The IRS recently issued Notice 2021-15 to clarify the application of temporary special rules provided by the Consolidated Appropriations Act, 2021 for health flexible spending arrangements (FSAs) and dependent care assistance programs under Section 125 cafeteria plans. Some of these temporary special rules are similar to the cafeteria plan relief previously provided by the IRS in Notice 2020-29 with respect to certain plan years and grace periods ending in 2020.
The Consolidated Appropriations Act, 2021 enacted the following temporary special rules (among others):
- Provides flexibility with respect to carryovers of unused amounts from the 2020 and 2021 plan years
- Extends the permissible period for incurring claims for plan years ending in 2020 and 2021
- Provides a special rule for post-termination reimbursements from health FSAs during plan years 2020 and 2021
- Provides a special claims period and carryover rule for dependent care assistance programs when a dependent “ages out” of eligibility for reimbursements during the COVID-19 public health emergency
- Allows certain mid-year election changes for health FSAs and dependent care assistance programs for plan years ending in 2021
Notice 2021-15 permits employees who are eligible to make salary reduction contributions under the plan to make certain prospective mid-year election changes for plan years ending in 2021. For employer-sponsored health coverage, an employer may allow employees to make any of the following election changes with respect to their cafeteria plan:
- 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
- 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
The temporary special rules provided in Notice 2021-15 are optional plan designs. Employers do not have to offer them under their cafeteria plan and can elect to offer only some of the special rules. Employers who decide to offer some or all of the special rules must adopt plan amendments in order to utilize the relief. Amendments generally must be adopted by no later than the last day of the first calendar year beginning after the end of the plan year in which any such rules become effective.
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