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New IRS Guidance Impacting Cafeteria Plan Election Changes and FSA Grace Periods and Rollovers

This week the IRS released two new sets of rules impacting Section 125 Cafeteria Plans.  Notice 2020-33 provides permanent rule changes that include an increase in the amount of unused benefits that Health FSA plans may allow plan participants to rollover from one plan year to the next.  Notice 2020-29 provides temporary rules designed to improve employer sponsored group health benefits for eligible employees in response to the coronavirus pandemic.  The relief provided under each notice is optional for employers. Employers who choose to take advantage of any of the offered plan options will be required to notify eligible employees and will eventually be required to execute written plan amendments.

Notice 2020-33 modifies the amount of annual rollover of unused benefits that Health FSA plans may offer to Plan participants.  Up until now, rollovers have been limited to $500 per Plan Year.  The new rule sets the annual rollover limit to 20% of the statutory maximum annual employee Health FSA contribution for the applicable Plan Year.  Because the statutory maximum is indexed for inflation, most years it increases (in mandated increments of $50).  Therefore, in years where the contribution limit increases by $50, the annual rollover limit will correspondingly increase by $10.

The notice provides that the increased rollover amount may apply to Plan Years beginning on or after January 1, 2020.  Because the corresponding annual Health FSA employee contribution limit for those Plan Years is $2,750, the annual rollover limit may be increased up to $550.

The relief provided under Notice 2020-29 falls into two major categories, both of which apply only for calendar year 2020.  First, the IRS introduces several significant exceptions to the mid-year change of election rules generally applicable to Section 125 Cafeteria Plans. Second, the notice contains a special grace period which offers Health Flexible Spending Arrangement (FSA) and Dependent Care Assistance Program (DCAP) Participants additional time to incur eligible expenses during 2020.

The temporary exceptions to mid-year participant election change rules for 2020 authorize employers to allow employees who are eligible to participate in a Section 125 Cafeteria Plan to:

  1. make a new election to participate in employer sponsored group health plan coverage if the employee originally declined coverage at open enrollment;
  2. change coverage options previously elected during open enrollment;
  3. drop group coverage for covered family members or themselves if they will be replacing the coverage for the impacted individual immediately with other coverage;
  4. make a prospective election to add, change or drop a Health FSA election; and
  5. make a prospective election to add, change or drop a DCAP election.

None of the above described election changes require compliance with the consistency rules which typically apply for mid-year Section 125 Cafeteria Plan election changes.  They also do not require a specific impact from the coronavirus pandemic for the employee.

Notice 2020-33 provides permanent rule changes that include an increase in the amount of unused benefits that Health FSA plans may allow plan participants to rollover from one plan year to the next.  

Notice 2020-29 provides temporary rules designed to improve employer sponsored group health benefits for eligible employees in response to the coronavirus pandemic.

Employers have the ability to limit election changes that would otherwise be permissible under the exceptions permitted by Notice 2020-29 so long as the limitations comply with the Section 125 non-discrimination rules.   For allowable Health FSA or DCAP election changes, employers may limit the amount of any election reduction to the amount previously reimbursed by the plan.  Interestingly, even though new elections to make Health FSA and DCAP contributions may not be retroactive, Notice 2020-29 provides that amounts contributed to a Health FSA after a revised mid-year election may be used for any medical expense incurred during the first Plan Year that begins on or after January 1, 2020.

For the election change described in item 3 above, the enrolled employee must make a written attestation that any coverage being dropped is being immediately replaced for the applicable individual.  Employers are allowed to rely on the employee’s written attestation without further documentation unless the employer has actual knowledge that the attestation is false.

The special grace period introduced in Notice 2020-29 allows all Health FSAs and DCAPs with a grace period or Plan Year ending during calendar year 2020 to allow otherwise eligible expenses to be incurred by Plan Participants until as late as December 31, 2020.  This temporary change will provide relief to non-calendar year based plans.  Based on the rules of this special grace period, calendar year Health FSA plans that offer rollovers of unused benefits will not benefit.

The notice does clarify that this special grace period is permitted for non-calendar year Health FSA plans even if the plan provides rollover of unused benefits.  Previous guidance had prohibited Health FSA plans from offering both grace periods and rollovers but Notice 2020-29 provides a limited exception to that rule.

The notice raises one issue for employers to consider before amending their plan to offer the special grace period.  The special grace period will adversely affect the HSA contribution eligibility of individuals with unused Health FSA benefits at the end of the standard grace period or Plan Year for which a special grace period is offered.  This will be of particular importance for employers with employees who may be transitioning into a HDHP group health plan for the first time at open enrollment.

As mentioned above, employers wishing to incorporate any of the allowable changes offered under Notices 2020-29 and 2020-33 will be required to execute written amendments to their Plan Documents and the changes should be reflected in the Plan’s Summary Plan Description and/or a Summary of Material Modification.  Notice 2020-29 requires that any such Plan Amendment must be executed by the Plan Sponsor no later than December 31, 2021.

In the next few weeks, Admin America will be reaching out to the employers for whom we provide Health FSA and DCAP administrative services with instructions for implementing any of the changes described in the Notices described here.  Any plan updates and any required Plan Amendments will be provided at no additional charge for plans for which Admin America provides monthly administrative services.  Admin America will also work with employers to provide communication templates for their eligible employees. You may submit any questions you have about these notices via our new online Q & A Forum and they will be addressed promptly by our team.

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Federal Government Responses To The Coronavirus Pandemic Impacting IRS Extension

Yesterday, the federal agencies that have primary oversight over employer sponsored group health plans published a joint directive that impacts most of Admin America’s clients and their benefits advisors.  We wanted to send you this brief update to help you better understand how the group health plans you work with are impacted by that directive.

Due to the Covid-19 pandemic, the IRS and U.S. Department of Labor’s Employee Benefits Security Administration have temporarily suspended several plan related deadlines that might otherwise jeopardize an individual’s eligibility for coverage or their ability to file claims.  This will provide an extension of time for Plan Participants and Plan Sponsors to meet certain relevant deadlines. These extensions are mandatory for all impacted plans. 

Of the types of deadlines listed below, those that are impacted by this new guidance are those that would have otherwise occurred on or after March 1, 2020.  The impacted deadlines include:

  • the time periods individuals have to enroll in group health coverage pursuant to a HIPAA special enrollment right (such as loss of group health plan coverage sponsored by another employer or a life event such as a marriage, birth of a baby or an adoption);
  • the amount of time a Plan Participant has to submit claims for benefits (this provision is of particular importance to FSA and HRA plans sponsors whose 2019 claims filing deadline was March 31, 2020);
  • the amount of time a Plan Participant has to file an appeal of any denial of a claim for benefits;
  • the amount of time a COBRA Qualified Beneficiary has to elect COBRA continuation coverage or to make payments for the cost of continuation coverage; and
  • the amount of time a Group Health Plan has to send a Qualified Beneficiary of their rights under COBRA.

The impacted deadlines are suspended until at least 60 days after the declared National Emergency related to the Covid-19 pandemic is cancelled.  Admin America will be sending out additional communications in the coming weeks to impacted clients regarding our procedural responses to this guidance.  In the interim, impacted FSA and HRA plan sponsors may want to notify their Plan Participants of the opportunity to re-file any claims that were denied last month because they had been submitted after a March or April deadline.

If you would like to review the actual release, it can be found online here.

If you have any immediate questions about this information, please call Admin America, Inc at 770-992-5959 or 1-800-366-2961.

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Federal Government Responses To The Coronavirus Pandemic Impacting HSAs, FSAs and HRAs

The federal government has responded to the coronavirus pandemic with numerous legislative and regulatory changes to help Americans deal with the health and economic challenges we are going through this Spring.  Included along with the stimulus checks, loan packages and enhanced unemployment benefits are other provisions that, while smaller in impact, should prove beneficial to families covered by account based health reimbursement plans.

One of these changes that will impact the largest number of plan participants is the permanent repeal of the requirement for a prescription issued by a physician in order for Health Savings Accounts (HSAs), Flexible Spending Arrangements (FSAs) and Health Reimbursement Arrangements (HRAs) to reimburse the cost of over-the-counter medications.  This repeal was an element of the CARES Act signed by President Trump on Friday, March 27 but is retroactive to January 1 of this year for all plans.  In addition, the CARES Act also authorized, for the first time, all three types of account based plans to reimburse feminine hygiene products. 

Account based plans no longer being subject to the over-the-counter medications prescription requirement raises two issues that plan participants should keep in mind.   First, participants utilizing plan issued electronic payment cards to purchase over-the-counter medications may experience denials at the point of sale in the near term future.  Many retailers utilize an automated database system to screen individual products for eligibility for payment with the specialized electronic payment cards issued by account based plans.   It may take several months for some retailers to update their databases with the thousands of newly eligible products. 

The second issue participants need to remember is that over-the-counter medications remain subject to the general rules account based plans must apply in determining reimbursement eligibility.  For example, plans are not authorized to reimburse expenses which are primarily for general wellness as opposed to a specific medical condition.  This means that purchases of vitamins and supplements will typically require additional documentation from a health care provider regarding the specific medical condition for which they are being purchased.

The remaining account based plan related changes described below are more specific to HSAs and the High Deductible Health Plans (HDHPs) that individuals are required to have coverage under in order to make HSA contributions. 

In order to increase access to health care for individuals covered under HDHP plans, the CARES Act included a provision that allows for first dollar coverage of telehealth services (i.e., participants are not required to meet the HDHP’s annual deductible before receiving benefits for telehealth services).  Ordinarily, if an HDHP provided first dollar coverage for telehealth services, individuals covered under the plan would not be eligible to make contributions to their HSA for any month such coverage was in place.  This temporary exemption added to the CARES Act waives that restriction.  The temporary provision is in effect from March 27, 2020 until December 31, 2021.

Another waiver of the general rule against first dollar HDHP coverage was issued by the IRS to allow plans to cover all COVID-19 related testing and treatment prior to the covered individual meeting their annual deductible.  This waiver does not compel plans on their own to provide this coverage although other newly enacted federal laws such as the Families First Coronavirus Response Act (the FFCRA) generally mandate COVID-19 related coverage (but that’s a topic for another post).

Lastly, as part of the IRS’s extension of the 2019 tax year return filing deadline from April 15 until July 15, 2020, other deadlines linked to the return filing deadline were also impacted.  These included the deadline for individuals to make 2019 tax year HSA contributions and to take curative distributions in the event they had contributed too much to their accounts in 2019.

If you have any questions about any of these changes, please e-mail or call 800-366-2961, Monday through Friday 8:30 a.m. to 5:00 p.m.