On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law to provide relief for health and dependent care flexible spending accounts (FSAs). Under this law, employers may choose to:
- Allow participants to carryover all unused funds, with no dollar limit, from a plan year ending in 2020 and/or 2021 to a plan year ending in 2021 and/or 2022; or
- Extend the grace period up to 12 months after the end of the plan year for a plan year ending in 2020 and/or 2021.
The Consolidated Appropriations Act also allows:
- Employees who stop participating in the health FSA during calendar year 2020 or 2021 to receive reimbursements from unused benefits or contributions for claims incurred through the end of the plan year (including a grace period if applicable).
- An increase in the maximum age (by one year) for certain dependent care beneficiaries who aged out during 2020, along with additional relief for such dependent care beneficiaries in 2022.
- Employees to modify their health and dependent care FSA election amounts prospectively for a plan year ending in 2021.
Please note that these provisions are not mandates; they are options for plans to consider.
If you would like to adopt any of the above provisions, you’ll need to amend your plan by the end of the first calendar year beginning after the end of the plan year in which the amendment is effective. For example, plan amendments for calendar-year 2020 must be adopted on or before December 31, 2021.
Taking action to implement
The law is quite voluminous and additional IRS guidance may be forthcoming. Please note that BPAS cannot provide legal or tax advice regarding this law or its requirements. For those questions, we suggest you reach out to your own counsel.
Employers will be able to select which amendments, if any, they’d like to apply to their plan. If you’re a client of BPAS, watch for a Letter of Operational Intent in the coming weeks which will outline these options. Please reach out to your BPAS Plan Consultant with any questions.
Hannie Spitzack, is a CDHP Partner Success Manager with BPAS VEBA & Consumer Driven Health Plans.