Benefits Monthly Minute

Time Flies When You're - In a Pandemic? | IRS Guidance on Consolidated Appropriations Act Implementation (Part I)

Time Flies When You’re – In a Pandemic?

Nearly a year ago, the Monthly Minute reported on COVID-related benefit plan relief that tolled certain benefit plan deadlines applicable to, e.g., COBRA elections, COBRA premium payments, HIPAA special enrollment, and claims and appeal procedures. These deadline extensions were set to apply from March 1, 2020, until 60 days after the announcement of the end of the COVID-19 National Emergency -- the "Outbreak Period" – and were promulgated under ERISA 518 (and IRC 7508A(b)). ERISA 518 generally provides that in the case of an employee benefit plan, or any sponsor, administrator, participant, beneficiary affected by a Presidentially declared disaster or a public health emergency, the Secretary of Labor may prescribe a period of up to one year that may be disregarded in determining the date by which any action is required or permitted to be completed. As we approach the one-year anniversary of the start of the Outbreak Period, neither the IRS nor the DOL has come forward with any official guidance supporting further tolling or other extension of these deadlines. Accordingly, this relief expires effective February 28, 2021, unless the DOL and/or the IRS issue clarifying guidance in the coming days.

KMK Comment: keep in mind that benefit deadlines were tolled during the Outbreak Period, so February 28, 2021, is not necessarily a hard cut-off in terms of practical deadline expiration. For example, if an employee experienced a COBRA qualifying event on May 1, 2020, normally she would have 60 days to make a COBRA election; under the Outbreak Period relief, her 60-day election period was tolled, and the 60-day countdown will now begin on March 1, 2021 (absent clarifying guidance that may be issued in the future). [Click here for the Benefits Monthly Minute UPDATE: Outbreak Period Guidance 2.26.2021 which supersedes this summary.]

IRS Guidance on Consolidated Appropriations Act Implementation (Part I)

As previously reported in the December Monthly Minute, in late December, 2020, President Trump signed the Consolidated Appropriations Act (the “Act”), which included a number of provisions impacting employee benefit plans. On February 18, 2021, the IRS released Notice 2021-15 detailing implementation of Section 214 of the Act which provided temporary special rules for health FSAs and dependent care assistance programs. In particular, the Notice provides additional clarification as to the following:

  • Carryovers for Health FSA and Dependent Care FSA: Section 214 of the Act temporarily increases flexibility for a  125 cafeteria plan to provide a carryover of unused amounts remaining in a health FSA or dependent care assistance program. Notice 2021-15 clarifies that –
    1. this relief applies to all health FSAs, including HSA-compatible health FSAs, and all dependent care assistance programs, however, health FSA amounts may be used only for medical care expenses, and dependent care assistance program amounts may be used only for dependent care expenses.
    2. an employer may amend the plan to carry over unused amounts as of December 31, 2020, to the 2021 plan year, and may also amend the plan to carryover the entire unused amount remaining as of December 31, 2021, to the 2022 plan year.
    3. an employer may also, in its discretion, limit the carryover amount and may apply it only up to a specified date during the plan year.
    4. for purposes of determining whether an eligible individual qualifies to make HSA contributions, the carryover of unused amounts to the 2021 or 2022 plan year generally constitutes an extension of non-HDHP health plan coverage, but employers may amend their plans to allow employees to opt out of the carryover to preserve HSA eligibility.
  • Elections under a § 125 cafeteria plan: With respect to the Act’s provision permitting employees to make prospective election changes in 2021 in the absence of a Section 125 change in status event, Notice 2021-15 states that –
    1. while salary reductions may be applied only prospectively, employers may allow amounts contributed to the health FSA or dependent care assistance program after the revised election to be used for any medical care expense or dependent care expense, respectively, incurred during the first plan year that begins on or after January 1, 2021, through the end of the 2021 plan year, and
    2. this relief extends to expenses incurred by employees who were not enrolled in the health FSA or dependent care assistance program on January 1, 2021; thus, amounts contributed after the election change may be used for eligible expenses incurred at any point during the year, even if they occurred prior to the election change.
  • Plan Amendments: A plan that includes a health FSA or dependent care assistance program may be amended retroactively to incorporate the Act’s relief if –
    1. the amendment is adopted not later than the last day of the first calendar year beginning after the end of the plan year in which it is effective (for example, if an employer sponsors a calendar year cafeteria plan with a health FSA that provides for a $550 carryover (from 2020 to 2021) and amends the plan to carry over the entire unused amount as of December 31, 2020, to the 2021 plan year, the amendment must be adopted by December 31, 2021; however, an amendment for the 2020 plan year of a non-calendar year plan must be adopted by December 31, 2022),
    2. the plan is operated consistent with the terms of the amendment during the period beginning on the effective date of the amendment and ending on the date the amendment is adopted, and
    3. the employer must also inform employee eligible to participate of the changes to the plan.  

Among other things, the Notice also clarifies relief addressing extended claims periods for health FSAs and dependent care FSAs, reporting requirements for dependent care assistance programs, and addresses guidance related to expenses incurred for menstrual care products and over-the-counter drugs under the CARES Act.

KMK Comment: the Notice touches on many questions previously left open to interpretation under the Act and provides increased flexibility for those employers wishing to implement such changes. Be sure to work with your legal counsel and plan administrator to clearly document all plan changes and communicate updates with plan participants.

The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues.

Lisa Wintersheimer Michel

John F. Meisenhelder

Antoinette L. Schindel

Kelly E. MacDonald

KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.

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