Stimulus Package Provides New FSA Carryover Options
President Donald Trump signed a new stimulus bill into law on December 27, 2020 which will provide direct payments to eligible individuals and loans to small businesses, among other things. Among those other things are temporary and optional changes that employers can implement to Health and Dependent Care Flexible Spending Accounts (Health FSAs and Dependent Care FSAs). Below is a summary of the new options:
Employers may amend their plan to allow for unlimited carryover of unused funds for plan years ending in 2020 and/or 2021. This means unused funds in 2020 can be carried over into 2021, and unused funds in 2021 can be carried over into 2022 for both Health FSAs and Dependent Care FSAs.
12-Month Grace Period
Employers may amend their plan to allow for an extended grace period of up to 12 months for plan years which otherwise end in 2020 or 2021. As an example, a plan year that ends on December 31, 2020 may allow eligible expenses to be incurred and reimbursed through the end of 2021. This option is available under the Health FSA and Dependent Care FSA.
Employers may amend their plan to allow for prospective election changes without a qualifying event through the plan year which ends in 2021. This option is available under the Health FSA and Dependent Care FSA.
Employers may amend their plan to reimburse expenses of terminated employees who had unused benefits at the time of the termination. This only applies to the Health FSA, and it applies to terminations that occur in calendar year 2020 or 2021.
Dependent Care FSA Age Limit Adjustment
Employers may amend their plan to extend the maximum age from 12 to 13 for eligible dependents who aged out of eligibility during the last plan year which had an open enrollment period which occurred on or before January 30, 2020 (e.g., plan years starting on January 1, 2020), and the employer may amend the plan to allow unused balances to be carried over to the following plan year.
Employers must prepare a formal amendment to adopt any of these changes. Plan years ending in 2020 must be amended by December 31, 2021. Plan years ending in 2021 must be amended by December 31, 2022.