IRS relaxes rules on mid-year election changes for 2020

In response to unanticipated changes in expenses because of COVID-19, the Internal Revenue Service recently released guidance to allow temporary changes to section 125 cafeteria plans. Find out what changes are allowed, and what changes are allowed under AWC Trust health plans.

Notice 2020-29 allows employers to amend their cafeteria plans for calendar year 2020 on a prospective basis, allowing flexibility for employees to make mid-year changes to health care benefits, health care FSAs, and dependent care FSAs.

It provides greater flexibility for taxpayers by allowing mid-year changes on a prospective basis for salary reduction contributions. These include:

• Start, increase, decrease, or cancel health care FSA elections.
• Start, increase, decrease, or cancel dependent care FSA elections.
• Changes to employer-sponsored health coverage.

Notice 2020-33 increases the carryover limit for unused health FSAs which is currently at $500, to a maximum of $550, adjusted annually for inflation.

Qualifying event is required for coverage change

Trust plans will not allow new employee or dependent enrollments to the plan, without a qualifying event occurring.

As the plan sponsor, the Trust contacted medical carriers and stop loss carriers to confirm if any health coverage changes would be permitted mid-year without a qualifying event. The three reasons below are now allowed on Trust plans for coverage year 2020.

• Termination of employee health coverage if the employee attests in writing that the employee has or will have alternative health coverage.
• Termination of dependent health coverage (spouse/domestic partner/dependent child).
• Elect to enroll in a different health plan (but with the same carrier) for example changing from Regence High Deductible Health Plan to Regence HealthFirst 250, if the employer offers these plans.

Review your documents and notify employees

Employers should determine what allowed changes can be made (if any), and the allowed frequency of changes. Employers that allow any of these changes will need to amend their Section 125 plan documents and notify employees of changes. Employers that have coverage with Navia should submit a copy of their amendment to Navia. Navia has provided a plan amendment guide, along with sample amendments. All employers should keep their amendment on file.