Temporary FSA Changes Permitted for Plan Years Ending in 2020 and 2021

Posted by BAS - 07 January, 2021

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The Consolidated Appropriations Act of 2021 (Stimulus Bill) passed at the end of last year allows flexible spending account plans to temporarily change their design to give employees more control over their FSA benefits. The potential changes are permitted, but not required, and modify the long-standing “use-it-or-lose-it” rule.

Flexible spending account plans must follow the “use-it-or-lose-it” rule which requires any unreimbursed dollars remaining in a flexible spending account at the end of the plan year to be forfeited. The only exceptions to the “use-it-or-lose-it” rule are (1) a plan may allow a carryover of up to $550 of unused funds to the next plan year or (2) a plan may allow a 2½ month grace period after the end of the plan year to continue to incur claims. A plan may have a carryover or a grace period, but not both. The Stimulus Bill allows employers to expand the carryover or grace period for plan years ending in 2020 and 2021.

Summary of Permitted Changes

  • Increased Carryover for Health Care FSA
    • Participants with an unused balance may carry over any dollar amount of unused funds to the next plan year
    • Employers may set the maximum carry over amount at any dollar value, up to the participant’s full unused account balance (an increase from the prior limit of $550)
    • Change is available for plan years ending in 2020 or 2021
  • Add Carryover for Dependent Care FSA
    • Dependent Care FSAs may now include carryover feature (not allowed before)
    • Participants with an unused balance may carry over any dollar amount of unused Dependent Care FSA funds to the next plan year
    • Employers may set the maximum carry over amount at any dollar value, up to the participant’s full unused account balance
    • Change is available for plan years ending in 2020 or 2021
  • Grace Period Extension for Health Care FSA
    • Grace period of time after the end of the plan year to continue to incur claims may be extended to up to 12 months (an increase from 2½ months)
    • Change is available for plan years ending in 2020 or 2021
  • Grace Period Extension for Dependent Care FSA
    • Grace period of time after the end of the plan year to continue to incur claims may be extended to up to 12 months (an increase from 2½ months)
    • Change is available for plan years ending in 2020 or 2021
  • Age Extension for Dependent Care FSA
    • Reimbursements may be permitted for children up to age 14 if the child turned age 13 in 2020
    • Allowed only if the participant was participating in the Dependent Care FSA with an enrollment period on or before January 31, 2020, had a dependent who turned 13 in 2020, and had unused funds in the Dependent Care FSA in a plan year ending in 2020
    • Reimbursement amount for the age 14 child in the subsequent plan year is limited to the amount that was remaining in the account at the end of the plan year ending in 2020
  • Post-Termination Benefits
    • Health Care FSAs may allow terminated employees with contributions remaining in their accounts during plan years ending in 2020 or 2021  to continue to get reimbursed for qualifying expenses incurred through the end of the plan year in which they terminated (plus any grace period)
  • Mid-Year Election Changes.
    • For plan years ending in 2021, employees may prospectively change their Dependent Care FSA and/or Health Care FSA contributions for any reason without experiencing a change in status event

The new plan options are 100% discretionary and are not required to be added to plans. Any changes implemented must be properly adopted and communicated to participants.

Topics: HR & Benefits Compliance, Flexible Spending Accounts, HR & Benefit Plans, HR & Benefits News


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