IRS Increases Flexibility for Mid-Year Elections

On May 12, 2020, in response to COVID-19, the IRS provided increased flexibility in regard to mid-year elections under a Section 125 cafeteria plan during the 2020 calendar year (Notice 2020-29). This includes self-insured and fully insured employer-sponsored health coverage, health flexible spending arrangements (health FSAs) and dependent care assistance programs (DCAPs).

What are the permitted election changes?

1. Make a new election for employer sponsored health coverage on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage;

2. Revoke an existing election for employer sponsored health coverage and make a new election to enroll indifferent health coverage sponsored by the same employer on a prospective basis (including changing enrollment from self-only coverage to family coverage);

3. Revoke an existing election for employer-sponsored health coverage on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer;

4. Revoke an election, make a new election, or decrease or increase an existing election regarding a health FSA on a prospective basis;

5. Revoke an election, make a new election, or decrease or increase an existing election regarding a dependent care assistance program on a prospective basis.

The full IRS document can be found here. 

What are the requirements for the employer?

Should you decide to use this relief, you, as the employer, may determine the extent to which changes are permitted and applied. If changes are permitted, you must adopt the plan, facilitate the plan consistently, inform employees of the change, and amend the plan no later than December 31, 2021. The amendment may be retroactive to Jan. 1, 2020. Please keep in mind, changes to the plan may implicate other applicable laws, such as participant notification requirements under ERISA.

What’s next?

If you are considering utilizing this relief:

1. Reach out to your broker and/or carriers to work through your options. Please note, while the IRS has provided this flexibility, your carrier may have its own set of requirements you will need to take into consideration.

2. Speak with your Encompass Client Experience Manager to determine next steps from a benefits administration standpoint. Additionally, we can assist with employee communication and best practice recommendations.

This article is for informational purposes only and should not be considered legal advice.