IRS Grants Mid-Year Election Changes for Section 125 Cafeteria Plans
Previous mid-year change limitations regarding Section 125 Cafeteria Plans have been relaxed due to COVID-19.
Since COVID-19 has drastically changed the lives of many employees, these relaxed limitations have been granted to potentially ease the burdens caused by the coronavirus outbreak. The IRS released this information in notice 2020-29 stating that employer sponsored Section 125 Cafeteria Plans can allow employees who participate in the plan to elect changes even if they don’t qualify for an that would normally constitute an election change.
Under normal circumstances a qualifying event that would allow an election change could include a change in marital status or the number of dependents an employee has enrolled.
The changes permitted in notice 2020-29 include:
Elect previously declined coverage
Elect a different employee sponsored coverage option
Drop employee sponsored coverage entirely (employee must elect another form of health coverage
Start or stop FSA participation, or change FSA election amount
Start of stop DCAP (Dependent Care Assistance Program) participation or change DCAP election amount
Allow unused FSA funds at the end of a grace period, or for a plan that ends in 2020, to be considered eligible expenses reimbursable by December 31, 2020.
Notice 2020-29 is not a federal mandate meaning that employers can offer all, some or none of these changes to their employees, but offerings must be uniform to every member of the health plan. Section 125 plans can be revised until December 31, 2021, with retroactive coverage taking effect on January 1, 2020.
The IRS also released notice 2020-33 allowing the FSA fund carry over amount to increase from $500 to $550. This change can be made by December 31, 2020 with retroactive coverage taking effect on January 1, 2020.
If you have a Section 125 Cafeteria plan and wish to extend these changes to your employees, contact your advisor for more information.