Employers Receive More Flexibility on Cafeteria Plans

The IRS released guidance on temporary changes to section 125 cafeteria plans, which extend the claims period for health flexible spending arrangements (FSAs) and dependent care assistance programs as well as allow employees to make mid-year changes to their employer-sponsored health coverage.

health plan audit cpaEmployers, at their discretion, may amend their cafeteria plans to allow employees to:

  1. Make a new election for employer-sponsored health coverage on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage;
  2. Revoke an existing election for employer-sponsored health coverage and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis (including changing enrollment from self-only coverage to family coverage);
  3. Revoke an existing election for employer-sponsored health coverage on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer;
  4. Revoke an election, make a new election, or decrease or increase an existing election regarding a health FSA on a prospective basis; and
  5. Revoke an election, make a new election, or decrease or increase an existing election regarding a dependent care assistance program on a prospective basis.

The employer must receive from the employee an attestation in writing that the employee is enrolled, or immediately will enroll, in other comprehensive health coverage not sponsored by the employer. This relief may be applied retroactively to periods on or after January 1, 2020.

Claim period for FSAs and dependent care assistance programs

Employers can also allow their employees the option to apply unused amounts (currently a maximum of $550) remaining in a health FSA or a dependent care assistance program as of the end of a grace period ending in 2020 (or a plan year ending in 2020) to pay or reimburse expenses incurred for the same qualified benefit through December 31, 2020. This relief may be applied on or after January 1, 2020 and on or before December 31, 2020.

Read IRS Notice 2020-29 and Notice 2020-33 for complete details on the temporary changes.

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