Donna Hill, E2E's Senior / Medicare Specialist & Compliance Director, has written this overview to keep you informed about recent changes to Flexible Spending Accounts (FSAs) and Dependent Care Arrangement Programs (DCAPs).
Here are the highlights which may impact your employees:
Grace periods for plans that will end in 2021 or 2022 are allowed to be extended up to 12 months, potentially giving a grace period of 14 ½ months.
Any unused amounts from plan year 2020 can be carried over to plan year 2021, and any unused amounts from plan year 2021 can be carried over to plan year 2022. It is worth noting that a plan cannot offer both a grace period and a carryover and is not required to offer either one. Both are optional.
Plan Changes Without a Qualifying Event
Plan years that end in 2021 may permit employees to make a prospective election change to modify their FSA and/or DCAP contribution amounts without a qualifying event.
Dependent Care FSA Age Eligibility
Plan sponsors may elect to extend the limiting age for a child from age 12 to age 13.
FFCRA Tax Credit Extended into 2021, but Leave is Not Mandated
The federal Families First Coronavirus Response Act (FFCRA), which required that employers with fewer than 500 employees provide sick and family leave benefits for certain COVID-19 related reasons expired on December 31, 2020. These provisions were not extended by the Consolidated Appropriations Act of 2021 (CAA) - signed into law December 27, 2020 - which means that an employer is no longer required to offer paid leave after December 31, 2020.
However, the CAA did extend the FFCRA tax credit, which reimburses employers for the cost of providing FFCRA leave, through March 31, 2021. As a result, beginning on January 1, 2021, employers are no longer required to provide FFCRA leave; however, covered employers who voluntarily offer such leave may utilize payroll tax credits to cover the cost of benefits paid to employees through the end of March. The relief package does not change the qualifying reasons for taking the leave, the caps on the amount of pay employees are entitled to receive, or the FFCRA’s documentation requirements. It also does not extend the overall amount of FMLA leave (of which FFCRA is a part) to which an employee is entitled.
Retirement Plan Relief
The CAA enables certain retirement plan sponsors to avoid a partial plan termination. A plan will not be treated as a partial plan termination for any plan year that includes the period beginning March 13, 2020, and ending on March 31, 2021, if the active number of participants on March 31, 2021 is at least 80% of the active participants on March 13, 2020. The bill does not extend the time available for plan participants to take coronavirus-related distributions.
The bill also allows for distributions from retirement plans for participants affected by disasters other than the pandemic. Participants in 401(k), 403(b), money pension and government 457(b) plans may take up to $100,000 in aggregate from the plan without penalties. Income tax may be spread over three years and may be repaid to a plan designed to accept rollovers within three years. Participants have 180 days after enactment of the bill to take qualified disaster distributions.
Also extended are the expanded limits for qualified retirement plan loans allowed under the CARES Act for that same 180-day period.
NOTE: None of these changes are mandated and all will require an amendment to the plan document. The plan administrator (E2E uses Medcom) will provide the amendments when they are notified which items the plan wishes to implement. In the meantime, these changes may be made immediately. The amendments do not have to be in place until December 31, 2021.
The E2E Benefits team of experts is here to help you with urgency and compassion. Let us know your questions. We'll provide answers and are ready to discuss insurance and benefit updates to support you and your employees.
Disclaimer - This summary contains general information only and is not intended as legal advice. Consult your attorney for legal advice pertaining to your company and situation.