New law allows employers to make temporary changes to FSAs

On December 27, 2020, President Donald Trump signed the Economic Aid to Hard Hit Small Businesses, Nonprofits and Venues Act into law. It makes temporary changes to rules governing health and dependent care flexible spending accounts (FSAs) and allows employers that sponsor the plans to provide employees with more time to use the benefits. Here is a summary of the temporary provisions.

Rollovers

For plan years ending in 2020, employers may permit participants to carry over any unused benefits or contributions remaining in their FSA to the subsequent plan year without limitation. For example, if the plan year ended on December 31, 2020, you may permit participants to carry over any unused balance to December 31, 2021. Before the Act’s passage, carryover amounts were allowed only for health FSAs and were limited to $550.

Grace periods

Employers may extend the grace periods for plan years ending in 2020 or 2021 for up to 12 months after the end of the plan year for both health and dependent care FSAs.

Reimbursements

You may permit employees who cease participating in health FSAs during the 2020 or 2021 calendar year to continue to receive reimbursements from unused benefits through the end of the plan year in which their participation ceases including any grace period.

Change elections

You may allow employees to prospectively change their elections midyear for health and dependent care FSAs for a plan year ending in 2021, subject to the maximum contribution amount allowed by law.