BASIC Alert: Cafeteria Plan and FSA/HRA Relief
Over the last three weeks, several government agencies
introduced sweeping new legislation to provide much-needed relief for benefit
plan participants impacted by the current COVID-19 health crisis. The
following is a summary of the new legislation and FAQs to help you make
informed decisions for your benefit plans.
Extension of Deadlines for Employee Benefit Plans (Required)
EBSA Disaster Relief Notice 2020-01 issued on April 28th requires that all group
health plans and employee welfare benefit plans disregard any deadline that
falls during the “Outbreak Period.” The Outbreak Period is defined as the
period from 3/1/20 to 60 days following the end of the current health
crisis.
If you sponsor a calendar year FSA and/or HRA plan with a final
claim filing deadline of March 31 (referred to as the “claim runout date” - the
additional time participants have to submit their final request for
reimbursement of 2019 expenses), participants
must be given additional time to submit their 2019 expenses for reimbursement. The
extension will automatically end 60 days following the declared end of the
Outbreak Period. Employers may not opt out of this extension.
This requirement also applies to:
- Non-calendar year FSA and HRA plans with a claim runout
date falling any time within the Outbreak Period.
- Claim runout deadlines of terminated participants
falling within the Outbreak Period.
Note: If your Medical FSA includes the $500 carryover provision,
BASIC will execute the carryover per our standard practice, so as not to delay
deposit into participant accounts.
Allowance of Mid-Year Election Changes – FSAs and
Employer-Sponsored Health Coverage
Notice 2020-29 issued on May 12th permits an employer to
amend health and dependent care FSAs and employer-sponsored health coverage to
allow mid-year election changes under certain circumstances in calendar-year
2020. Any amendment will be retroactive to 1/1/20; however, any election
changes must be made prospectively. This is an optional amendment.
Extension of Time to Spend FSA Funds
Notice 2020-29 issued on May 12th permits employers
to amend cafeteria plans to allow participants additional time (until December 31, 2020)
to incur and submit claims to be paid from their 2019 FSA funds. The
agencies recognize that it has recently been challenging for participants to
use FSA funds (both healthcare and dependent care) due to COVID-19 related
business closures, and have issued this guidance in an attempt to reduce the
amount of participant forfeitures for 2019 FSA funds. This is an
optional amendment.
Applies only to the following plans:
- 2019 calendar-year plans that include the 2½ month
Extended Grace Period whereby employees could spend their 2019 Medical FSA
funds through 3/15/20.
- Non-calendar FSA plan year ending before 12/31/20
(e.g., a client with a 6/1/19-5/31/20 plan year)
$50 Increase to Health FSA Carryover
Notice 2020-33 issued on May 12th provides for a permanent
increase to the carryover limit for Health FSAs. Effective with plan years
beginning in 2020, employers may increase their carryover from $500 to $550 (and
indexed for inflation annually). This is an optional amendment. When
you renew your BASIC FSA, you will be asked whether you’d like to take
advantage of this higher limit.
ACTION ITEM: Employers who would like to allow either of the two
optional provisions outlined in Notice
2020-29 must execute a plan amendment. BASIC has
provided an easy way for employers to inform BASIC that they are amending their
plan.
Step 1: Read
through the Q&A below to fully understand the impact to your plan.
Step 2: Click here to
authorize the plan change. Once this is submitted, you will receive an
automated email with the plan changes. Upon completion, we’ll make the
requested change in our administrative platform.
Step 3:
Forward the automated email received to all employees, notifying them
of the change in the plan. E-mail distribution is
acceptable.
Retain a copy of your authorization and your employee
notification with your other important Plan Documents.
Frequently Asked Questions (FAQs)
Q1) If an employee previously declined to elect
employer-sponsored medical insurance, could I amend my plan to allow for this
election due to COVID?
Yes, an employee may newly enroll in the medical plan on a
prospective basis if the employee initially declined to
elect employer-sponsored coverage. Employees may also revoke an
existing election and make a new election to enroll in a different
employer-sponsored medical plan. This would also include adding a family
member or removing a family member. If an employee would like to revoke the
existing election in the employer sponsored health plan, the employee would
need to attest (in writing) that they are enrolled in, or immediately will
enroll in, other comprehensive health coverage not sponsored by the
employer.
Q2) Can I allow an employee to reduce their annual Medical
or Dependent Care FSA election to zero even though they have already
contributed $1,200?
No, any election change must be made prospectively. An
employee may not reduce their election beyond the amount that they’ve
contributed to-date. They can request to stop payroll deductions going
forward, however refunding pre-tax contributions is not permitted.
Q3) Can I limit the FSA election change to the amount that has
been reimbursed to-date?
Yes, please refer to the Account
Balance Detail report housed on your employer FSA portal under
the Reports tab. This report is generated on the 1st of each month for all
clients; it may also be run on-demand to get the most up-to-date balance – the
applicable column is titled “Paid.”
Q4) The 2 ½ month Extended Grace Period for my 2019 FSA plan
year ended on March 15, 2020. Does this mean I can amend my plan to allow my
employees to spend funds remaining in the 2019 FSA plan year until December 31,
2020?
Yes, but proceed with caution if you offer a high-deductible
medical plan and health savings account (HSA).
As you may be aware, the IRS does not allow participation in a
general-purpose Health FSA and HSA at the same time. If an employee had
any general-purpose Health FSA funds remaining on December 31st, they are not
eligible to make HSA contributions (both
employee and employer) until the end of the grace period (typically
April 1st). If you allow participants to incur healthcare
expenses through 12/31/20 to be paid from the 2019 plan year, no HSA contributions
can be made until 2021.This may be a challenge given that some participants may
have already made HSA contributions in April and May. One option is to exclude
current HSA participants from the election change enhancements.
Client approved changes should be submitted to BASIC in the
usual manner (via required Change Form or electronically through your EDI
feed).
Please don’t hesitate to reach out to us if you have further
questions or require assistance.
Sincerely,
Your BASIC Team
Your BASIC Team