Contacts
IRS Provides Relief for Mid-Year Election Changes and Flexible Spending Accounts
On May 12, 2020, the IRS issued two notices (collectively referred to as the “Notices”):
- IRS Notice 2020-29 gives employers additional flexibility to allow mid-year benefit election changes, permits employers to provide flexible spending account (FSA) participants an extended grace period to use their 2019 FSA plan year funds, and addresses some previous loose ends.
- IRS Notice 2020-33 increases the carryover limit for unused health care FSA (HCFSA) funds and indexes it for inflation.
When, Exactly?
The relief and other guidance provided in the Notices were effective May 12, 2020, with certain provisions available retroactive to January 1, 2020. Employers wanting to implement any of the permitted relief will need to amend their plans by December 31, 2021. Employers must inform eligible employees of any changes. Although some plan notification requirements have been relaxed during the COVID-19 pandemic, employers should communicate any changes as soon as it is practical to do so.
IRS Relaxes 2020 Mid-Year Election Change Rules
In general, Internal Revenue Code Section 125 cafeteria plans may only allow pre-tax mid-year election changes if an employee experiences a qualifying life event (QLE) permitted under the cafeteria plan rules. IRS Notice 2020-29 allows what we will refer to as a new “amnesty QLE” in response to the COVID-19 pandemic. During the 2020 calendar year, a cafeteria plan may permit employees to make changes to pre-tax elections for health coverage, HCFSAs, and dependent care FSAs (DCFSAs) as an amnesty QLE when no traditional QLE exists.[1]
A Flexible Blank Slate
Employers have enormous flexibility to adopt and tailor amnesty QLEs to meet their needs, including:
- Yes or no – An employer can implement an amnesty QLE, but it is not required to do so.
- Which benefits are affected – An employer has the freedom to choose which benefits are subject to the amnesty QLE. For example, an employer may limit the amnesty QLE to just medical coverage, medical coverage and FSAs, just FSAs, etc.
- Permitted election changes – An employer has the freedom to choose which types of benefit election changes to permit. For example, an employer may:
- Permit any election change;
- Permit any enrollment or drop in coverage but not changes between plan options;
- Only permit enrollment in the lowest cost medical plan; or
- Only permit a drop of FSA coverage.
An employer should have the flexibility to limit which employee groups are eligible for the amnesty QLE provided any applicable nondiscrimination rules are satisfied.
Note: Employers should confirm permitted election changes with any applicable insurance carriers (including stop-loss carriers) before implementation. An insurance carrier may not agree to administer certain election changes because of adverse selection concerns.
- When to allow amnesty QLEs – An employer can choose when to permit an amnesty QLE. We believe most employers will choose to administer amnesty QLEs during a limited enrollment window rather than on an ongoing basis.
Dropping Health Coverage
An employee may only drop health coverage if the employee has other health coverage or will shortly enroll in other health coverage. An employer may rely on an employee’s written attestation as evidence of current or pending enrollment in another health plan, unless the employer has actual knowledge that the employee is not or will not enroll in other health coverage. IRS Notice 2020-29 provides the following sample attestation:
Note: The guidance does not address whether an attestation is required if the employee will remain enrolled but wants to drop coverage for a spouse or dependent. This may be an oversight, and an employer might consider using an attestation in these instances as a precaution.
Dropping FSA Coverage
Under the amnesty QLE rules, an employer permitting changes or drops to FSA coverage does not have to permit a change or drop in FSA coverage below the amount already reimbursed during the plan year.
Prospective Changes, Retroactive Blessing
In general, election changes for amnesty QLEs must be prospective.[2] As a reprieve for employers who made impermissible exceptions to the normal QLE rules during 2020 prior to May 12th, the Notice permits plans to retroactively treat impermissible exceptions as amnesty QLEs.
Note: This retroactive effect only applies to exceptions that occurred before May 12, 2020. An amnesty QLE permitted today cannot be retroactively effective.
Grace Periods and FSA Carryovers
An employer can amend FSAs (both HCFSAs and DCFSAs) to allow unused funds from a plan whose grace period or plan year ends in 2020[3] to reimburse expenses incurred through December 31, 2020 in an extended grace period.[4] This may be impractical for calendar year FSAs, because forfeitures have already occurred and it may be administratively difficult to “undo” them.
Under the cafeteria plan rules, a HCFSA cannot use a grace period and carryover feature during the same plan year. IRS Notice 2020-29 temporarily excuses this and permits the same HCFSA to use both an extended grace period and a carryover feature for the 2020 plan year.
The IRS did not grant relief for any health savings account (HSA) eligibility issues an extended grace period might cause. The HCFSA rules permit a carryover from a general purpose HCFSA to an HSA-compatible HCFSA for individuals that elect high deductible health plan (HDHP) coverage in a subsequent year. This is not the case for extended grace period funds, which remain in their original HCFSA.
An individual with any amount in a general purpose HCFSA when the extended grace period begins will be ineligible to make or receive HSA contributions until January 1, 2021. This may be especially frustrating for individuals who elected HDHP coverage for the 2020 plan year and who have only small HCFSA balances remaining from 2019. An employer could alleviate this by permitting employees to forfeit remaining HCFSA balances before the extended grace period begins.
Other Noteworthy Items
Carryover Amount Increased and Indexed
-
IRS Notice 2020-33 finally increases the maximum HCFSA carryover amount for inflation. Beginning with the 2020 plan year, the carryover maximum will be 20% of the overall HCFSA salary reduction limit. That limit is $2,750 for 2020 plan years, making the HCFSA carryover amount $550.
Health Savings Accounts (HSAs)
-
Earlier relief granted HDHP/HSA relief to allow first dollar coverage for COVID-19 testing. The testing relief now also includes diagnostic testing for influenza A & B, norovirus and other coronaviruses, and respiratory syncytial virus (RSV).
-
HSA eligibility for HDHPs providing $0 telehealth services will apply retroactively to January 1, 2020.
Individual Coverage Health Reimbursement Accounts (ICHRAs)
-
IRS Notice 2020-33 provides that individual coverage health reimbursement arrangements may reimburse individual insurance policy premium expenses paid prior to the beginning of the plan year as long as that premium applied to a period of coverage that began during the plan year.
[1] The amnesty QLE does not apply to other pre-tax benefits offered through the cafeteria plan. Remember that no QLE is required to change an HSA election
[2] We assume most plans will administer these changes according to their customary rules for determining the effective date of coverage. This might be: (i) the first of the following month; (ii) the next payroll period; or (iii) the date of the election.
[3] This would include a 2019 calendar year FSA with a grace period ending March 15, 2020, but it does not include a 2019 calendar year FSA with no grace period.
[4] The extended grace period is available for any HCFSA, including a limited purpose HCFSA.
The information contained herein is for general informational purposes only and does not constitute legal or tax advice regarding any specific situation. Any statements made are based solely on our experience as consultants. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. The information provided in this alert is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients. This is not legal advice. No client-lawyer relationship between you and our lawyers is or may be created by your use of this information. Rather, the content is intended as a general overview of the subject matter covered. This agency is not obligated to provide updates on the information presented herein. Those reading this alert are encouraged to seek direct counsel on legal questions. © 2020 Marsh & McLennan Agency LLC. All Rights Reserved.
You May Also Be Interested In
- Event
01.27.2021
Webinar | The New Norm: Maintaining Productivity While Working From Home
- Event
02.04.2021
Webcast | Continued Road to the Vaccine: Clinical and Compliance Considerations for Employers
- Event
02.18.2021
Webcast | HIPAA Privacy and Security Training
- Event
03.16.2021
Webinar | Pay Equity Disputes and Risks
- Event
03.18.2021
Webcast | How to Survive a U.S. Department of Labor Audit
- Event
04.15.2021
Webcast | Qualifying Life Events and Permitted Election Changes
- Event
05.20.2021
Webcast | Wellness Programs
- Event
06.17.2021
Webcast | Mid-Year Compliance Review
- Event
07.15.2021
Webcast | FMLA and Employee Benefits
- Event
08.19.2021
Webcast | Medical Expense Spending Accounts (Health FSA, HRA, HSA)
- Event
09.16.2021
Webcast | COBRA
- Event
10.21.2021
Webcast | Domestic Partner and Non-Tax Dependent Coverage
- Event
11.18.2021
Webcast | ACA Reporting Requirements
- Event
12.16.2021
Webcast | Year-End Compliance Review and Forecast
- Blog
01.25.2021
Summary of Benefits Provisions in the 2021 Consolidated Appropriations Act – Part 2
- Blog
01.22.2021
Annual CMS Medicare Part D Disclosure Due for Calendar-Year Plans
- Event
01.21.2021
Webcast | State Individual Mandate Reporting Requirements
- Blog
01.21.2021
A Bitter Pill to Swallow
- Event
01.20.2021
Webinar | New Developments in the Classification of Workers
- Event
01.13.2021
Webinar | Leave of Absence and Return to Work Issues in the Era of COVID-19
- Blog
12.29.2020
A Summary of Benefits Provisions in the 2021 Consolidated Appropriations Act
- Blog
12.29.2020
A Coronavirus Update for Employers
- Event
12.17.2020
Webinar | Year End Checklist 2020 and Future Forecast 2021
- Blog
12.04.2020
Additional Health Reimbursement Arrangements Allowed Under Final Rules
- Blog
11.20.2020
Federal Agencies Issue Final Rules Addressing Transparency in Coverage
- Event
11.19.2020
Webinar | ACA Reporting Requirements 2020
- Event
11.12.2020
Webcast | 2020 Election Results: The Impact to Benefit Plans
- Blog
10.30.2020
A Summary of 2021 Health and Welfare Plan Limits and Other Annual Adjustments
- Blog
10.22.2020
Final 2020 IRS Forms 1094/1095 Published
- Event
10.15.2020
Webinar | Health Savings Accounts 2020
- Blog
10.14.2020
INSIGHTS Newsletter
- Blog
10.09.2020
Affordable Care Act Reporting Relief Extended for 2020
- Blog
10.09.2020
Michigan Revises No-Fault Auto Insurance
- Event
10.08.2020
Webcast | A Tale of Two Breaches
- Blog
09.24.2020
DOL Issues New FFCRA Leave Guidance
- Event
09.17.2020
Webinar | FMLA and Employee Benefits 2020
- Blog
09.14.2020
Transportation Fringe Benefits Update
- Blog
08.31.2020
Massachusetts Family Medical Leave Update: Renewal of Fully Insured and Self-Funded Private Plan Exemptions, Upcoming Dates, Plan Options and Benefit Coordination
- Blog
08.26.2020
The Empire State Strikes Back
- Event
08.20.2020
Webinar | Compliance Considerations When Self-Insuring 2020
- Blog
07.29.2020
2021 Employer Affordability Safe Harbor
- Event
07.22.2020
WEBINAR | Next Chapter: Massachusetts Family Leave Act 2021
- Blog
07.22.2020
The Rise of State Individual Mandates - July 2020
- Blog
07.22.2020
Massachusetts Paid Family Medical Leave Update (July 2020)
- Blog
07.22.2020
Massachusetts Creditable Coverage – Employer Update (2020)
- Event
07.16.2020
Webinar | Annual Required Notices 2020
- Blog
07.01.2020
IRS Addresses Direct Primary Care and Health Care Sharing Ministries
- Blog
06.30.2020
Proposed ESG Regulation
- Event
06.18.2020
Webinar | Mid-Year Compliance Review 2020
- Blog
06.16.2020
What’s Old is New Again – Annual PCORI Fee is Due July 31st
- Blog
06.16.2020
COVID-19 Plan Administration Relief: The Good, the Bad, and the Ugly
- Event
05.28.2020
Webcast | COVID-19 Update: Navigating the Coronavirus, Vaccines, Testing and Wellbeing
- Blog
05.28.2020
DOL Finalizes Rule Expanding Use of Electronic Delivery for Plan Documents
- Blog
05.27.2020
2021 Plan Limits and Final Coupon Guidance Released
- Event
05.21.2020
Webinar | COBRA 2020
- Event
05.19.2020
Webinar | Legal and Compliance Return to the Workplace: Considerations for Employers
- Blog
05.11.2020
IRS and DOL Extend Filing Deadlines Due to COVID-19
- Blog
04.20.2020
IRS Extends Deadlines Due to COVID-19
- Event
04.16.2020
Webcast | COVID-19: Managing the Impact- Weekly Update 4.16.20
- Event
04.16.2020
Webinar | ERISA Basics 2020
- Blog
04.10.2020
CARES Act Signed Into Law
- Event
04.09.2020
Webcast | COVID-19: Managing the Impact- Weekly Update 4.9.20
- Event
04.02.2020
Webcast | Update on COVID-19: Navigating the Coronavirus and Managing the Impact
- Blog
03.30.2020
CARES Act Provisions Expand Retirement Plan Access for Individuals Impacted by COVID-19
- Blog
03.27.2020
FFCRA Employee Rights Poster Notification Poster Available
- Blog
03.26.2020
DOL Issues New Guidance on FFCRA and Required FFCRA Posters
- Event
03.24.2020
Webinar | Navigating the Coronavirus and Managing the Impact
- Blog
03.23.2020
The Rise of State Individual Mandates - March 2020
- Event
03.19.2020
Webinar | HIPAA Privacy and Security Training 2020
- Blog
03.10.2020
Federal Agencies Issue Proposed Rules Addressing Transparency in Coverage
- Event
02.20.2020
Webinar | Qualifying Life Events & Permitted Election Changes 2020
- Blog
02.13.2020
The Rise of State Individual Mandates
- Blog
02.10.2020
Annual CMS Medicare Part D Disclosure Due for Calendar-Year Plans
- Event
01.23.2020
Seminar | Employment Law Landscape 2020
- Blog
01.22.2020
The Affordable Care Act’s Employer Mandate: Part 4
- Event
01.16.2020
Webinar | Wellness Programs 2020
- Blog
12.26.2019
Repeal, Repeat, Remand – Ho Ho Hum?
- Event
12.19.2019
Webinar | Year End Checklist and Future Forecast
- Blog
12.09.2019
Employer HIRD Form Due on December 15, 2019
- Blog
12.04.2019
Affordable Care Act Reporting Relief Extended for 2019
- Event
11.21.2019
Webinar | ACA Reporting Requirements
- Blog
11.20.2019
IRS Releases Draft 2019 Instructions for Forms 1094/1095
- Blog
11.08.2019
IRS Releases 2020 Limits for FSAs and Other Benefits
- Blog
10.28.2019
California Mandates a Notice Requirement for Flexible Spending Accounts
- Blog
10.28.2019
All That Glitters is not Gold
- Blog
10.28.2019
The Affordable Care Act’s Employer Mandate: Part 3
- Blog
10.28.2019
Medical Loss Ratio Rebates
- Event
10.17.2019
Webinar | Health Savings Accounts
- Blog
10.09.2019
2019 Massachusetts HIRD Form Filing Deadline Approaches
- Blog
10.04.2019
Insurance Carriers Approved for Mass Paid Family Medical Leave Act
- Blog
09.30.2019
New Health Reimbursement Arrangements Allowed Under Final Rules
- Event
09.19.2019
Webinar | New HRA Options
- Blog
09.19.2019
2020 Employer Affordability Safe Harbor
- Blog
09.18.2019
The Affordable Care Act’s Employer Mandate: Part 2
- Blog
09.17.2019
Medicare Part D Notice Reminder
- Event
08.15.2019
Webinar | Association Health Plans
- Blog
08.12.2019
And in this Corner…the Fight to Expand Association Health Plans Continues
- Blog
07.31.2019
New Guidance on Mass FMLA Payroll Contributions and Wage Withholdings
- Blog
07.22.2019
IRS Expands Definition of Preventive Care for Qualified High Deductible Health Plans
- Event
07.18.2019
Webinar | Annual Required Notices 2019
- Blog
07.10.2019
Tax Consequences of Gym Membership Reimbursement
- Blog
07.09.2019
Agencies Release 2020 Adjusted Limits
- Blog
07.08.2019
The Affordable Care Act’s Employer Mandate: Part 1
- Blog
07.01.2019
President Signs Executive Order to Improve Healthcare Price and Quality Transparency
- Event
06.20.2019
Webinar | Mid-Year Compliance Review
- Blog
06.18.2019
Mass Paid Family Medical Leave Update
- Blog
05.28.2019
Potential FMLA Violations
- Blog
05.24.2019
Annual PCORI Fee is due
- Blog
05.23.2019
The Status of Qualified Transportation Fringe Benefits
- Event
05.16.2019
Webinar | Wellness Programs
- Blog
05.03.2019
Massachusetts Online Exemption Application Now Available for Employers Seeking a Private Plan Option to State Paid Family Medical Leave Program.
- Blog
04.30.2019
Massachusetts Employer Alert
- Blog
04.26.2019
Massachusetts Releases New Guidance and Employee Notice Template For Massachusetts Paid Family and Medical Leave (PFML)
- Event
04.18.2019
Webinar | HIPAA Privacy & Security Training
- Blog
04.11.2019
Leave Laws Continue to Multiply
- Blog
04.10.2019
Massachusetts Creditable Coverage
- Blog
04.02.2019
Association Health Plans (AHPs) – Update
- Blog
03.25.2019
U.S. Department of Labor Releases Proposed Overtime Rule
- Event
03.21.2019
Webinar | Federal Continuation Coverage
- Blog
03.19.2019
Deadline Approaching: Paid Family and Medical Leave Act
- Blog
03.06.2019
Reminder: Annual CMS Medicare Part D Disclosure
- Blog
03.05.2019
Mistaken HSA Contributions
- Blog
03.04.2019
Frequently Misunderstood Health Savings Account Issues
- Event
02.21.2019
Webinar | FMLA & Employee Benefits
- Event
02.13.2019
Seminar | How to Survive a DOL Audit
- Blog
02.05.2019
Government Considering Modifications to HIPAA Privacy and Security Rules
- Blog
02.04.2019
Automatic Enrollment Given a Boost
- Event
01.29.2019
Employment Law Landscape 2019
- Event
01.17.2019
Webinar: ACA Reporting Requirements
- Blog
12.31.2018
Slowly Filling in the Blanks
- Blog
12.27.2018
Women’s Contraceptive Coverage under the Affordable Care Act (ACA) – Update
- Blog
12.20.2018
Making a List and Checking It Twice
- Blog
12.18.2018
Texas Federal Court Rules ACA Unconstitutional
- Event
12.14.2018
Webinar | Q4 2018 Health Care Reform Update
- Blog
12.03.2018
An End to Pharmacy Gag Clauses
- Blog
12.03.2018
Employment Law Update: Minimum Wage Keeps Climbing
- Blog
11.29.2018
2018 Form 1094/1095 Reporting
- Blog
11.21.2018
Do the HIPAA Privacy and Security Rules Apply to My Organization? Part Two
- Event
11.20.2018
Webinar | Back to Basics: Consumer-Based Plans 101
- Blog
11.16.2018
Better Late Than Never
- Blog
11.02.2018
Compliance Update: HRAs Poised For a Facelift
- Blog
10.22.2018
FMLA Update - Organ Donation
- Blog
10.18.2018
Do the HIPAA Privacy and Security Rules Apply to My Organization?
- Blog
09.14.2018
Navigating the Wellness Program Rules for 2019
- Event
01.23.2018
Employment Law Landscape 2018
- Blog
10.06.2017
Interim Rules on Contraceptive Exemptions