IRS Notice 2020-29: Mid-Year Changes to Health, FSA and Dependent Care Elections

To assist with the nation’s response to COVID-19, the IRS recently announced increased flexibility during calendar year 2020 for employers to allow new types of mid-year election changes under Section 125 “cafeteria” plans and extend claims reimbursement periods for Flexible Spending Arrangements.

Under IRS Notice 2020-29, employers can amend their Section 125 plan documents to allow employees to:

  1. Enroll in employer-sponsored health coverage (even if the employee initially declined).
  2. Change plan elections, including moving from self-only to family coverage and vice versa.
  3. Attest that they are dropping coverage to enroll in other health coverage not sponsored by the employer.
  4. Stop, reduce or increase contributions to Healthcare Flexible Spending Arrangements (Healthcare FSAs) and Dependent Care Flexible Spending Arrangements (DCA) accounts.
  5. Take advantage of extended time periods applicable to unused amounts in FSAs to cover expenses incurred through December 31, 2020. The extension of time for incurring claims is also available both to plans that have a grace period and to plans that provide for a carryover.
  6. Be reimbursed for telehealth, other remote care services, and testing/treatment of COVID-19 without a deductible or before the deductible for their HSA-eligible HDHP is met, retroactive to January 1, 2020.

Employers are not required to use this relief. Employers who choose to make these plan amendments may determine the extent to which such election changes are permitted and applied going forward (retroactive changes are not allowed). If you decide to allow these plan changes, you should notify employees right away, but employers have until December 31, 2021 to formalize Section 125 plan document amendments.

What does this mean for my employees?

Your employees may wish to make these mid-year changes for a variety of reasons. For example, you may have employees who pay for dependent care with a DCA, and who no longer need to set aside that money for upcoming summer care.

Other employees may have set contribution amounts with the intent of paying for elective surgery which has been disrupted because of the COVID-19 pandemic. Still others may have not elected coverage during your open enrollment period, but now wish to participate in your plan because of concerns about the pandemic.

Effectively communicating these options and their impacts to your employees should be a priority if you choose to make changes to your Section 125 plan. We encourage you to identify the most appropriate channels for sharing this information with your employees based on their access to your workplace and their communication preferences. In addition to your communication channels, you should also consider tailoring your key messages to fit your specific workforce, based on age, family makeup and other critical factors. Finally, keep a record of these communications for future reference. You may wish to work with a partner who can help you educate your employees on these changes.

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