IRS provides Cafeteria Plan Flexibility to Employers

The IRS issued two notices (2020-292020-33) yesterday, increasing election and reimbursement flexibility for employer-sponsored health plan elections, Healthcare Flexible Spending Accounts (FSA), Dependent Care Accounts (DCA), Health Savings Accounts (HSA), and Individual Coverage Health Reimbursement Arrangements (ICHRA).  
Additionally, the IRS has increased the amount of the maximum Carryover from $500 to $550 for plan years beginning on or after 1/1/2020.
The new rules allow for an employer to amend their plan to permit employees to make the following changes:
Employer-Sponsored Health Coverage:
  • make a new election on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage; 
  • revoke an existing election and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis; and 
  • revoke an existing election on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer; 
  • these changes require an employer to amend their plan prior to any election changes.
FSA & DCA (on a prospective basis)
  • revoke an election, 
  • make a new election, or 
  • decrease or increase an existing election 
  • for a plan year ending during 2020, the plan may extend the grace period through December 31, 2020. This allowance is for plans with both Carryover and Grace Period, and essentially extends a plan year ending during 2020 through the end of 2020 for claims purposes.
  • Carryover Maximum for plans beginning on or after January 1, 2020 has been increased from $500 to $550
  • Allow for retroactive coverage during the plan year for a health FSA. 
  • Explanation: If an employee takes advantage of a mid-year election, their contributions can only be made from the election point forward, however their reimbursements can be made for any date in the plan year.   
  • Example: An employee making a mid-year election on 5/15 into an FSA with January 1, 2020 effective date would be able to submit a claim incurred as early as January 1, 2020 for reimbursement.  
  • Prior to this notice, the employee would not be eligible for any reimbursements on expenses incurred prior to their enrollment into the plan. This allowance begins with plan years starting on or after January 1, 2020.
  • The relief provided in notice 2020-15 exempting Telehealth from being disqualifying care under an HDHP has been applied retroactively to January 1, 2020.
  • Clarifies that a premium payment for a period during the plan year that is paid prior to the plan year can be reimbursed.  If the January premium is paid in December, for an ICHRA beginning in January, the plan may reimburse the expense.
Employers must choose to amend their plan to offer this flexibility to their employees.