In Notice 2020-29 released on May 12, 2020, the IRS provides expanded options for participants with respect to 2020 mid-year election changes and also provides increased flexibility to apply unused amounts in health FSAs to medical care expenses incurred through December 31, 2020, and unused amounts in dependent care assistance programs to dependent care expenses incurred through December 31, 2020. Although the temporary relief under Notice 2020-29 was issued in response to the COVID-19 health emergency, the relief is not limited to individuals affected by the pandemic. Specifically:
- Section 125 Plans may be amended to allow prospective election changes during calendar year 2020 regarding employer-sponsored health coverage, a health FSA, or a dependent care assistance program, regardless of whether the basis for the election change satisfies the current regulatory criteria. Note: to accept an employee’s revocation of an existing health coverage election, the employer must receive a written attestation that the employee is enrolled, or immediately will enroll, in other comprehensive health coverage not sponsored by the employer. The notice provides a sample attestation for this purpose. This relief applies to periods before the notice was issued and on or after January 1, 2020.
- Section 125 Plans may be amended to permit employees to apply unused amounts remaining in a health FSA or a dependent care assistance program as of the end of a grace period ending in 2020 or a plan year ending in 2020 to pay or reimburse expenses incurred for the same qualified benefit through December 31, 2020. Note: an individual who had unused amounts remaining at the end of a plan year or grace period ending in 2020 and who is allowed an extended period to incur expenses under a health FSA will not be eligible to contribute to an HSA during the extended period (except in the case of an HSA-compatible health FSA).
Notice 2020-33, also released on May 12, 2020, issued in response to President Trump’s Executive Orders increases the $500 health FSA carryover limit. Under this guidance, the maximum amount from a plan starting in 2020 allowed to be carried over to the following plan year starting in 2021 is $550. Notice 2020-33 also seeks to increase the usability of HRAs by clarifying the ability of a health plan (including a premium reimbursement plan in a 125 plan or an individual coverage HRA) to reimburse individual insurance policy premium expenses incurred prior to the beginning of the plan year for coverage provided during the plan year. Previously, a health plan could not reimburse medical expenses incurred before the beginning of the plan year and qualify for exclusion from income and wages. Under this new guidance, a plan may treat a health coverage premium expense as incurred on (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. For example, an individual coverage HRA with a calendar year plan year may immediately reimburse a substantiated premium for health insurance coverage that begins on January 1 of that plan year, even if the covered individual paid the premium for the coverage prior to the first day of the plan year.
Amendments pursuant to Notice 2020-29 (permitting expanded mid-year election changes and additional time to incur expenses) and Notice 2020-33 (increasing the carryover limit to $550) for the 2020 plan year must be adopted on or before December 31, 2021, and may be effective retroactively to January 1, 2020; employers must also inform employees of these changes.
KMK Comment: These Notices provide welcome relief to participants who could not have anticipated changed circumstances due to the pandemic which has resulted in such events as the cancellation of an elective surgery or the closing of a day care. Note that a specific COVID-19 reason is not required to make a change. Also note that an employer is not required to permit these changes, but if the employer intends to adopt these rules allowing the mid-year changes, making a quick decision will be more beneficial to participants because changes are only effective on a prospective basis. This guidance does not permit amounts that have already been contributed to a Section 125 Plan to be returned to the participant.
KMK Law articles and blog posts are intended to bring attention to developments in the law and are not intended as legal advice for any particular client or any particular situation. The laws/regulations and interpretations thereof are evolving and subject to change. Although we will attempt to update articles/blog posts for material changes, the article/post may not reflect changes in laws/regulations or guidance issued after the date the article/post was published. Please consult with counsel of your choice regarding any specific questions you may have.
© 2020 Keating Muething & Klekamp PLL. All Rights Reserved
Lisa Wintersheimer Michel is the leader of the Employee Benefits & Executive Compensation Group. Her practice primarily involves all aspects of qualified retirement plans, including profit sharing plans, 401(k) plans ...
John Meisenhelder has extensive experience providing counsel to medium and large size companies (tax-exempt and for-profit) with respect to all employee benefits, executive compensation and privacy matters. John ...
Helana Darrow has extensive experience in all aspects of employee benefits and executive compensation including counseling clients on the design, implementation, administration, operation and termination of employee benefit ...
Antoinette Schindel practices in KMK Law's Employee Benefits & Executive Compensation Group. Antoinette regularly advises employers regarding Affordable Care Act (ACA) compliance issues, including health coverage and ...
Kelly MacDonald has significant experience on a wide range of health, welfare and retirement plan matters. This includes the design, implementation, administration, and operation of benefit plans. She has experience advising on ...
- Labor & Employment Law
- Employee Benefits and Executive Compensation
- Employment Law
- Sexual Orientation Discrimination
- Department of Labor
- Race Discrimination
- Employer Policies
- Affordable Car Act
- Labor Law
- Americans with Disabilities Act
- Reasonable Accommodation
- Social Media
- National Labor Relations Act
- National Labor Relations Board
- Employer Handbook
- Employment Litigation
- Paycheck Protection Program
- Wage & Hour
- Federal Arbitration Act
- Title VII
- Workplace Accommodations
- Sexual Harassment
- Securities Law
- Employer Rules
- Transgender Issues
- Employment Settlement Agreements
- Preventive Care Benefits
- Health Savings Account
- SECURE Act
- Workplace Violence
- US Department of Labor Employee Benefits Security Administration
- Sixth Circuit
- Fair Labor Standards Act
- Disability Discrimination
- Equal Employment Opportunity Commission
- Overtime Pay
- Religion Discrimination
- Representative Election Regulations
- Gender Identity Discrimination
- Posting Requirements
- Class Action Litigation
- Disability Law
- Department of Justice
- Family and Medical Leave Act
- Environmental Law
- Privacy Laws
- Older Workers' Benefit Protection Act (OWBPA)
- Healthcare Reform
- Electronically Stored Information
- Affirmative Action
- Compensable Time
- Equal Opportunity Clause
- Security Screening
- Supreme Court
- Pregnancy Discrimination
- Occupational Safety and Health Administration
- E-Discovery Case Law
- Electronic Data Discovery
- Unemployment Insurance Integrity Act
- Attendance Policy
- Return to Work
- Seniority Rights
- American Medical Association
- Disability Leave
- Equal Pay
- Fair Minimum Wage
- Federal Minimum Wage
- Genetic Information Discrimination
- Media Policy
- National Origin Discrimination
- Social Media Content
- State Minimum Wage
- Wage Increase
- Employment Incentives
- HIRE Act
- Social Security Tax
- 5 Things Employers Should Know About Military Leave
- Ohio Passes COVID Immunity Law - Employers Beware
- New Executive Order Bans Some Diversity Training for Government Contractors
- Back to School for the Class of COVID-19 - Managing Employee Leave Requests
- NLRB Adopts "Motivating Factor" Test For Abusive Workplace Conduct
- Contact Tracing - Considerations for Employers
- Supreme Court Rules Sexual Orientation and Gender Identity Protected Under Title VII
- COVID-19 Related RIFs - Considerations for Employers
- Benefits Monthly Minute UPDATE: Hot-Off the (Electronic) Press! DOL Issues New E-Disclosure Rules
- Should Employers Use COVID-19 Antibody Tests?