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Published on Mar 3
At the end of 2020, the Consolidated Appropriations Act (CAA) was signed into law, expanding upon earlier relief and giving employers multiple options for providing further support to their Health & Dependent Care FSA participants struggling amidst the ongoing COVID-19 pandemic. While these FSA changes are available to all plans, each employer must decide which options, if any, they want to choose and amend their plan documents accordingly.
Below is an overview of the CAA’s pandemic relief and how it could impact your FSA and/or Dependent Care plan in 2021.
Employers may allow participants to carry over 100% of the unused amounts in their Health or Dependent Care FSAs from 2020 to 2021, and from 2021 to 2022. Typically, the rollover amount is limited to $550 for Health FSAs and is not applicable to Dependent Care plans.
Extended Grace Period
For plan years ending in 2020 or 2021, employers may extend the grace period in which unspent funds may be used from the normal 2 ½ months to 12 months. This change may be applied to both the Health and Dependent Care FSA plans.
Expanded Mid-Year Election Changes
Expanding upon similar relief in 2020, employers may allow employees to make mid-year changes to Health or Dependent Care FSA elections in 2021 for any reason, bypassing the usual status change events. Employers do have the ability to limit permitted election changes for Health FSAs to prevent employees from overspending their accounts.
Post-Termination Reimbursements from Health FSAs
Employers may allow employees who terminate in 2021 to continue receiving reimbursements from unspent Health FSA funds, up to the amount they contributed to the plan prior to termination, through the end of the plan year, including any grace period, without needing to elect COBRA.
Dependent Care FSA Spend-Down for Dependents Who Aged Out
Employers may increase the maximum age for qualified dependents from 13 to 14 for purposes of incurring eligible Dependent Care expenses. This applies only to plan years whose regular enrollment period ended on or before January 31, 2020. If a participant had a dependent who turned 13 during the applicable plan year and had unused funds in their account at the end of that year, those amounts may be subject to any extended grace period that was adopted by the employer.
Employers who wish to offer any of these relief options must amend their Section 125 cafeteria plans to incorporate the changes. Plan amendments can be retroactive as long as they’re adopted no later than the last day of the calendar year following the year in which they are effective. For example, for calendar-year FSA plans, an amendment may be retroactive to January 1, 2020 as long as it’s adopted no later than December 31, 2021.
By implementing any or all of the above FSA changes, employers can allow Health and Dependent Care participants to spend, rather than forfeit, their hard-earned money. While many companies may allow for at least some of these relief options, they may complicate plan administration and have impacts on other employee benefits, such as HSA eligibility. Employers should speak with their brokers, benefit consultants, and/or service providers to determine which options are best for them and meet the needs of their employees.
Important Note for Current FSA Participants
It’s always important to be proactive and stay on top of any communications related to your benefit accounts. We encourage you to reach out to your Human Resources or Benefits Department to determine what, if any, of the above FSA changes may be applicable to your specific plan.
Learn more about our Employee Benefits & Retirement plan services and contact us today for your free consultation. To stay up-to-date on all things Sheakley, subscribe to our blog and follow us on social media.