A Reminder About Section 125 Cafeteria Plan Relief Options for Private Schools

CLIENT TYPE: Private Education
DATE: Sep 30, 2020

In May 2020, the Internal Revenue Service (IRS) issued Notice 2020-29 and Notice 2020-33, which provides guidance and allows temporary changes to Section 125 Cafeteria Plans to address changes in expenses due to the impacts of the COVID-19 pandemic.  Notice 2020-29 provides employers the option to amend their Cafeteria Plans to: (1) extend the health FSA and dependent care FSA’s claims period for claims incurred during 2019 to the end of 2020; and (2) allow employees to make mid-year election changes in 2020, including revoking, increasing, or decreasing a health FSA or dependent care FSA election.  Notice 2020-33 increases the maximum health FSA carryover amounts remaining in a health FSA to the next year and permits employers to amend their Cafeteria Plans to adopt this increased amount.

Employers can, but are not required to, amend their Section 125 plan documents to provide these options for employees.  An employer must adopt an amendment for the 2020 plan year on or before December 31, 2021, and maybe effective retroactively to January 1, 2020.  The employer should also inform all employees eligible to participate of the changes to the plan and review any other requirements that Notices 2020-29 and 2020-33 provide.