IRS allows Cafeteria Plan Changes due to COVID-19

On Tuesday the IRS issued a new rule that gives employers permission to let employees make mid-year changes to their group health insurance coverage and to their flexible spending accounts for healthcare (FSA) and dependent care (DCA) for 2020.

Additionally, the IRS has increased the amount of the maximum carryover from $500 to $550 for plan years beginning on or after 1/1/2020.

Below outlines how the new rule allows an employer to amend their plan to permit employees to make the following changes:

Employer-Sponsored Health Coverage:

  • make a new election on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage;
  • revoke an existing election and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis; and
  • revoke an existing election 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;
  • these changes require an employer to amend their plan prior to any election changes.

FSA & DCA (on a prospective basis)

  • revoke an election,
  • make a new election, or
  • decrease or increase an existing election
  • for a plan year ending during 2020, the plan may extend the grace period through December 31, 2020. This allowance is for plans with both Carryover and Grace Period, and essentially extends a plan year ending during 2020 through the end of 2020 for claims purposes.
  • Carryover Maximum for plans beginning on or after January 1, 2020 has been increased from $500 to $550
  • Allow for retroactive coverage during the plan year for a health FSA.

Click here for further guidance from the IRS.