IRS changes to health and cafeteria plans

Photo of "COVID-19" spelled in scrabble tiles with illustrated viruses floating above

By: Claudia Allen

On May 12, 2020, the IRS released Notices 2020-29 and 2020-33 which together provided some relief from the restrictions regarding changes to health and cafeteria plan elections.

This relief permits employers sponsoring Section 125 plans (sometimes called Flexible Benefits Plans) and health plans to amend them prospectively to allow changes during the calendar year 2020. The permissible changes would allow employees to:

a.     Make a new election  with respect to their health insurance plan such as changing from single to family coverage.

b.     Enroll for health plan coverage they declined earlier.

c.      Terminated their election for health coverage but only if they certify that they will be covered under another plan.

d.     Enroll for flexible benefit offerings for dependent care or health reimbursement.

e.     Make changes to existing elections for dependent care or health reimbursement such as dropping coverage, increasing or decreasing the amount elected (but no lower than the amount already reimbursed).

Employers are also permitted to add  an extended grace period (until December 31, 2020) to spend  health reimbursement amounts that would otherwise have been forfeited in 2020 .  This would apply to calendar year plans that have carryover provisions so that amounts that would have been forfeited 3 months into the 2020 plan year may now be spent and reimbursed until the end of the year.

Amendments will be required, but do not have to be made until December 31, 2021.  Employers that wish to adopt these changes should clearly document them and employees much be given notice of the availability of any new provisions. The IRS has not provided specific direction for the timing of notices to employees.