Additional COVID-19 Relief Signed Into Law,
Affecting Health & Dependent Care FSAs
On December 27, 2020 President Trump signed into law today new economic relief for victims of the COVID-19 pandemic called the Consolidated Appropriations Act 2021.
Within the legislative relief there are limited provisions that directly affect tax-advantaged savings or health and welfare arrangements effective immediately. Employers have the option to implement these permitted changes (they are not mandatory) without the need to make immediate plan document amendments.
Optional Plan Change Options
For Health FSAs & Dependent Care FSAs
For health flexible spending accounts (FSAs) and dependent care flexible spending accounts (DCFSAs):
- For plan years ending in 2020, the plan can permit a carryover of all unused benefits to the plan year ending in 2021.
- For plan years ending in 2021, the plan can permit a carryover of all unused benefits to the plan year ending in 2022.
- For plans that have already have a claim grace period associated with the plan year that ends in 2020 or 2021, that grace period can be extended for up to 12 months after the end of the plan year (the normal maximum grace period is 2½ months after the end of the plan year).
- A plan can permit an employee who stops participating in the plan mid-year in 2020 and/or 2021 to continue to receive reimbursements of their unused contributions through the end of the plan year in which their participation ceased. (If the plan adopts the 12-month grace period, they would also get the extended grace period.)
- For plan years ending in 2021, participants will be permitted to prospectively modify their contribution elections (without regard to a change in status).
For dependent care FSAs only:
- If a dependent ‘aged-out’ during the pandemic, the plan can substitute age 13 for age 12 (as the maximum age for the child could be considered a qualifying person under the plan), as long as the employee was enrolled in the DCFSA for a plan year where the end of the regular enrollment period was on or before January 31, 2020, and the employee had one or more dependents who attained age 13 during the plan year, and the employee had an unused balance for a plan year that will be carried forward to the subsequent plan year.
Required Plan Amendments:
- Health FSAs and DCFSAs must be amended by the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective (e.g., calendar year 2020 plan amendments must be adopted on or before December 31, 2021). In the interim, the plan must operate consistent with the terms of the amendment.