Relief for FSAs and DCAPs
On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law and provides for relief related to the COVID-19 pandemic.
Employers will want to decide whether to allow any or all permissible changes and reach out to their FSA vendors. Employers may, but are not required to, amend their cafeteria plan for any of the following:
- For a Health FSA or DCAP:
- Carryover and grace period. Participants (even in a DCAP) may carry over unlimited unused amounts (rather than up to $550) from the 2020 plan year to the 2021 plan year (and from the 2021 plan year to the 2022 plan year). Alternatively, employers may allow for a grace period for a plan year ending in 2020 or 2021 of up to 12 months after the end of such plan year (rather than 2½ months following the end of the plan year). Health Savings Account (“HSA”) eligibility should be considered, if applicable. See note below.
- Mid-year election changes. For plan years that end in 2021, participants may make prospective election modifications without regard to any change in status.
- For a Health FSA:
- An employee who ceases participation in the plan during calendar year 2020 or 2021 may continue to receive reimbursements from unused amounts through the end of that plan year (including any grace period, considering any modification of a grace period permitted above).
- For a DCAP:
- If a dependent child aged out during the pandemic, a participant can continue to receive reimbursements for such child’s dependent care expenses for (1) the remainder of the plan year (if the enrollment period ended before January 31, 2020) and, to the extent a balance remains at the end of the plan year, (2) the following plan year until the child turns age 14 (but only with respect to the unused amount).
The plan must be amended no later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective. For a January 1, 2020 to December 31, 2020 plan year, this means an amendment must be adopted no later than December 31, 2021. In addition, the plan must be operated in a manner consistent with the terms of such amendment during the period beginning on the effective date of the amendment and ending on the date the amendment is adopted.
Employers with qualified high deductible health plans (“HDHPs”) tied to HSAs will need to work closely with their vendors to preserve HSA eligibility if adopting the carryover or grace period changes to the Health FSA. If adopting a carryover, the rules permit a carryover from a traditional Health FSA to an HSA-compatible Health FSA for those electing the HDHP option in the subsequent year. However, similar treatment does not apply with respect to a grace period. Employers wishing to provide an HSA-compatible Health FSA grace period will need to do so for all participants, not just those with HDHP coverage.
Additional articles from the January 2021 edition of the Univest Employee Benefits Newsletter:
- Encouraging Employees to Use Telehealth Services
- 10 Employee Retention Resolutions for 2021
- Employee Skills for the Post-pandemic Workplace
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