Smart Benefits: Relief for FSAs in Year-End Spending Bill
Monday, January 04, 2021
The year-end Consolidated Appropriations Act, signed into law by President Trump on December 27, 2020, includes a variety of provisions affecting employer-sponsored benefit plans – some relating to the COVID-19 public health emergency and others with broader applicability.
One notable provision of the Act is Flexible Spending Account (FSA) relief. The spending bill provides opportunities for employers to ease employee concerns over forfeiture of FSA funds by loosening certain rules applicable to health and dependent care flexible spending accounts (FSAs). Here are the highlights of the FSA relief provisions:
· Health and dependent care FSAs can allow all unused amounts from a plan year ending in 2020 to be carried over into 2021, and unused amounts from a plan year ending in 2021 to be carried over to 2022.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST· Health and dependent care FSAs with a plan year ending in 2020 or 2021 may extend a grace period to 12 months following the end of the plan year (an increase from 2 ½ months).
· For plan years ending in 2021, plans may allow employees to make a prospective change to modify their FSA contributions for any reason without experiencing a change in status event.
· Health FSAs may allow post-termination benefits, so that an employee who ceased participation during the 2020 or 2021 calendar year may continue to receive reimbursements from unused contributions through the end of the plan year in which participation ceased (including any grace period).
· Dependent care FSAs may extend the maximum age of eligible dependents from “under 13” to “under 14” for eligible dependents who aged out of eligibility during the pandemic. The change is permitted only if the employee was enrolled in the dependent care FSA in a plan year with an enrollment period on or before January 1, 2020, the employee had a dependent who turned 13 during the plan year, and the employee had an unused balance for the plan year. The reimbursement in the subsequent plan year for the age 14 dependent is limited to the unused contributions from the prior year.
Plans adopting any of these voluntary changes must be amended by the end of the first calendar year beginning after the end of the plan year in which a change took effect, and must be operated in accordance with the amendment’s terms beginning on its effective date.
These provisions expand and extend certain relief announced earlier in the COVID-19 public health emergency. However, core cafeteria plan principles remain in place: cashouts of unused contributions and retroactive election changes are not permitted. Note also that allowing carryovers, grace periods, or an extended coverage period under an FSA may impact HSA eligibility.
Sam Slade is Managing Director, Employee Benefits, at The Hilb Group of New England, where he delivers consulting and brokerage services to local employers. He has extensive experience in all aspects of employee benefits, including underwriting, plan design, communications, compliance, and analytics, with a particular focus on alternative funding and self-insurance. Sam lives in South Kingstown with his wife and three sons.
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