In response to COVID-19, a new IRS notice allows employers to amend their IRC Section 125 cafeteria plan to provide employees with increased flexibility for the remainder of 2020. The Notice loosens restrictions on mid-year election changes for employer-sponsored health coverage and extends deadlines for applying unused funds under a Health Flexible Spending Arrangement (Health FSA) or Dependent Care Assistance Program (DCAP). Employers looking to incorporate either option into their plan must adopt a plan amendment.
Mid-Year Election Changes
For mid-year elections made during calendar year 2020, a plan may permit employees who are eligible to make salary reduction contributions under the plan to make the following changes:
Employer-Sponsored Health Coverage Elections
- Make a new election on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage;
- Revoke an existing election and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis; or
- Revoke an existing election 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.
Health FSA or DCAP
- Revoke an election;
- Make a new election; or
- Decrease or increase an existing election.
Deadlines for Applying Unused Funds
For unused amounts remaining in a Health FSA or DCAP as of the end of a grace period or plan year ending in 2020, the plan may permit employees to apply the unused amounts to pay or reimburse medical care expenses or dependent care expenses, respectively, incurred through December 31, 2020.
Employers should refer to the IRS notice for additional information.
