In response to the COVID-19 crisis, on Tuesday, May 12 the IRS announced relief for Section 125 cafeteria plans during calendar year 2020, providing increased flexibility for:
- employer-sponsored health coverage
- health Flexible Spending Arrangements (health FSAs)
- dependent care assistance programs
Generally, an election regarding benefits under a Section 125 cafeteria plan is irrevocable and must be made prior to the first day of the plan year.
Due to the COVID-19 crisis employees are seeing a decrease in medical expenses due to cancelled elective procedures, while parents are seeing a decrease in dependent care assistance costs due to the closure of schools and child care providers. As a result, the relief provided by the IRS provides temporary (for 2020 only) flexibility for Section 125 cafeteria plans to allow employees to make certain prospective mid-year election changes. This relief allows an employer, in its discretion, to amend its plan document to allow mid-year changes to an employee’s salary reduction contributions.
For mid-year elections made during calendar year 2020, a Section 125 cafeteria plan may permit employees who are eligible to make salary reduction contributions under the plan to:
- With respect to employer-sponsored health coverage:
- make a new election on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage;
- revoke an existing election and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis; and
- revoke an existing election on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or will immediately enroll, in other health coverage not sponsored by the employer.
- Revoke an election, make a new election, or decrease or increase an existing election applicable to a health FSA on a prospective basis.
- Revoke an election, make a new election, or decrease or increase an existing election regarding a dependent care assistance program on a prospective basis.
In other relief, the IRS is now allowing a health FSA to increase its carryover limit from $500 to $550.
Please reach out to your DunlapSLK team member with any questions you may have.