Changes to Section 125 Cafeteria Plans
On May 12, 2020, the Internal Revenue Service announced two important changes to employer benefit plans. Here is a summary.
NOTICE 2020-29: COVID-19 GUIDANCE UNDER SECTION 125 CAFETERIA PLANS
Under this Notice, during the calendar year 2020, employers may choose to allow employees to do the following:
- Enroll in health care coverage mid-year for those who previously declined coverage.
- Change from one plan type to another, or change from individual to family, and similar.
- Revoke their health care coverage (must provide written verification of other coverage).
- Change FSA contributions up or down, within plan limits.
- Change Dependent Care Account contribution up or down, within plan limits.
NOTE: Part of the reasoning for this change is to allow furloughed workers to drop coverage while on furlough, then re-enroll after coming back to work. It also allows employees who opted against taking insurance to now obtain coverage due to the COVID-19 risk. And it also may encourage people who have concerns about exposure at work to come back with coverage.
NOTICE 2020-33: SECTION 125 CAFETERIA PLANS – MODIFICATION OF PERMISSIVE CARRYOVER RULE AND TIMING FOR REIMBURSEMENTS BY HEALTH PLANS
- 2019 FSA carry-over amounts are increased from $500 to $550.
- Extended Grace Period options will allow participants until Dec 31, 2020, to use their 2019 contributions.
No extension is offered for 2020 plans; however, employees may stop contributions at any time.
- A Summary of Material Modifications (SMM) is required by end of plan year.
- For those participating in an Individual Coverage Health Reimbursement Account (ICHRA), those plans are now permitted to reimburse for premiums incurred before the start of the 2020 plan year IF the premium for the month was received before the date of treatment.
Forbes Magazine: IRS COVID-19 Fix for Workplace Health and Dependent Care
NY Times: Employers Can Let Workers Change Health Plans
Journal of Accountancy: IRS allows midyear changes
If you or any of your team have questions about this material, or if you would like a more in-depth review of your own situation, please contact HR Service Inc. at (801) 685-8400. We would be happy to help!
Prepared by David Norton, Human Resources Business Consultant
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