SUMMARY OF AMENDMENT REQUEST
In May of this year, the IRS issued two separate sets of guidance which provide additional flexibility to employer / plan sponsors of Section 125 Cafeteria Plans (including the Health FSA and Dependent Care Assistance Program (DCAP) components of those plans). Notice 2020-29 provides temporary relief intended to help plan participants and other eligible employees maximize their potential plan benefits and minimize their risk of forfeiture of unused benefits in light of the COVID-19 coronavirus pandemic. Notice 2020-33 provides permanent flexibility for Health FSA plans to increase their maximum allowable rollover of unused participant benefits from one plan year to the subsequent plan year.
The changes in both notices are optional for employer / plan sponsors. In addition, employer / plan sponsors are free to adopt limited versions of the allowable changes. However, employers wishing to adopt any version of the allowable changes must execute a written plan amendment on or before December 31, 2021. The amendments may be adopted retroactively to as early as January 1, 2020. 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 this completed Amendment Request Form. Documents will be prepared in the order that completed Amendment Request Forms are received. We are unable to provide an estimated delivery date for the amendments at this time as we are uncertain as to what the demand for amendments will be. We will update affected employer / plan sponsors as we are better able estimate delivery dates.
Additional information about the available options and an opportunity to indicate any desired changes for your plan are contained on the second, third and fourth pages of this notice. Employer / plan sponsors wishing to discuss their options further with an Admin America representative may submit a request to schedule a phone consultation at an available time that is convenient for them. Instructions for submitting completed Amendment Request Forms or phone consultation requests are included below.
If you do not wish to make any amendments to your plan based on the options provided in Notices 2020-29 and 2020-33, you need not take any action. However you are welcome to send an e-mail to email@example.com to indicate that decision and we will update our records for your plan to prevent any unnecessary follow-up with you later in the year.
IRS NOTICE 2020-33 HEALTH FSA ROLLOVER CHANGE
IRS Notice 2020-33 authorizes Health FSAs with Plan Years beginning on or after January 1, 2020 to increase the maximum amount of unused annual benefit that the plan may permit participants to rollover to the subsequent Plan Year from $500 to $550. In addition, the Notice authorizes Plans to increase the maximum rollover amount for future plan years to 20% of the annual maximum allowable employee contribution to Health FSAs. For example, the 2020 annual maximum allowable employee contribution to Health FSAs is $2,750 while the maximum rollover amount is $550. If the maximum allowable employee contribution to Health FSAs for Plan Years beginning on or after January 1, 2021 increases to $2,800, the maximum rollover amount for benefits unused by plan participants during that Plan Year may increase to $560.
IRS NOTICE 2020-29 SPECIAL GRACE PERIODS
IRS Notice 2020-29 authorizes Health FSAs and DCAPs with Plan Years or Grace Period ending on or after March 1, 2020 to offer a special extended grace period for plan participants to incur eligible expenses as late as December 31, 2020. Employer / plan sponsors can choose to end the available special grace period earlier than December 31, 2020 but cannot extend it beyond that date. Under a special provision of the temporary relief offered under the notice, Employer / plan sponsors of Health FSAs may offer this extended grace period option in addition to any applicable rollover provisions (contrary to the standard rule prohibiting Health FSAs from offering grace periods and rollovers in the same Plan Year). Due to the limited temporary nature of the relief offered under the notice, this special grace period will not impact calendar year plans (or plans with plan year end dates of January 31 or February 28/29) unless they utilize a grace period that ends on or after March 1 each year.
IRS NOTICE 2020-29 MID-PLAN YEAR ELECTION CHANGES
IRS Notice 2020-29 authorizes Section 125 Plans to allow plan participants to make certain mid-year changes of election during 2020 that would typically be prohibited under the federal regulations governing such changes. The notice allows (but does not require) plans to allow eligible employees to enroll in plan benefits at any time during calendar year 2020. Participants may also be permitted at any time during calendar year 2020 to change coverage options and also may be allowed to replace group health insurance coverage with health coverage obtained through other providers (such as a spouse’s employer, Medicaid or the individual health insurance marketplace). Participants may also be allowed to reduce a Health FSA or DCAP election to the greater of their plan year-to-date contributions or reimbursements. Employer / plan sponsors considering allowing eligible employees to enroll or change coverage options under the relief provided under this notice must verify that any applicable insurance carriers will allow such changes.
To Request a Telephone Consult To Discuss Available Options: