The IRS issued two notices on May 12, 2020, Notice 2020-29 and Notice 2020-33. These Notices provide a number of options that employers could choose to offer their employees with respect to their 2020 cafeteria plan benefits as well as some additional guidance as described below.
Under IRS Notice 2020-29, an employer has the option of amending its cafeteria plan to allow employees to make prospective changes to their health plan, health flexible spending account (health FSA) and dependent care flexible spending account (dependent care FSA) elections during calendar year 2020. These changes, which IRS rules would typically prohibit absent a change in status event, allow employees to:
An employer that decides to allow these changes is not required to provide for unlimited changes. For example, employers could limit mid-year election FSA changes to no less than amounts already reimbursed, or could limit health coverage elections to increased coverage only.
Additionally, the relief under Notice 2020-29 applies retroactively to January 1, 2020, to cover situations where an employer previously allowed election changes that were not permitted at the time but are now permitted under this Notice.
Under Notice 2020-29, an employer also has the option of amending its cafeteria plan to allow for an extended period during which participants can use unused amounts remaining in a health FSA or dependent care FSA, as follows:
Under Notice 2020-33, an employer also has the option of amending its cafeteria plan to allow for increased health FSA carryovers. This change is a permanent change that is not limited to the COVID-19 outbreak period or calendar year 2020. Employers have the option of amending a plan that already has a carryover to increase the maximum $500 carryover amount to an amount equal to 20% of the maximum health FSA salary reduction for that plan year or to add a new carryover up to that maximum amount. For example, the 2020 salary reduction limit is $2,750, meaning a participant could carry over $550 into the 2021 plan year.
All of the changes described above are optional – an employer can choose to implement some, all, or none of them. The deadlines for plan amendments are as follows:
The CARES Act and earlier IRS guidance allowed HDHPs to offer medical care and items purchased related to testing and treatment of COVID-19 and telehealth or remote care services to be covered at no cost prior to the satisfaction of the applicable minimum deductible without affecting the status of a HDHP or the ability of enrolled employees to participate in an HSA. See our prior article on first dollar coverage of COVID-19-related expenses, available here.
Notice 2020-29 provides clarification that care and items related to testing and treatment include diagnostic testing for influenza A & B, other coronaviruses, and respiratory syncytial virus (RSV), and any items or services required to be covered with zero cost sharing under section 6001 of the Families First Coronavirus Response Act and CARES Act. Additionally, Notice 2020-29 clarifies that the exception for no cost telehealth and other remote care services applies to services provided on or after January 1, 2020 with respect to plan years beginning on or before December 31, 2021.
Health reimbursement arrangements (HRAs) are subject to a restriction limiting them to reimbursing only medical care expenses incurred during a plan year. This raises administrative issues for an individual coverage HRA (ICHRA), as individuals may need to pay, prior to the first day of a plan year, all or part of the premiums for individual health insurance or Medicare for that plan year. Notice 2020-33 allows an ICHRA to treat an expense for a premium for health insurance coverage as incurred on either (1) the first day of each month of coverage on a pro rata basis, (2) the first day of the period of coverage, or (3) the date the premium is paid. This means an initial premium paid before the start of the plan year can be considered a qualified medical expense for that plan year. See our prior articles located here and here for more information on ICHRAs.
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