On December 27, 2020, President Trump signed the year-end spending bill. In that bill included language that makes Flexible Spending Accounts (FSAs) temporarily more advantageous. The temporary rule:
- Allows plans to permit Health FSAs and Dependent Care FSAs to carryover unused benefits, up to the full annual amount, from 2020 to 2021, and from 2021 to 2022.
- Allows FSA plans to permit a 12-month grace period for unused FSA benefits or contributions in Health FSAs and Dependent Care FSAs, for plan years ending in 2020 or 2021.
- Temporarily extends the maximum age of eligible dependents for Dependent Care FSAs from under 13 to under 14.
- Allows plans to permit a prospective change in election amounts for Health FSAs and Dependent Care FSAs for plan years ending in 2021.
- Allows Health FSAs to pay for expenses for terminated employees that had unused benefits at the time of their termination.
As for next steps:
- Employers can choose to either permit the rollover of funds from one plan year to the next, or to provide a grace period of up to 12 months. These options are available for both Health FSAs and Dependent Care FSAs for the 2020 and 2021 plan years.
- Employers can allow participants to make prospective changes to their elections:
- This means, for 2020 and 2021 plan years, election changes could be made without a qualifying event.
- Employers will need to determine if changes will be permitted on an ongoing basis.
- Employers will have roughly 12-months from their plan end date to update their plan documents to permit these changes, retroactive for the 2020 plan year.
More information can be found at: