A massive piece of legislation passed Monday by Congress — the 2021 Consolidated Appropriations Act — provides COVID-19 relief and funds the federal government, but also has many provisions that will affect employer group health plans and other benefits. Despite a last minute dispute over the size of stimulus payments to individuals, the president is expected to sign the bill by year-end.
Employers should consider very soon the package’s temporary special relief for health and dependent care flexible spending arrangements (FSAs). Many employees haven’t been able to use up their FSA accounts during the pandemic, and with many FSA plan years ending this month, some employees have been pressuring their employers to refund unused amounts. Employers have needed Congress or the IRS to provide a compliant way they could mitigate the loss to employees. The new legislation provides that relief. While an employer still can’t refund unused amounts, it now has several options to let employees access their unused balances and change their elections in 2021 as needed:
While the law offers this increased flexibility for 2020 and 2021 FSAs, employers don’t have to adopt any or all of these new options. Employers that want to implement the changes will need to amend their plans generally by the end of the 2021 plan year.
In addition to allowing the use of 2020 FSA funds in 2021, the law enables employers to give employees great flexibility to change or make new FSA elections during the 2021 plan year. For example, if an employee had made a dependent care FSA election for 2021 but wants to now use 2020 dependent care funds in 2021, the employer can allow that employee to reduce his or her 2021 dependent care election, even absent an IRS-recognized election change in status event. Any such election must be prospective.
Of course, the law leaves a number of unanswered questions. Guidance from IRS would be helpful on these new FSA provisions.
Employers should watch for the president to sign the new law in the coming days. For now, the FSA options are probably the most urgent to address, so employers should:
Employer input will be key to developing workable rules in 2021 -- not just on the FSA changes, but also on a broad array of changes in the bill, which would:
Mercer’s Law & Policy Group will be providing additional guidance on this important legislative development, so be sure to check Mercer.com in the coming weeks.
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