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IRS 2020-29

IRS NOTICE – 2020-29

Provides Flexibility for Cafeteria Plans and Clarifies Previous COVID-19 Relief for HDHPs

As the IRS continues assessing the need for relief related to group health plan administration during the COVID-19 outbreak, it recently issued IRS Notice 2020-29 providing flexibility to cafeteria plans, FSAs, and HDHPs.

Here are the highlights:

  • Cafeteria plans may be amended to permit the following prospective mid-year election changes during the 2020 calendar year: (1) new election to enroll in employer-sponsored health coverage, if the employee initially declined coverage; (2) revoke existing election and make new election to enroll in different employer-sponsored health coverage; (3) revoke existing election in employer-sponsored health coverage with employee attestation that the employee is enrolled, or immediately will enroll, in other “comprehensive” health coverage not sponsored by the employer (sample attestation language included in the notice); or (4) any health FSA or DCAP election change. This relief may also be applied retroactively to periods beginning on or after January 1, 2020, to address any cafeteria plans that permitted the election changes consistent with the relief provided in this notice.
  • Cafeteria plans may be amended to permit employees to apply unused amounts remaining in a health FSA or DCAP at the end of a grace period ending in 2020 or plan year ending in 2020 towards paying or reimbursing expenses incurred through December 31, 2020. The notice also provides examples showing how this relief applies to health FSAs that allow carryovers and cautions that individuals will not be eligible to contribute to an HSA during the extended period for incurring claims unless the health FSA is HSA-compatible.  
  • Employers must adopt a cafeteria plan amendment to use the election change relief or health FSA and DCAP claims relief. Such plan amendments must be adopted on or before December 31, 2021, and may be effective retroactive to January 1, 2020, if the plan operates in accordance with applicable requirements and the employer informs all eligible employees of the changes to the plan.
  • The notice clarifies that previous HDHP relief allowing such health plans to provide coverage for testing and treatment of COVID-19 prior to the satisfaction of the applicable minimum deductible applies with respect to reimbursements of expenses incurred on or after January 1, 2020, and provides detail on the specific panel of diagnostic testing and services covered. The notice also clarifies that the CARES Act relief related to telehealth and remote care services applies with respect to services provided on or after January 1, 2020.

This latest notice provides welcome relief for those seeking flexibility in administering their cafeteria plans considering the impact of COVID-19 to most employers and employees. However, employers who wish to take advantage of some or all of this relief must remember to amend their plan materials and keep eligible employees informed of all changes to their plans. Additionally, employers subject to ERISA may have additional notice requirements to ensure plan participants and beneficiaries are properly informed of any changes adopted in accordance with this notice.