Stimulus Package Increases Flexibility For FSAs and DCAs

I know many of you have already started your holidays while others are anxiously looking forward to starting them—BUT NOT SO FAST!  Yesterday, Congress voted to pass a stimulus package that contains not only surprise medical billing provisions that will impact group health plans (more to come on that) but also a number of interesting Health FSA (FSA) and Dependent Care Account (DCA) related provisions.  We have briefly summarized the FSA and DCA related provisions below.  We will follow up with more on these provisions as we more fully digest them.

Sec. 214 allows but does not mandate employers:

• to permit health and dependent care flexible spending arrangements (FSAs) to carryover all unused amounts from 2020 to 2021 and from 2021 to 2022
• to permit a 12-month grace period for unused benefits or contributions in health and dependent care FSAs for plan years ending in 2020 or 2021
• to permit Health FSA participants who terminate during the 2020 or 2021 plan year to spend down their unused balances for expenses incurred through the end of the plan year in which the termination occurred, including any grace period (similar to what is and has always been permitted for Dependent Care amounts)
• to extend the maximum age of eligible dependents from 12 to 13 for dependent care FSAs for the 2020 plan year and for unused amounts from the 2020 plan year carried over into the 2021 plan year; and
• to permit a prospective change in election amounts for health and dependent care FSAs for plan years ending in 2021 without a corresponding change in status event (similar to Notice 2020-29)

Again, these are permissive – not mandatory – but if you choose to implement any one or more of them, then you must amend your plan by not later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective (if you adopt for 2021, then you must amend by December 31, 2022).  Just a reminder, adopting these carry over provisions could impact HSA eligibility.  Also, keep in mind too that the extended time frames mandated by the DOL/IRS with respect to the “Outbreak Period” are still in effect.  This impacts the Health FSA run out period for the 2019 plan year and it will impact the run out period for the 2020 plan year to the extent it continues into next year. The good news is that the Outbreak Period must end, as required by ERISA Section 518, no later than March 1, 2021. 

OCA is continuing to review these provisions as we more fully digest them.  We understand that many questions will arise from this guidance and we will be looking to provide a webinar sometime in the next week. To stay informed with OCA’s operational updates, please visit oca125.com/covid19actions.