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IRS Provides More COVID-19 Relief for Cafeteria Plans

Due to the changing landscape related to COVID-19, and employees’ needs related to their benefits, the IRS has recently made a change to the Section 125 rules regarding the ability to make mid-year benefit changes.

In summary, the guidance states:

  • Plans may allow employee mid-year health election changes (that would otherwise be irrevocable) for:
    • Employees that initially declined coverage
    • Employees that are enrolled but would like to change or drop coverage or add or drop dependents (proof of alternate health coverage must be provided with dropped coverage)
  • Health and Dependent care FSA plans may allow mid-year changes
  • Grace periods for FSA plans may be extended
  • FSA carry over amounts have increased (up to $550) 

Please note these plan changes are optional. To allow for these changes, an amendment for the 2020 plan year must be adopted on or before December 31, 2021, and may be effective retroactively to January 1, 2020, provided that the Section 125 cafeteria plan operates in accordance with the notice and all employees eligible to participate in the Section 125 cafeteria plan are informed of the changes to the plan.

Next Steps

Employers should work with their Section 125 plan provider (typically your FSA administrator) to initiate any desired plan amendments and provide notice to employees.

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