Flexible Spending Accounts Program
On May 12, 2020, the Internal Revenue Service ("IRS") issued notices 2020-29 granting a variety of relief related to cafeteria plan elections for health coverage, medical flexible spending accounts, and dependent care flexible spending accounts.
Mid-Year Cafeteria Plan Election Changes
Notice 2020-29 allows employees participating in the New York City Flexible Account (FSA) Programs to make prospective mid-year election changes to their New York City Health Care Flexible Spending Account (HCFSA) and the Dependent Care Assistance Program (DeCAP). The mid-year election change will be a relief to HCFSA and DeCAP participants who did not anticipate the COVID-19 crisis when making their FSA elections for 2020.
Pursuant to the HCFSA and DeCAP plan documents, contributions elections are irrevocable during a plan year. Once these elections are made they cannot be changed unless a mid-year election change events occur. Typical events include getting married or divorced, having a child, or an employment event.
As a result of the current COVID-19 public health emergency, situations have arisen where HCFSA and DeCAP participants want to change their contribution elections, but they have not experienced one of the limited mid-year events provided for in the HCFSA and DeCAP plan documents.
To address these situations, the IRS's guidance in Notice 2020-29 greatly expands the mid-year election change events for 2020.
The HCFSA and DeCAP plan documents will be amended to allow employees to:
- revoke an election or decrease or increase an existing election regarding HCFSA on a prospective basis; and
- revoke an election or decrease or increase an existing election regarding DeCAP on a prospective basis.
The election changes may only be prospective. An employee may not seek a refund of contributions that have already been made to HCFSA or DeCAP. Also a mid-year election change to the HCFSA or DeCAP, provided under Notice 2020-29, to decrease an existing election, cannot be less than the following:
- the amount already contributed by the employee to HCFSA or DeCAP;
- the year to date administrative fee for HCFSA or DeCAP.
An employee taking advantage of these election change opportunities does not have to provide a reason for making the change, nor does the employee have to demonstrate that he or she was directly affected by COVID-19 in some way. The election change can be made for any reason.
Extended Claims Period for HCFSA
Notice 2020-29 also allows employees participating in HCFSA to use any remaining 2019 plan year contributions, after the end of the March 15, 2020 Grace Period, to pay or reimburse expenses incurred through December 31, 2020.
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
The CARES Act allows an expansion of the types of medical/health care items that participants may claim through their HCFSA accounts by completing the HCFSA claim form, effective January 1, 2020. These include (1) menstrual care products and (2) over-the-counter medicines and drugs, without the need for a prescription. However, for over-the-counter medication, a Letter of Medical Necessity from your medical provider is still required.
In addition, the IRS issued Notice 2020-23, extending deadlines for the Year-end forfeiture of unused amounts elected under a cafeteria plan. Therefore, the HCFSA Claims Run-Out Period for Plan Year 2019 is extended from May 31, 2020 to July 15, 2020.