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COVID Related Section 125 Plan Changes

May 21, 2020

On May 12, In response to unanticipated medical and childcare challenges due to COVID-19, the IRS provided employers with a number of optional amendments that can be made to Section 125 cafeteria plans and related health plans and flexible spending arrangements (FSAs).

 

This guidance allows employers the option to let employees revoke, add, or change 2020 coverage elections now, instead of waiting until open enrollment, and without a qualifying status change. 

 

Employers also have the option to extend grace periods to allow additional time to incur claims for reimbursement under health and dependent care FSAs. Other relief allows companies to expand telehealth coverage retroactively to January 1, 2020 without impacting health savings account (HSA) eligibility. 

 

To amend your cafeteria plan to provide for 2020 mid-year election changes:

 

Employers may amend cafeteria plan, group health plan(s), health flexible spending arrangements (HFSAs) and dependent care assistance programs (DCAPs) to make some or all of the following prospective changes:

  • HEALTH COVERAGE:

    • Make a new election for employer sponsored coverage;

    • Revoke an existing election in order to enroll in another employer-sponsored coverage option; or

    • Revoke an existing election in order to enroll in other “comprehensive” health coverage not sponsored by the employer (e.g. Medicare). This option requires you to receive a written attestation from the employee certifying enrollment in the other coverage. Model language for the attestation is provided in the IRS guidance.

  • HFSA or DCAP

    • Make a new election, revoke an election, or increase or decrease an existing election; or

    • Allow an extension of time to incur expenses for reimbursement for HFSA or DCAP covered claims through December 31, 2020. To be eligible for this relief, the HFSA or DCAP must have a grace period or be a non-calendar year plan ending in 2020. Calendar year HFSAs or DCAPs without a grace period (i.e., an additional period for incurring claims ending no later than March 15th of the subsequent calendar year) are not eligible for this particular relief. If an HFSA has a plan year ending in 2020, but allows for a carryover, the IRS relief still allows the adoption of the extended grace period for claims through December 31, 2020, even though offering simultaneous carryovers and grace periods are otherwise prohibited by Notice 2013-71. No similar relief is provided for HSA compatibility, and employees who are allowed extensions to incur HFSA expenses will not be eligible to contribute to an HSA during the extended period. You will need to evaluate the impact and consider if transitioning the HFSA to a more limited HSA-compatible HFSA as permitted by Notice 2005-86 would be helpful.

 

While all election coverage changes must be prospective, employers are free to limit the number of election changes that can be made; specify the time period for which changes can be made; and in the case of HFSAs and DCAPs, limit elections to amounts not less than already reimbursed. 

 

Election changes must be made during calendar year 2020 and be prospective. The IRS will not enforce cafeteria plan violations for employers who previously allowed employees to make mid-year changes after January 1, 2020 consistent with the notice as a result of the challenges faced by COVID-19.

 

It is important to note that ERISA notice provisions still apply (likely requiring you to inform all eligible employees of the change), as do cafeteria plan nondiscrimination rules (plans should ensure changes will not result in failures).

 

If you wish to adopt mid-year election and carryover changes, please consult with CIP as there may be considerations with carriers.

 

High Deductible Health Plan Clarifications:

  • clarifies that relief provided in Notice 2020-15 (allowing coverage of COVID-19-related testing and treatment prior to satisfying the deductible) applies with respect to reimbursements of expenses incurred on or after January 1, 2020.

  • “testing and treatment of COVID-19” under Notice 2020-15 includes the panel of diagnostic testing for influenza A&B, norovirus and other coronaviruses, respiratory syncytial virus (RSV), and another items or services required to be covered with no cost sharing under the FFCRA and CARES Act.

  •  treatment of telehealth and other remote care services pursuant to Section 3701 of the CARES Act applies to services provided on or after January 1, 2020, with respect to plan years beginning on or before December 31, 2021.

 

 

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