IRS Cafeteria Plan Amendments

IRS Cafeteria Plan Amendments

On May 12, 2020, the IRS released two additional notices providing increased flexibility with Flexible Spending Accounts (FSA). Notice 2020-29 that will allow for mid-year elections and extension of the plan year end date, as well as Notice 2020-33 providing a permanent change to the maximum amount permitted on the FSA Carryover option. For additional information regarding each change, please see below.

Action Needed

If you intend to make changes to your plan(s), please complete the below form. By not completing this form, no changes to your plan(s) will be made.

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Amendment Details

  • Mid-Year Election Changes

      This notice provides temporary flexibility to permit employees to make certain prospective mid-year election changes for employer sponsored health coverage, Health FSAs, Limited Purpose FSAs and Dependent Care FSAs during calendar year 2020 that the plan chooses to permit, without having a qualified status change.

      This change is permitted only for FSA plan years with a plan year start date or end date in 2020. The form will help you determine if your plan(s) are eligible for this amendment.

      Permissible changes include:

      • Adding an election
      • Revoking an election
      • Decreasing an election
      • Increasing an election

      Points to Consider:

      • This amendment can be applied to all plans or individual plans.
      • Plan documents will be amended for no additional fee.
      • Changes should be made on a prospective basis only taking into careful consideration current paid claims and/or contributions.

        • Example:
          Employee Election: $1,000
          Claims Paid To Date: $500
          Contributions Made To Date: $600

          We recommend not letting the employee decrease their election amount to the higher of the Claims Paid amount and the Contributions Made amount. In this example that would be $600. If they elected less than this, contributions would need to be adjusted which could cause issues with tax reporting.

      • Please click here to use our calculator that determines the impact of a change based on the specific change a participant would like to make. Please note the calculator is for your assistance; if you need to submit a change, please follow your normal process for doing so.
      • Any election changes should be sent to Benefit Strategies using the normal method currently in use.
  • Extended Date to Incur Expenses

      This notice provides an extended period to apply unused amounts remaining in a Health FSA or Dependent Care FSA to pay or reimburse medical care expenses or dependent care expenses. Specifically, you may amend one or more of your cafeteria plans to permit employees to apply unused amounts remaining in a health FSA, limited health FSAs or dependent care assistance program as of the end of a grace period ending in 2020 or a plan year ending in 2020 to pay or reimburse expenses incurred for the same qualified benefit through December 31, 2020.

      This option is available to employers whether you currently utilize the Grace Period (2.5-month extension) or carryover ($500 rollover) option. This change is permitted for FSA plans with a plan year end date or a Grace Period end date in 2020. The form will help you determine if your plan(s) are eligible for this amendment.

      Examples:

      Plan ending on 12/31/2019, that does NOT currently have the Grace Period – Extending the Grace Period is NOT permissible.
      Plan ending on 12/31/2019, that DOES currently have the Grace Period through 03/15/2020 – Extending the Grace Period IS permissible.
      Plan ending on 06/30/2020, that does NOT currently have the Grace Period – Adding the Grace Period IS permissible.
      Plan ending on 06/30/2020, that DOES currently have the Grace Period through 09/15/2020 – Extending the Grace Period IS permissible.

      Points to Consider:

      • This amendment can be applied to all plans or individual plans.
      • Plan documents will be amended for no additional fee.
      • Amending your final date to incur expenses will impact what you pay in administrative fees and will be reflected on the billing period following this change.
      • Additional billing will be limited to:
        • Active employees that have not re-enrolled in the new plan year with a balance greater than $5.00, until their balance drops below that threshold at any point through the applicable runout period.
        • Terminated employees with any balance through their applicable runout.
  • Carryover ($500 Rollover) Maximum Increase

      This notice increases the Carryover limit (currently $500) of unused amounts remaining as of the end of a plan year in a health FSA or limited health FSA that may be carried over to pay or reimburse a participant for medical care expenses incurred during the following plan year.

      This change is permitted for FSA plans with the Carryover Option that have a plan year start date in 2020. The form will help you determine if your plan(s) are eligible for this amendment.

      The maximum carryover is now going to be based on 20% of the IRS maximum election. Since the maximum election for 2020 is $2,750, the maximum carryover for plan years carrying funds over from a 2020 ending plan year to the new plan year is $550.

      Examples:

      Plan starting on 01/01/2020, the $550 maximum Carryover (formerly $500 Rollover) will roll into the plan that begins 01/01/2021.
      Plan starting on 04/01/2020, the $550 maximum Carryover (formerly $500 Rollover) will roll into the plan that begins 04/01/2021.
      Plan starting on 07/01/2020, the $550 maximum Carryover (formerly $500 Rollover) will roll into the plan that begins 07/01/2021.

      Points to Consider:

      • Plan documents will be amended for no additional fee.
      • The Carryover Option is not permitted on Dependent Care FSA.
      • A plan with the Grace Period Option (2.5-month extension) can’t also have the Carryover Option.
      • If you do not currently have the Carryover Option, but would like to add it, you will have the opportunity to select it on your renewal paperwork; if you’d like to add it prior to that, you must provide employees a 30-day notice before the change is effective.
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