On December 27, 2020, the President signed into law another wide-ranging COVID-19 relief bill, the Consolidated Appropriations Act, 2021. The most immediate impact for MedCost administered plans is the loosening of certain requirements for Health Flexible Spending Accounts (FSAs) and Dependent Care Assistance Program (DCAP) FSAs offered under Section 125 Plans (“Cafeteria Plans”).
The law does not require employers to adopt these changes but permits significant flexibility in response to the COVID-19 Public Health Emergency (PHE). This flexibility is not limited to individuals affected by the pandemic. These optional changes are described in further detail below.
We will provide further details on the surprise medical billing aspects of this law (which take effect in 2022) in a future communication.
Election Changes for Health and DCAP FSAs
For plan years ending in 2021, Cafeteria Plans may permit plan participants to modify their elections for Health or DCAP FSA contributions during the plan year on a prospective basis (i.e., not retroactively). An employer is not required to provide unlimited election changes and may determine the extent to which such election changes are permitted and applied, so long as any applicable requirements comply with the nondiscrimination rules.
Carryover and Grace Period Changes for Health and DCAP FSAs
For plan years ending in 2020 and 2021, Cafeteria Plans may carryover (or “rollover”) unused Health and DCAP FSA funds to the next plan year with no dollar limit. Alternatively, Cafeteria Plans may offer a “grace period” for participants to use Health and DCAP FSA funds remaining after the end of those plan years for up to 12 months. Only one of these options may be selected.
Dependent Age Limit for DCAP FSAs
For plan years with a regular enrollment period ending on or before January 31, 2020, the maximum age for DCAP FSA dependent eligibility may be increased by one year (from ‘under 13’ to ‘under 14’). Cafeteria Plans may also apply this rule in the following plan year but only for unused balances from the prior plan year.
Former Plan Participants for Health FSAs
Cafeteria Plans may allow employees who ceased participation in Health FSAs during the 2020 or 2021 calendar year to receive reimbursements from unused benefits through the end of the plan year in which participation ceased (including any grace period).
Implementation with MedCost
As a reminder, the changes listed above are optional and should be considered carefully. To adopt any of these changes, Plans must be amended by the end of the first calendar year beginning after the end of the plan year in which the change took effect. As a practical matter, if you wish to make changes, those changes should be made as soon as possible for effective administration. Please contact your Account Manager if you are considering making any of these changes.