At the end of 2020 Congress passed several temporary rules to help participants in Health FSA and Dependent Care FSA plans as part of a larger COVID-19 relief package.  These new rules are similar to relief announced by the IRS in May 2020 that allows plans to give participants additional time to incur eligible expenses and more flexibility to make election changes in the middle of a plan year. 

The May relief had three primary provisions applicable to FSAs.  Plans could:

  • extend FSA grace periods beyond March 1, 2020 until the end of the calendar year;
  • increase allowable Health FSA carryovers for Plan Years beginning in 2020 up to $550; and
  • allow participants to make mid-plan year election changes for any reason at any time until the end of the calendar year.

The new relief passed by Congress in December permits plans with plan years ending any time in 2020 and/or 2021 to allow participants to carryover an unlimited amount of unused FSA or DCAP funds into the next plan year.  Alternatively, the same plans are authorized to offer grace periods to incur eligible expenses for as long as 12 months after end of their 2020 and/or 2021 plan years.  These carryover amounts and grace periods do not impact the maximum annual contributions limits applicable to either plan type.  Lastly, the new relief extends the ability for plans to allow plan participants to make prospective mid-plan year election changes for plan years ending during 2021.

As with the relief announced in May, these newly authorized changes are optional for employer / plan sponsors and there is flexibility to elect all or only some of the available options.  Like the May relief, employers wishing to adopt any version of the allowable changes must execute a written plan amendment.  For the latest relief options, the written amendments must be completed no later than 12 months after the end of the Plan Year to which they would apply.  Admin America will prepare signature ready written Plan Amendments and corresponding Summaries of Material Modification for our FSA monthly administration clients for no additional charge upon receipt of a completed Amendment Request Form.  Employers who requested Plan Amendments earlier this year based on the May relief will receive documents that incorporate both sets of changes into a single amended document.

Employer / plan sponsors considering implementing any of the new relief options should consider:

  • While 100% carryovers and 12 month grace periods generate essentially the same benefit for participants from one plan year to the next, Admin America recommends utilizing carryovers instead of grace periods due to the ability of unused funds to carryover for multiple plan years.
  • Participants who are provided with Health FSA carryovers or grace periods are ineligible to make HSA contributions for the duration of the carryover or grace coverage period regardless of when they actually deplete their prior year account balance.  This does not apply to participants whose balance was depleted prior to the end of the applicable Plan Year.  Specific plan provisions can be utilized to minimize this issue for 2020 plan year Health FSA participants who are transitioning to HDHP coverage in 2021.

Employer / plan sponsors wishing to discuss any of the available amendment options with an Admin America representative may schedule a phone consultation at an available time that is convenient for them using the link provided here.  Employer / plan sponsors who do not wish to make any amendments to their plan based on the available options do not need to take any action.