COVID-19 Guidance for Section 125 Mid-Year Election Change Rules
On May 12, 2020, the IRS released Notice 2020-29, which provides temporary flexibility for mid-year election changes under a Section 125 cafeteria plan during calendar year 2020. The changes are designed to allow employers to respond to changes in employee needs as a result of the COVID-19 pandemic.
This guidance relates to mid-year elections for:
- Self-insured and fully insured employer-sponsored health coverage;
- Health flexible spending arrangements (health FSAs); and
- Dependent care assistance programs (DCAPs).
A plan may permit any of the election changes described in the notice, regardless of whether they satisfy existing mid-year election change rules.
Please click here to continue reading our Compliance Bulletin which summarizes the additional mid-year election changes.
Annual Increases to Health FSA Carryover Limit
On June 24, 2019, President Trump issued an executive order that required the IRS to issue guidance that would increase the health FSA carryover limit. On May 12, 2020, the IRS issued Notice 2020-33 to increase the maximum $500 carryover amount for a plan year to an amount equal to 20 percent of the maximum salary reduction contribution for that plan year. Thus, the maximum unused amount from a plan year starting in 2020 allowed to be carried over to the immediately following plan year beginning in 2021 is $550 (20 percent of $2,750, the indexed 2020 contribution limit).
As a general rule, an amendment to a Section 125 cafeteria plan to increase the carryover limit must be adopted on or before the last day of the plan year from which amounts may be carried over and may be effective retroactively to the first day of that plan year. However, there is a special amendment timing rule for the 2020 plan year. Employers that implement indexing of the maximum carryover amount for 2020 may adopt an amendment to their Section 125 cafeteria plans by Dec. 31, 2021, effective retroactively to Jan. 1, 2020, provided that the employer informs all individuals eligible to participate in the cafeteria plan of the changes to the plan.
CARES Act Provisions Affecting FSAs, HSAs and/or HSAs
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed into law March 27, 2020 contains important provisions that affect HSAs, HRAs and FSAs. The following provisions are effective immediately:
- HSA-qualified health plans can now cover tele-health and other remote care service expenses below the HDHP statutory deductible limit, or at no or low-cost sharing, without affecting an account holder’s ability to continue contributing to their HSA. This provision will last until December 31, 2021.
- Over-the-counter (OTC) medications now can be paid for or reimbursed through an FSA, HRA or HSA without a doctor’s prescription. Ordinarily, individuals are precluded from using FSA funds to pay for OTC drugs without a prescription. The Act eliminates this prohibition, which frees up these funds to purchase over-the-counter medications (Tylenol, Advil, Zyrtec, etc.) and further recognizes menstrual care products as FSA-eligible expenses. These items are eligible for reimbursement beginning January 1, 2020.
Please click here to read our Benefits Bulletin: IRS Provides Temporary Flexibility for Cafeteria Plans, Health FSAs, and DCAPs.
If we can answer any questions or be of any assistance, please do not hesitate to contact us at AIBBenefits@AhernInsurance.com.