New Relief for FSA Health Care and Dependent Care Accounts

By Barry Fields, Vice President, Employee Benefits

The New Year brings to us the Consolidated Appropriations Act, 2021 (CAA), which includes relief for plan sponsors offering Health Care and/or Dependent Care Flexible Spending Accounts (FSA’s). These voluntary rules will benefit participants who have FSA funds left over due to medical care provider and school/daycare closures and remote work arrangements in 2020 as a result of the pandemic.

If you offer an FSA to your employees, you need to decide whether to take advantage of the relief offered under the CAA, and discuss the implementation and communication of these changes with the TPA who administers the program.  It is likely that many participants have funds left over in their Health Care and Dependent Care FSA’s due to medical care provider and school/daycare closures and remote work arrangements in 2020 as a result of the pandemic, and plan sponsors should determine whether utilizing the relief under the CAA can help avoid forfeiture of these amounts. In addition, participants have already elected amounts to contribute to FSA’s for the 2021 plan year and may need to adjust goal amounts to take into account these new carryover and grace period features.

Below is an overview of the changes that can be made:

Section 125 Plan Alternatives

FOR PLAN YEARS ENDING IN 2020 – CARRYOVER:

  • Health flexible spending arrangements all unused benefits or contributions to the plan year ending in 2021
  • Dependent Care flexible spending arrangements all unused benefits or contributions to the plan year ending in 2021

FOR PLAN YEARS ENDING IN 2020 – GRACE PERIOD EXTENSION:

  • Health flexible spending arrangements grace period extending from 2½ months to 12 months
  • Dependent Care flexible spending arrangements grace period extending from 2½ months to12 months

FOR PLAN YEARS ENDING IN 2021 – CARRYOVER:

  • Health flexible spending arrangements all unused benefits or contributions to the plan year ending in 2022
  • Dependent Care flexible spending arrangements all unused benefits or contributions to the plan year ending in 2022

FOR PLAN YEARS ENDING IN 2021 – GRACE PERIOD EXTENSION:

  • Health flexible spending arrangements grace period extending from 2½ months to 12 months
  • Dependent Care flexible spending arrangements grace period extending from 2½ months to12 months

FOR DEPENDENT CARE FSA PLANS WHERE A DEPENDENT AGED OUT DURING THE PANDEMIC:

  • Elect to increase the eligibility age of the dependent from 13 to 14 years of age

 

Please note that while not entirely clear, the CAA language indicates there is no limit on the amount that can be carried over from a Dependent Care FSA or Health Care FSA.  Also, consider whether to apply any changes to terminated participants.

 

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