Latest U.S. Stimulus Package Includes Temporary Relief for Flex Spending Plans

On December 27, 2020, President Donald Trump signed into law a major legislative package that includes numerous measures aimed at coronavirus relief. The Act, formally titled the Consolidated Appropriations Act of 2021, had passed Congress just a week prior and, among many items, provides temporary special rules for health and dependent care flexible spending accounts (FSAs) that give employees additional time to access unused funds.

This is not the first time during the COVID-19 pandemic that owners of FSAs have seen some relief. Earlier in 2020, we had written about the first set of regulations aimed at relaxing certain rules for Section 125 & FSA plans; Notice 2020-29 which provided temporary flexibility to permit employees to make prospective mid-year election changes (health coverage, health FSA and dependent care) and Notice 2020-33 which increases the carryover limit of unused amounts remaining as of the end of a plan year in a health FSA.

While many employers did adopt these changes, it still left a number of employees worried about the funds already accumulated, particularly in the dependent care accounts not subject to carryover. This is where the new Act aims to fill in some gaps. For plan years ending in 2020 and 2021, the Act will allow employers to modify their plans to:

  • Permit employees to carry over unused amounts remaining in FSAs to the next plan year. This is beyond the IRS limit recently increased to $550 for health FSAs, and will cover unused funds in either a health or dependent care account.
  • Increase the age of covered dependents from 13 to 14 years of age, when submitting for allowable dependent care expenses.
  • Extend the grace period to 12 months after the end of such plan year.
  • Permit employees who cease plan participation during 2020 or 2021 to submit for eligible expenses from unused amounts through the end of the plan year in which their participation ended.
  • Allow employees to prospectively modify the amount of their FSA contributions for plan years ending in 2021, up to the IRS limits, even without experiencing a traditional qualifying event.

These options remain at the discretion of the employer, who may choose to add all or some of the relief measures by amending their plan(s) to adopt the changes. Plan amendments can take place retroactively, so long as they are adopted no later than the last day of the first calendar year following the plan year in which the change is effective. Simply put, a 2020 calendar year plan amendment must be adopted on or before December 31, 2021. In addition, before such changes are formally adopted, the plan must be operated consistently with the terms of the pending amendment.

Rose & Kiernan, Inc. will be reaching out directly to our FSA clients with steps to amend your documents. We continue to monitor and relay information related to the many aspects of dealing with COVID-19 and the workplace. If you have any questions about this topic, please contact us here or by calling (800) 242-4433.

Please note that news and events surrounding the COVID-19 pandemic are changing quickly. The information provided in this blog post represents where things stand on the date of publication.

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