After much anticipation, Congress finally passed an appropriations bill that includes additional COVID relief. Most headlines are talking about the stimulus direct payment checks. But several other provisions impact dependent care and healthcare flexible spending accounts (hereafter FSA and DCFSA). Here’s what you need to know.
Effective immediately, organizations may:
- Allow carryover of all unused FSA and DCFSA funds from plan years ending in 2020 into 2021 and from plan years ending in 2021 into 2022.
- Extend the FSA and DCFSA grace period to 12 months at the end of plan years ending in 2020 or 2021.
- Allow for spend down of FSA (just like a Dependent Care FSA) for employees who cease participation for calendar year 2020 and 2021 (taking into account any extension of the grace period).
- Permit election changes for both FSA and DCFSA contribution amounts (annual limits still apply) without regard to change in status rules.
- Allow for dependents whose expenses would be covered by a DCFSA to age 13 who aged out during 2020 and 2021 plan years to use any funds from those plan years for expenses for dependents to age 14, provided the employee elected the DCFSA prior to 1/31/2020 and has an unused balance.
These provisions could offer significant relief to millions of Americans, including employees who:
- Didn’t enroll during annual enrollment because of pandemic uncertainty.
- Haven’t used remaining FSA and DCFSA funds (our client data shows $500 million+ in at-risk funds, significantly higher than a typical year).
- Risk spending down accounts frivolously to avoid forfeiting funds.
- Deferred medical, dental or other care, or gone without childcare, during the pandemic.
Because plan changes are at employer discretion, not all members will see these rule changes. Everyone should check with their organization to see what—if anything—is changing.
For maximum flexibility, organizations should consider allowing carryover of all unused funds. As always benefits leaders should consult legal counsel for conclusive guidance on how to implement these rule changes.
Note also that organizations have plenty of time to make plan amendments. Any amendments need to be adopted no later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective. So, 2020 carryover amendments need to be made by 12/31/2021.
communications will be critical
Although employers have plenty of time to make plan amendments, they’ll need to notify members way before their deadline. If your organization plans to exercise any of these options (and we think it’s a great idea), you should start sending-notifications as soon as possible. The faster you get communications to your organization, the sooner you can provide relief in challenging times.