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The Emergency COVID-19 Relief Act of 2020 tucks away many crannies for the insurance industry. One of them—Flexible Spending Accounts (FSA) and Dependent Care Arrangement Programs (DCAP), also known as Dependent Care FSAs—are offered additional flexibilities (previous flexibilities resulting from the COVID-19 crisis can be found discussed in a previous Leavitt Group article). Further rulemaking is needed to provide clarifications, as a necessary part of the rulemaking process is still in movement. Highlights of these new flexibilities can be found below.
Grace periods for plan years ending in 2021 or 2022 are permitted to be extended up to 12 months, allowing an extended grace period at the end of that plan year.
- Any unused amounts in the 2020 plan year will be permitted to be carried over to the 2021 plan
- Any unused amounts in the 2021 plan year will be permitted to be carried over to the 2022 plan
Plan Changes Without a Qualified Change in Status
Plan years that end in 2021 may voluntarily elect to permit employees to make a prospective election change to modify their FSA and/or DCAP contribution amounts without an IRC 125 qualified change in status. (See the prior guidance allowing additional midyear election changes by reading the Leavitt Group article.)
Unused Contributions for Recent Prior Participants
The health FSA may only permit participants who in the 2020 or 2021 calendar year terminated their participation in the health FSA to receive reimbursements from unused contributions or benefits. The recent prior participants are eligible to receive reimbursement from the unused amounts through the end of the respective plan year (including any grace period) or until the funds run out, whichever comes first.
Dependent Care FSA Age Eligibility
Plan sponsors may voluntarily elect to allow DCAP child eligibility to be extended from age 12 to age 13. This extension applies if the dependent aged out during the plan year, allowing reimbursement of unused DCAP funds in the following plan year.
Action May be Required
Effective prospectively as soon as the employer amends their plans, employees may be able to take advantage of some of these new flexibilities in effect for some retroactive decisions (such as the FSA election change for no change in status reason). Employers are not mandated to make these changes; rather, they are options to provide employees additional FSA and DCAP flexibility.
- Plans adopting these changes must update all corresponding plan documents by the end of the first calendar year after the end of the plan year in which the change took effect. Including:
- Explanation of Benefits
- Summary of Benefits & Coverage
- Benefits Booklets
- FSA & DCAP Booklets, if applicable
- Consider Health Savings Account implications, where applicable.
- FSA participants moving to an HSA may not be eligible if also in a FSA grace period, or have unused carryover funds.
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