Juggling the legislation and ever-changing provisions regarding COVID-era benefits has been a monumental task for benefits professionals in 2020.
In the latest round of COVID relief, Congress has addressed one of the key issues we’ve been tracking for consumer-directed health care benefits in the Consolidated Appropriations Act and granted a much-needed reprieve to employees with these accounts…if employers take action.
Where We’ve Been This Year
Many employees were facing a surplus in their health care flexible spending accounts (HCFSAs) and dependent care flexible spending accounts (DCFSAs) in 2020 due to deferred care or provider shut downs, despite some of the allowances to make mid-year plan modifications from Notice 2020-29 as well as an increase in the allowed carry over amount to $550 for health care FSAs in Notice 2020-33.
However, beyond being able to stop contributions, many DCFSA holders found themselves with a lot of funds and no providers. These employees looked to be among the hardest hit, as day cares and summer camps closed or cancelled activities early in the year, and many employees were faced with no recourse to recover contributed funds without an extension or carry over provision.
Extensions and Provisions
Employers now have several options to help current HCFSA and DCFSA members and offer a “late” enrollment period to those who would still like to opt in with the 2021-2022 provisions. Here is an overview of the consumer accounts provisions that employers may incorporate into their plan design for 2021-2022:
- The relief permits employers to allow health care FSA and dependent care FSA plan participants to carry over any remaining balances from 2020 and 2021 into the following years. This relief is not limited to the $550 maximum that would otherwise apply to HCFSA carryovers. Prior to the relief act, there was no provision for carry over for dependent care FSAs.
- For HCFSA or DCFSA plans utilizing grace periods, these grace periods can be extended for a total of 12 months. This relief applies for plan years ending in 2020 and 2021. It is important to note that extensions of grace periods through the end of the year may have impacts on some individual’s abilities to contribute to a Health Savings Account—as participation in a HCFSA that is not limited purpose disqualifies participants from contributing to an HSA.
- The relief also allows for employees who termed their FSAs to exhaust their 2020 or 2021 health care FSAs. For example, if someone terminates from participation in the health care FSA, they can still receive access to funds for the remainder of the plan year. This relief was previously available under COBRA in certain situations. This optional relief is available for individuals who terminate participation during 2020 or 2021.
- Employers may permit employees to make an election to prospectively modify the amount (but not more than any applicable dollar limitation) of their FSA contributions without the need for a change in status. This ability to permit a mid-year change in FSA election is like earlier relief provided in IRS Notice 2020-29 but appears to expand this to allow non-plan participants to subsequently enroll in the FSA. This applies to both health care FSA and dependent care FSA.
- For dependent care FSA plan participants whose dependents aged out in 2020 (attained age 13), the relief also temporarily increases the maximum age for eligible dependents for dependent care FSA from 13 years old to 14 years old. This applies to plan participants who are enrolled in a dependent care flexible spending account for the last plan year with respect to which the end of the regular enrollment period for such plan year was on or before January 31, 2020. Unused funds may apply to otherwise eligible dependents who have not yet attained age 14.
Next Steps for Employers
For impacted employers who offer health care FSAs and dependent care FSAs, contact your benefits counsel and your consumer accounts administrator to determine how to amend your plan to accommodate these provisions. These provisions are not automatic and require proactive enablement on the part of the employer. Additionally, benefits teams should consider communicating the extensions or enrollment modification options with your population.
There are several other benefits-related items within the bill that we will cover in our upcoming special edition compliance webinar on January 7, 2021. To attend our free webinar, register here.
The Consolidated Appropriations Act of 2021 can be found here. FSA relief information begins on page 2484 of the bill (also page 4951 of the PDF document) in Section 214.