Last week’s special webinar on this topic drew a lot of benefits professionals. And, a lot of questions!
If you were one of the 900+ benefits professionals who attended last week’s webinar, The COVID Relief Bill Explained, you know we covered a lot of territory. We’ll continue reporting on the impacts of this bill throughout 2021, as well as any other new compliance issues that crop up.
In the meantime, here’s a summary of the many questions we received during the webinar, accompanied by the best answers we have based on what we currently know. Click on the topics headers to jump directly to that section. And be sure to check out the slide deck and webinar recording, especially if you missed this exciting discussion as it happened.
Table of Contents
FSA Grace Periods
- IRS Notice 2020-29 allowed calendar year plans with grace periods to extend the grace period to 12/31/2020. What is your opinion on whether the 2019 plan year FSA balances can carry forward to the 2021 plan year? Do you have any details about how Notice 2020-29 integrates with the CAA rules?
For plans with grace periods, we believe that the balances would be available for only 12 months following the end of the plan year, such that the only funds available into the 2021 plan year would be 2020 funds. These funds would not be carried over into the next year. For plans with carryover, the prior year’s funds would be available (assuming max carryover is allowed each year) until the end of the 2022 plan year.
- Would we be allowed to transfer FSA balances for only employees still enrolled in PPO Plans with FSA accounts? We would not roll over the FSA balances for those enrolled in HDHP with HSAs?
I am assuming this is referring to carryover. We anticipate that a plan could place a restriction on the carryover to automatically convert to LPFSA for anyone enrolling in the HDHP/HSA or forfeited. For those that do not enroll in the HDHP/HSA, the accounts could remain full FSA.
- If you do carryover you cannot do grace period, correct? Also, can you do carryover for one year and grace period for the other year?
This is correct. Employers cannot do both grace period and carryover in the same plan year. But they can switch their approach and have a grace period one year, and carryover another plan year.
- If a plan has a grace period, can the plan be amended to the carryover feature? What would be the pros/cons of carry over vs grace period?
Plans can be amended to use a carryover – but not in the same plan year as the grace period (it is one or the other).
- Is it only the grace period that may have HSA impact? Carryover won’t be impacted, correct?The HSA contribution impact could be with both plan options (carryover and grace period)
- What are the dates for the grace period? When can the expenses be incurred? 2020, 2021, or beyond?
If the employer adopts the 12-month grace period, they would have funds from 2020 available in 2021, and contributions from 2021 available in 2022. The funds from 2020 would not carry forward into 2022 like they would with the carryover option.
- If a participant chooses not to continue enrollment in their FSA plan, how does that effect the extended rollover and/or grace period?
This will depend on the plan rules adopted by the employer. One of the additional relief options was to continue to allow terminated plan participants to receive reimbursements through the end of the plan year in which the termination from the plan occurs. With this relief, a terminated plan participant could remain active within the plan for the remainder of the plan year. Many employers will continue to provide access to carryover moneys into the next plan year for terminated plan participants, up to the carryover maximum.
- I have read that the prior COVID-19 relief bill only allows plans with already established grace period to extend the grace period. Does the new bill have this limitation?
We don’t believe this was the intent of the relief bill. The bill does not appear to restrict a plan’s ability to implement a carryover or grace period, assuming they meet the plan amendment deadlines outlined in the relief.
- Can the 2021 plan year extend the grace period into 2022, since there won't be a roll over from 2021 to 2022?
There is a carryover from 2021 into 2022 that’s available within the relief. But, if the plan sponsor were to establish a grace period instead of a carryover for 2021 funds, that would be permissible too.
- Can those who haven’t elected still modify by electing for their first time? If an employee did not originally sign up, can they sign up now?
That is our interpretation, yes.
- Can we only allow DCA FSA prospective change without allowing medical FSA prospective change?
Yes, the employer can determine which pieces of this relief they wish to adopt.
- Why does there have to be a change to dependent care when someone could always change their dependent care based on starting or stopping childcare?
We understand this option existed previously, but there are some narrow restrictions within the existing plan election change rules that are negated by this relief. Specifically, where childcare is provided by a relative and there is a change in costs (which was previously restricted in terms of permitting a change in election.)
Dependent Care FSAs
- If employers chose to allow changes throughout the 2021 plan year, can we limit the number of changes they can make? (i.e. one change permitted throughout the year?)
This could be permitted within the regulations but may be difficult to administer. Another option would be to limit the period in which participants could make a change (i.e. open a changes window that permits changes only during a defined period).
- How are plans handling members who modify down their contributions but have taken the full amount up front as allowed by FSAs?
The earlier relief from IRS Notice 2020-29, allowed employers to permit reductions, but only allow reductions down to the previously reimbursed amount. If this approach is taken, it would afford the protections you are seeking. In your example, and with this restriction, the employee cannot change their election to an amount lower than they have received so no overpayment could occur.
From IRS Notice 2020-29, “In addition, with respect to health FSAs and dependent care assistance programs, employers are permitted to limit mid-year elections to amounts no less than amounts already reimbursed.”
- Are we able to return 2020 dependent care FSA forfeited funds to participants?
No. No relief has been provided that allows funds contributed into the DC FSA to be returned to the participants outside of FSA claims reimbursement. But, carryover and grace period extensions, as well as the age cap increase, are designed to allow participants to use those funds for DC FSA in 2021 or 2022.
Dependent Care Assistance Plan
- Any word on if the $5,000 DCAP taxable income exclusion will be waived or relaxed? It's my understanding that if DC FSA funds used during a grace period put the participant over $5,000 used in the year, then the excess amount becomes taxable.
FSA funds used for qualifying expenses during the grace period are not taxable.
- Can the DCAP balance can exceed the max if 2020 rolls over to 2021?
- Is the DCAP age limit for only this plan/calendar year and not for 2022?
If a dependent ages out during 2020 or 2021 this relief allows for continuation through the end of the plan year in which the participant turned 13 years old. This does not carry forward into 2022.
- If we’ve already passed our open enrollment for 2021 elections, do we need to allow employees to make new 2021 FSA elections if we add either an extended grace period or carryover?
You are not REQUIRED to open another election, but the relief allows employers to permit their employers to make new elections, which would permit them to take advantage of this new relief.
- Does this relief allow new HC or DC elections mid-year?
- Is there a time limit for employers to make these decisions on their FSAs?
From the guidance, found here, the relief can be implemented retroactively.
Per the relief “(g) PLAN AMENDMENTS.—A plan that includes a health flexible spending arrangement or dependent care flexible spending arrangement shall not fail to be treated as a cafeteria plan under the Internal Revenue Code of 1986 merely because such plan or arrangement is amended pursuant to a provision under this section and such amendment is retroactive, if— (1) such amendment is adopted not later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective, and (2) the plan or arrangement is operated 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.”
- Can employers limit the changes to a time period? (i.e. employees can change their 2021 FSA dollar amount between Jan 15 and Feb 15). Or can we limit the number of changes allowed throughout the year?
Yes, we believe this is permissible. Limiting the time period may be more administratively efficient than tracking and limiting the number of adjustments, but we believe both are permitted.
- What formally needs to be done to give FSA relief?
If they opt to adopt them, the employer must update their plan and plan documents by the last day of the calendar year following the year in which they were adopted (so, for changes adopted effective this year, the plan and plan docs must be updated by end of 2021).
You should discuss with your FSA administrator, as well as ERISA/compliance counsel your intentions to align your changes, participant/employee communication strategy, financial implications, etc. Financial implications include the fact that defaulted contributions that would have been available to the plan sponsor to offset plan costs may be reduced as a result of this relief. Additionally, any collectively bargained agreements that you have that are impacted by adding this relief should be reviewed.
Because this would be a material change – the employer must produce and distribute a Summary of Material Modification regarding the change.
Do you have any sample communications regarding FSA potential changes?
There will likely be considerable variability in client communications – in part because some clients will have grace periods and some carryover, some will adopt all the relief, and some will adopt only portions of the relief. We are evaluating communication options and will share as samples become available - but we anticipate client specific communications may be common.
- Can we allow carryover for only part of the year?
Yes, this would largely operate as a grace period.
- Does the FSA carryover balance include only dollars that an employee contributes, or does it also include the election amount?
The FSA carryover balance would include the unreimbursed portion of the election amount.
- Does carryover amount for DC FSA have any impact to non-discrimination testing?
Carryover amounts are not factored directly into the non-discrimination testing for DC FSA. However, if someone carries over a large amount into the next year, they may reduce their contribution in the following year. This could impact the plans non-discrimination testing results, especially if non-highly compensated employees may be more likely to reduce their contributions in the subsequent year.
- Can you allow carryover for active employees but not terminated employees?
No. HC FSA is COBRA eligible and COBRA regulations require that you treat COBRA qualified beneficiaries the same as similarly situated active employees.
- Can you confirm that the carryover pertains to DC FSA as well as HC FSA?
The carryover pertains to DC FSA, as well as HC FSA.
From the relief, found here, “(b) CARRYOVER FROM 2021 PLAN YEAR.—For plan years ending in 2021, a plan that includes a health flexible spending arrangement or dependent care flexible spending arrangement shall not fail to be treated as a cafeteria plan under the Internal Revenue Code of 1986 merely because such plan or arrangement permits participants to carry over (under rules similar to the rules applicable to health flexible spending arrangements) any unused benefits or contributions remaining in any such flexible spending arrangement from such plan year to the plan year ending in 2022.” (note, similar relief is available for 2020 carryover into 2021).
- If you did not take advantage of relief measures in 2020 is it possible to do so in 2021 and include 2020? Specifically, the carryover for DC FSA?
Yes. Per the guidance found here, the relief can be implemented retroactively.
Per the relief “(g) PLAN AMENDMENTS.—A plan that includes a health flexible spending arrangement or dependent care flexible spending arrangement shall not fail to be treated as a cafeteria plan under the Internal Revenue Code of 1986 merely because such plan or arrangement is amended pursuant to a provision under this section and such amendment is retroactive, if— (1) such amendment is adopted not later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective, and (2) the plan or arrangement is operated 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. “
- What happens if someone goes over the max when electing their annual FSA contribution amount regarding the carryover?
Nothing. The FSA max contribution limit is not impacted by the carryover. A person can elect the maximum contribution and carry over a large amount – and have a balance in excess of the max contribution limit.
- Is a transit plan that’s paid by employer for commuting considered an FSA with carryover? Or, is it only for medical, dental/vision and dependent care?
Only Health Care FSA and Dependent Care FSA are eligible for this relief.
- Are FSA plan participants who have a balance in their account at the end of the year able to determine whether their account should be converted to a limited purpose FSA (LPFSA) or forfeited?
Conversion to a LPFSA must be made automatically at the plan level, you cannot let the participant determine (at an individual level) if they want to convert to an LPFSA. Therefore, at the plan level, the employer must determine if they will convert the funds to an LPFSA or forfeit the funds.
- If an employee or their spouse were enrolled in 2019 or 2020 and had unused funds, do those residual funds impact their ability to make or receive HSA contributions? -
If they remain a plan participant in the FSA and have access these funds, then yes, this could limit their ability to make contributions to an HSA. If their plan has a carryover and the plan automatically converts to LPFSA, that could allow them to contribute to an HSA while retaining access to those funds.
- Employees who terminate will still lose their balances, correct?
HC FSA is typically a COBRA eligible benefit (even without this relief) such that employees whose employment terminated during the plan year could choose to elect this coverage continuation under COBRA for the remainder of the plan year in which they terminated. The relief does not change this.
The relief does offer continuation for employees that terminate participation in the plan but retain their employment. The relief also allows terminated employees to continue receiving reimbursement without the need for enrollment in COBRA. Employers that consider the second option should evaluate their COBRA notice requirements in finalizing their strategy.
- Does this relief allow terminated participants to be paid for expenses that occurred after their termination dates? Or does this just give them more time to file claims?
This could allow terminated participants to be paid for expenses that occurred after their termination dates. It is worth noting that relief provided earlier in 2020 has already extended the period of time that plan participants have to submit claims. The period between March 1, 2020 and up to 60 days AFTER the end of the national state of emergency is disregarded in determining the timelines for submitting claims, COBRA enrollments and COBRA payments.
- Can we omit terminated employees from the cease participation reimbursement rule?Presumably yes, but only where the population is not already eligible for HC FSA continuation under COBRA, which would likely be a very small population.
- For the post-termination reimbursement, besides applying to terminated employees, does it also apply to participants who stopped their coverage with a status change? Does it matter what the cafeteria plan document states on this matter?
It could apply to the populations defined by the employer. Plan document language would be important in determining applicability to each population.
- Can terminated participants access the remaining amounts contributed, or the remaining election?
HC FSA is typically a COBRA eligible benefit (for terminated employees)– as such COBRA benefits are based on the unreimbursed election balances (not the contributed balance). For those terminated plan participants that are not COBRA eligible – the employer may have some flexibility with this.
- How do terminated employees coordinate with COBRA? why would we let them use dates of service after termination without them making contributions?
This is a great question. Many employers will likely not adjust HC FSA eligibility for terminated plan participants because it is already a COBRA eligible plan. However, the relief for terminated plan participants could also be used to allow a participant that has previously ELECTED to cease contributing to continue to have access to previously contributed amounts.
For example, under the relief available in 2020 that permitted employees to modify their elections, employees could have ceased to contribute. Before this relief, they may not have had access to their prior contributions – but with this relief, they can be allowed to continue to seek reimbursement of previously contributed funds.
- Has there been any discussion around relief for those who were terminated/laid off and had to forfeit funds in a commuter account?
The IRS is aware of the desire, but no meaningful progress to date has occurred.
- Does the employer have the obligation to contact the terminated members if this is allowed?HC FSA is a COBRA eligible benefit – such that any terminated HC FSA plan participants should already be communicated with regarding continuation of benefits by means of a COBRA qualifying event notice/election form. The relief doesn’t provide additional obligations to communicate – but to the extent the employer is modifying the plan rules, they should consider their COBRA obligations (and the COVID relief specific to COBRA that is still in effect, found here) in finalizing their communications strategy.
- Is the amount terminated employees can receive based on their election or what was contributed prior to the termination date?
HC FSA is typically a COBRA eligible benefit (for terminated employees)– and such COBRA benefits are based on the unreimbursed election balance (not the contributed balance). For those terminated plan participants that are not COBRA eligible – the employer may have some flexibility with this.
No Surprises Act
- Who defines Emergency?
An emergency medical condition is defined as new symptoms (including severe pain) that, without medical treatment, are likely to result in serious jeopardy to a person’s health, serious impairment of bodily functions, serious dysfunction of any organ or body part, or that there is not enough time for a safe transfer of a pregnant woman having contractions to a hospital before delivery.
Emergency Services is defined as a medical screening examination of an emergency department of a hospital and the medical treatment that follows.
These are found in 42 U.S.C. § 300gg-19a – Patient Protections, which the new No Surprises Act works from.
- Does the cost-sharing count toward in-network deductible and OOP? Or can it only apply to separate and distinct out of network deductible and OOP?
The cost-sharing would count towards any in-network deductible and out-of-pocket limits.
- Are all insurance companies mandated to include these provisions?
- How will the surprise billing changes affect reference-based pricing plans?
There is nothing in the legislation that addresses reference-based pricing plans, such that they will be subject to the law the same as a traditional PPO may be.
Student Loan Relief
- Would student loan relief affect a person's ability to take advantage of PSLF?
Not that we have seen, but if an employer pays back all the loan, then there isn’t anything left to forgive.
- Will tuition cap ever increase above $5,250?
Possibly, but not without legislative action.
- Is it $5,250 per year for five years? Or a total of $5,250 over five years?
The max is $5,250 per year, for each of the next five years.
- Can we offer an EITHER/OR where the employee chooses either a 401k employer match or Student Loan Relief contributions? Right now, is student loan employer contributions qualified as 401k compensation?
This will be specific to your plan design.
- Did the ER Student Loan repayment program have to be in place previously? Or, can it be put into place now?
There is not a restriction that this must already be in place.
- What is the employer tax advantages for student loan relief?
FICA is avoided for the employer contribution.
- Does the new EEOC guidance require that the vaccine be provided by a company with which the employer does not have a contract?
If mandated, you must give people the opportunity to receive the vaccine from a provider that does not have a contract with the employer. If voluntary, you don’t have that restriction because the employee can elect not to receive vaccine.
- If our population is not subject to ERISA, what happens for them? What if some of our plans are still grandfathered?
Vaccine mandate only applies to non-grandfathered plans. It applies to non-ERISA plans, but not to grandfathered plans.
- How can employers verify an employee has been vaccinated while staying in accordance with HIPAA?
Ask for authorization from the employee to receive that information.
- Can you offer a vaccination clinic on site that is voluntary?
- If the employer pays for the vaccine, would they have easier access to results?
By results, we assume you mean vaccination status (vaccinated vs not). Employer should not have access to this data without authorization regardless of who pays for the vaccine.
- If we have individual contractors, not employees, can we mandate the vaccine for them? Can we only mandate if our business pays for it?
You can mandate the vaccine for contractors, but if you pay for it you potentially create employee misclassification risks (and potentially creates a MEWA).
- If we mandate a vaccine and someone has a severe reaction, are we liable for that, perhaps under workers compensation?
Potentially, but this varies by state.
- When reinstating COBRA coverage after payment has been received, is the reinstatement retroactive or proactive?
Reinstatement would be retroactive. For example, if someone enrolled in COBRA and paid for January – June of 2020 and after June didn’t pay. They are now in a situation where if they are terminated and later pay for their back premiums (still within the relief period) they would be reinstated back to July and would owe back premiums for July forward.
- Will health plans allow us to get refunds past three months retroactively?
That will depend on the health plan. I have heard from some plans that are allowing the retroactive changes back to 3/1/2020.
- Has the duration of COBRA been extended? Is it still the standard 18 or 36 months but they now have extended time to elect/pay premiums?
The duration of COBRA has not been extended. It is still 18, 29 (disability) or 36 months. The extensions are for enrollment and payment deadlines, and claims submission and appeal deadlines.
- Is Businessolver changing the COBRA notifications?
For employers that are looking to turn on the termination for non-payment process, we have updated our standard termination letters to indicate that if a payment is received during the relief period, coverage will be reinstated.
- How does FSA connect with COBRA?
HC FSA is COBRA eligible while DC FSA is not. Typically, health care FSA is only continuable under COBRA for the remainder of the plan year in which the COBRA qualifying event occurred. However, FSA plans with carryover may have COBRA participants with carryover amounts that get carried over into the next plan year (but new plan year elections are not made for HC FSA under COBRA). This relief also added optional relief whereby employers can choose to continue reimbursement for terminated HC FSA plan participants (presumably without requiring COBRA continuation).
- Is COBRA for only Medical, or does it include Dental and Vision?
All COBRA, so it could include medical, dental, vision, FSA, EAP, telehealth, etc.
- If someone has elected to continue FSA via COBRA, then employer offers relief per recent legislation. In this situation will COBRA fees be refunded?
The relief doesn’t address this. Our expectation is that employers will make this decision themselves in determining how/if to support the available relief options.
- Does the tolling time period end as of 2/28/2021 because of the one-year limitation under ERISA? Will the outbreak period no longer apply?
Absent further Congressional action or other administrative interpretation, it appears the extension is limited to a one-year period (which would expire at the end of February 2021).
We hope these questions and answers help you gain a deeper understanding of the COVID relief bill and what it means for your organization. Check out the COVID Relief Bill Explained on-demand recording and slide deck if you haven’t already. The webinar offers many more insights than are included in this Q&A.
Businessolver.com, Inc. (“Businessolver”) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. No warranty or representation, express or implied, is made by Businessolver, nor does Businessolver accept any liability with respect to the information and data set forth herein. You should consult your own tax, legal and accounting advisors before engaging in any transaction.