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Appropriations Act Provides Health And Dependent FSA Relief
The Consolidated Appropriations Act of 2021 (CAA) was signed into law on December 27, 2020. It contains provisions providing employers with options that can potentially impact the administration of employer-sponsored group health plans and health and dependent care flexible spending account (FSA) benefits. These provisions are meant to relax health plan rules in light of the on-going COVID-19 pandemic. This is not surprising, considering many employees’ actual 2020 health and dependent care expenses may have been less than they anticipated when they elected FSA coverage for the 2020 plan year because, for example, they deferred routine health checkups or because their dependent care provider was closed.
The CAA permits FSA plan sponsors to make voluntary temporary changes to the plan allowing FSA plan participants to utilize FSA contributions made in 2020 and 2021, which include:
- Permitting all FSA balances to be rolled over from the 2020 plan year to the 2021 plan year, and from the 2021 plan year to the 2022 plan year. This rule also applies to dependent care FSAs, which would otherwise not permit such roll-over.
- Extending the FSA grace periods for using contributions for 2021 or 2022 plan years to 12 months (increased from 2.5 months) following the end of the plan year.
- For plan years ending in 2021, allowing participants to prospectively modify their FSA election contributions for any reason without experiencing a change in status.
- Permitting employees who stopped participating in a health FSA during 2020 or 2021 to continue to receive reimbursements from unused amounts through the end of the plan year, including any grace period.
- Allowing participants who elected dependent care FSA coverage for the 2020 plan year, for which open enrollment ended before January 31, 2020, and whose dependent children turned age 13 during the 2020 plan year, to continue to use the FSA balance for the child’s qualified dependent care expenses through the end of the 2020 plan year. Further, participants may also use remaining balances in the participant’s FSA at the end of the 2020 plan year for the child’s expenses in 2021, until the child reaches age 14.
To implement these changes, employers will need to amend their existing Section 125 cafeteria plans. These amendments would need to be made by the end of the calendar year following the end of the plan year in which the amendment became effective. (For example, December 31, 2021, would be the deadline for changes effective in 2020.) Employers, however, have the discretion to decide which (if any) of these permissible changes they wish to make to the plan.