reduced during this period. The IRS allows for a prospective election change based on a change in the cost of care. If an employee’s circumstances reflect a change in the cost of care, they can and should consider changing their election to avoid an over-contribution. If an employee is terminated, any funds remaining in the account after any run-out claims are processed are forfeited.
Flexible Spending Accounts
Short Answer: No
Long Answer:
If an employee remains eligible for the FSA, their FSA contributions and expenses remain the same as they were before the COVID-19 outbreak. There is nothing in the regulations that would allow a change as a result of working from home. If the employee is no longer eligible for the FSA due to a reduction in hours or termination, they would be subject to FSA COBRA.
An FSA is subject to COBRA if the group is subject to COBRA, and if, at the time of termination, the employee has contributed more than they’ve spent. If that is the case, they can continue the plan with their full maximum election through the end of the plan year as long as they elect COBRA continuation and make their regular contribution as a COBRA premium equivalent. If the employee has spent more than they have contributed at the time of termination, there is no continuation afforded.
Health Reimbursement Arrangements
Short Answer: No
Long Answer:
HRAs are not subject to state continuation, but they are subject to COBRA as a self-funded health plan. While COBRA sets the floor of the minimum benefits that must be offered to qualified beneficiaries, employers can provide more generous continuation, even if the employer is not subject to
Health Savings Account Pre-Tax Contributions
Short Answer: Yes
Long Answer:
Employees can change their HSA contributions on a prospective basis at any time for any reason.
