Year-End Stimulus Bill Offers Optional FSA Relief

Year-End Stimulus Bill Offers Optional FSA Relief

Capitol Building Banner - PPACA Compliance12/27/2020 Update:  After much debate, the Consolidated Appropriations Act, 2021 (CAA 2021) was signed by the President on Sunday, December 27, 2020.

As this Congress wanted to wish us well for the holidays, they passed the Consolidated Appropriations Act, 2021 (CAA).  Below please find some highlights for those factors that may affect health and welfare plans.  This assumes the President signs the bill into law—he is currently threatening to veto it in favor of either a clean bill (stand-alone bill) or that the amount of COVID-stimulus payments to eligible households be increased from $600 to $2000.

Under the CAA, employers sponsoring HCFSAs (Health Care Flexible Spending Accounts – both regular and limited purpose FSAs) and DCAPs (Dependent Care Assistance Plans – aka Dependent Care Reimbursement Accounts) may elect to adopt some or all of the following changes:

  • HCFSAs and DCAPs may allow any remaining balances at the end of plan years ending in 2020 and 2021 to roll into the following plan year.1
  • HCFSAs and DCAPS may extend grace periods (not to be confused with run-out-periods) for plan years ending in 2020 and 2021 to up to 12 months.1
  • HCFSAs may allow employees who terminate participation during 2020 or 2021 to spend down unspent balances through the end of the plan year (similar to what is already permitted for DCAPs (if adopted)).2
  • DCAPs may extend the age limit for qualifying children from 13 to 14 for a plan year for which open enrollment ended before January 31, 2020, and for any unspent funds from that plan year that are available (either by rollover or grace period) to the employee during the following plan year.
  • HCFSAs and DCAPs may allow prospective election changes during 2021 without regard to any change of status requirements.

Employers electing to adopt any or all of these changes may implement them immediately and then amend their plan documents in the following calendar year. Employers should also talk with their FSA administrators to ensure that they’ll be able to administer the changes and consult with your Account Managers/Sales Executives about any additional impact these choices may have with regard to other plans that participants have elected for 2021. 

If you are interested in any other aspects of the CAA, here’s a solid summary from the Journal of Accountancy.  https://www.journalofaccountancy.com/news/2020/dec/tax-provisions-in-covid-19-relief-bill-ppp-and-business-meal-deductibility.html

Footnotes & Links:

  • 1Generally, not recommended, without restrictions, if the Employer also offers HDHP/HSA plans in 2021.
  • 2Generally, not recommended for HCFSAs since the Employer remains at risk for the full balance even if the participant hasn’t paid all of their contributions. And, for underspent HCFSAs, participants already have COBRA-rights here. For DCAPs this provision has been available for years (for ex-employees)—spending down amounts on deposit until either the plan year ends or the monies on deposit are exhausted.
  • Link to the 2021 CAA

For more information, contact info@apbenefitadvisors.com. The information contained in this post, and any attachments, is not intended and should not be misconstrued as legal advice. You should contact your employment, benefits or ERISA attorney for legal direction.

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