Industry & Regulatory News

IRS Further Extends Several Deadlines, Including Savings Arrangement Reporting

The IRS has issued Notice 2020-35, guidance that further extends to August 31, 2020, a limited number of deadlines to complete required actions associated with retirement and other savings arrangements.

This guidance follows a previous extension granted in April 2020 in Notice 2020-23, which was issued in response to the coronavirus (COVID-19) pandemic in the United States. Notice 2020-23 extended deadlines for many time-sensitive tax-related acts that were due to be completed on or after April 1, 2020, and before July 15, 2020, to July 15, 2020.

Notice 2020-35 now provides a further extension to August, 31, 2020, but only for a very limited number of items, among them the following.

  • Filing Form 5498-series information returns for IRAs, Coverdell education savings accounts, health savings accounts, and Archer medical savings accounts. Filing of these information returns after August, 31, 2020, will be subject to IRS penalty, which will be calculated beginning September 1, 2020.
  • Close of the 403(b) plan remedial amendment period (previously extended from June 30, 2020, to July 15, 2020).
  • Adoption by a defined benefit pension plan of a pre-approved plan document, filing a request for a determination letter under the second six-year cycle, or other actions with respect to disqualifying provisions.

Notice 2020-35 extends to July 15, 2020 (not August 31), several items not previously granted extensions. These include the following.

  • Application for a funding waiver by a defined benefit pension plan that is not a multi-employer (union) plan
  • Filing IRS Form 5330 and paying associated excise taxes

House Passes Bill to Expand Paycheck Protection Program

The U.S. House of Representatives passed by a 417-1 margin on Thursday, May 28, the Paycheck Protection Program Flexibility Act of 2020. This legislation would modify certain core terms of this Small Business Administration (SBA) emergency lending program. The Paycheck Protection Program (PPP) was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020. Under the program, qualifying small businesses may apply for loans from the SBA to retain employees on their payrolls, and—especially attractive to business owners—the loans are forgiven if certain conditions are met.

As provided in the CARES Act, PPP loans taken to cover 8 weeks of program-eligible expenses can be forgiven (no repayment required). Although mortgage, rent, and other business expenses are included, to be eligible for forgiveness, 75 percent of a loan amount must—under current rules—be used for employee payroll expenses. Certain employee benefits, including defined contribution and defined benefit plan employer contributions, health insurance benefits (including premium payments), and certain employee leave benefits can be considered payroll expenses.

Today’s House-passed legislation would extend the 8-week period to 24 weeks, and would change the 75 percent payroll requirement to 60 percent.

The legislation would also relax certain loan forgiveness provisions in recognition that an employer may be unable to rehire some former employees or to find similarly qualified employees. Loan amounts not forgiven could be repaid over a period of 5 years instead of 2 years as under current rules.

Members of the U.S. Senate have been discussing a similar bill, one said to expand the 8-week period to 16, not 24 weeks. If the Senate is unable to pass its version of PPP revisions this week, which seems likely, its bill could be taken up when the Senate returns to Washington, D.C., next week.


Final Regulations for E-Delivery of Retirement Plan Disclosures in Today’s Federal Register

Published in today’s Federal Register are final regulations issued by the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) that provide an additional safe harbor for ERISA retirement plans to deliver DOL-required disclosures by electronic means. A pre-publication version was released by EBSA on May 21. (The regulations’ preamble notes that the agency has chosen not to extend the guidance to welfare benefit plans at this time.)

These regulations become effective 60 days from today’s publication date. The EBSA noted in the guidance, however, that retirement plans may rely on these regulations immediately; no enforcement action will be taken against a plan for premature reliance due to the impact of the coronavirus (COVID-19) pandemic.

 


Proposed Regulations on Withholding from Periodic Retirement and Annuity Payments Are Published

Today’s Federal Register contains IRS proposed regulations that would govern federal tax withholding on certain periodic retirement and annuity distributions. These regulations have been drafted in response to amendments made to the Internal Revenue Code by the Tax Cuts and Jobs Act, tax reform legislation enacted in December 2017. (A pre-publication version of these proposed regulations was released on May 26.)

The guidance would potentially affect retirement plan administrators, payors, and recipients of such payments. Public comments, as well as requests for a public hearing, will be accepted. The IRS notes that due to current working conditions in response to the coronavirus (COVID-19) pandemic, electronic submission of comments is favored.


Industry Welcomes Final Regulations for Default Electronic Delivery of Retirement Plan Disclosures

Scheduled for publication in the May 27th Federal Register are final regulations on default electronic delivery of retirement plan disclosures. These final regulations, issued by the Department of Labor’s Employee Benefits Security Administration (EBSA), provide an additional safe harbor that may enhance the ability of plan administrators and their service providers to deliver DOL-required disclosures to participants and beneficiaries of ERISA plans by electronic means.

An accompanying news release and EBSA fact sheet cite the presidential Executive Order of August, 2018, which directed the agency—in part—“to focus on reducing the costs and burdens that retirement plan disclosures impose on employers and others.” Proposed regulations were issued in October 2019, and public comments solicited at that time contributed to shaping these final regulations.

This guidance officially becomes effective 60 days following publication in the Federal Register. But the EBSA Fact Sheet notes that retirement plans may rely on these regulations immediately; no enforcement action will be taken against a plan for such premature reliance due to the impact of the coronavirus (COVID-19) pandemic. (The regulations’ preamble notes that the agency has chosen not to extend the guidance to welfare benefit plans at this time.)

Following are selected observations from an initial review of the final regulations and EBSA fact sheet.

The new safe harbor

The electronic delivery safe harbor can be satisfied by either of two means.

  • Website posting: A plan administrator is allowed to post covered documents (documents required to be furnished by ERISA Title 1 plans) on a website if appropriate notification of Internet availability is furnished to the electronic addresses of covered individuals.
  • Email delivery: A plan administrator may send covered documents directly to the electronic addresses of covered individuals, with the covered documents either in the body of the email or as an attachment to the email.

First step to e-delivery is on paper

As in the proposed regulations, a plan administrator intending to deliver some, or all, covered documents electronically must first notify participants—in a paper communication—of this intention.

Paper option remains

Not unexpected, recipients can opt out of receiving covered documents electronically and receive them in paper form, without charge. However, plan administrators need not (but may) offer recipients a “pick and choose” option to receive some documents in paper form and some electronically; the plan can require that an opt-out be “global;” (all or nothing). Conversely, a plan that uses electronic means to deliver some covered documents need not use electronic means for all.

Combining notices of Internet document postings

Certain notices of Internet postings can be combined in a single annual notice of Internet availability (NOIA), including the following.

  • Summary Plan Description (SPD)
  • Documents that must be provided annually; (e.g., Summary Annual Report (SAR))
  • Other documents authorized by the Secretary of Labor
  • Notices required by the Internal Revenue Code if authorized by the Secretary of the Treasury; (e.g., automatic contribution arrangement (ACA) notice)

Flexibility in definition of “website

The final regulations acknowledge the importance of including new and developing technologies in applying the guidance, as long as the safe harbor requirements can be met. Mobile applications qualify.

Informing participants of document posting

If covered documents are to be posted to a website, recipients must be able to receive a plan’s NOIA. An electronic address to which a NOIA is sent may be an email address. If it is a phone number, it must be capable of receiving written/text messages (plan administrators must confirm this). Delivery of a NOIA by voice message does not meet this requirement.

Availability of web-posted documents

A covered document posted to a plan’s website must remain there at least one year, or—if longer—until superseded (replaced by) an updated version of the same document.

Document description accompanying a NOIA
A NOIA alerting a participant to an Internet document posting need not include a separate description of the document, if the document’s name—included in the NOIA—would reasonably convey the nature of the document. If not (e.g., a blackout notice), a description of the document being posted to the Internet is required.

Readability

Detailed guidelines for readability in the proposed regulations (using the Flesch reading ease score) were removed, and are not included in the final regulations. The final regulations more simply require that communications under this guidance be “written in a manner calculated to be understood by the average plan participant.”

Accessing and Understanding

The plan administrator has no affirmative obligation under the final regulations to monitor whether covered individuals have visited a website to view posted information. Unaddressed—but noted, in reference to a recent ERISA court case—is the issue of whether a recipient has read, understood, and has “actual knowledge” of the information posted.

Special rule for severance from employment from plan sponsor

Procedures should be in place to ensure that a plan administrator will continue to have a valid electronic address to which notices can be provided after severance from employment.

Transition relief, prior guidance superseded

For an 18-month period following the effective date of these final regulations, retirement plans can also rely on prior guidance for the delivery of certain covered disclosures. This guidance includes Field Assistance Bulletin (FAB) 2006-003, FAB 2008-003 (Q&A 7), and Technical Release 2011-03R. Thereafter, the relevant portions of the prior guidance are superseded by the final regulations.

Reasonable procedures for compliance

These final regulations add “technical maintenance” of websites as a circumstance that warrants consideration of facts and circumstances, when—for a reasonable amount of time—disclosure documents may be unavailable to a recipient.

We’re currently preparing a Washington Pulse article to provide further analysis of the final e-delivery regulations, and it will be posted to the the ascensus.com newsroom once available.

 


HSA 2021 Cost-of-Living Adjustments Released

The IRS has issued Revenue Procedure 2020-32, providing inflation-adjusted amounts for health savings accounts (HSAs) for calendar year 2021. Maximum annual HSA contributions will rise from $3,550 to $3,600 for those with self-only insurance coverage, and from $7,100 to $7,200 for those with family coverage.

Minimum deductible amounts for qualifying high deductible health plans will remain (no indexing upward for 2021) at $1,400 for self-only coverage, and $2,800 for a family plan. Maximum annual out-of-pocket amounts under self-only coverage will rise from $6,900 to $7,000, and from $13,800 to $14,000 for family coverage.

 


House Passes More Pandemic Aid; Quick Senate Action Not Expected

The House of Representatives late Friday passed H.R. 6800, the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, providing additional aid to many who are adversely affected by the novel coronavirus (COVID-19) pandemic. The bill also contained non-COVID-19-related provisions considered likely to prove controversial in the Senate.

Unlike the Families First Coronavirus Response Act, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act—both of which moved fairly rapidly through Congress—the HEROES Act has been called “dead on arrival” by Senate Majority Leader Mitch McConnell (R-KY), who—with Republican colleagues—envisions a much less comprehensive bill. Sen. McConnell has also expressed a desire to move slowly and gauge the effectiveness of earlier relief. Most expect no additional COVID-19-related legislation to be enacted before sometime in June.

As announced last week, the House bill contains provisions for the following.

  • Continued financial assistance to unemployed workers
  • Financial assistance to state, local, tribal, and territorial government entities
  • Waiver of 2019 required minimum distributions (RMDs)
  • Waiver of the 60-day and one-rollover-per-12-month rules for otherwise-required RMDs waived for 2019 and 2020
  • Amendments to the Emergency Family and Medical Leave Expansion Act
  • Relief for participants in health flexible spending arrangements (FSAs)
  • Codifying the ability of employers to deduct certain expenses covered by loans that are forgiven under the SBA Paycheck Protection Program
  • Providing money purchase pension plans the early distribution and loan relief that the CARES Act provided to other qualified retirement plans
  • A new retirement “composite plan,” with features that include those of 401(k) and defined benefit (DB) pension plan
  • Relief for multiemployer (collectively-bargained) DB pension plans
  • Amortization relief for single employer DB pension plans
  • Further funding relief (beyond that provided by the SECURE Act) to certain community newspaper DB plans
  • Aid to certain federal agencies affected by the pandemic, including the Departments of Homeland Security, Interior, Health and Human Services, Labor, Transportation, Housing and Urban Development, and Education
  • Enhanced Medicare and Medicaid benefits
  • Medical supply chain enhancement
  • Testing and reporting enhancement
  • National strategic stockpile for pandemic response
  • Bankruptcy protections for homeowners
  • Certain student loan relief and protections
  • Additional aid to veterans during the COVID-19 pandemic
  • Federal election early and by-mail voting procedure

Washington Pulse: New COVID-19 Relief for Employee Welfare Benefit Plans

During the last few months, the Department of Labor (DOL), Treasury Department, and Department of Health and Human Services (DHHS) have jointly issued multiple pieces of guidance intended to provide much needed relief to those suffering economic hardships from the coronavirus (COVID-19) pandemic. In this article, we’ll explain how the most recent relief affects employee welfare benefit plans.

 

Overview of New Relief

To help overcome the financial hardships facing millions of Americans, the DOL and the Treasury Department published a final rule on May 4, 2020. The final rule extends and suspends various employee welfare benefit plan and COBRA deadlines that fall between March 1, 2020, and the end of a 60-day period following the close of the COVID-19 National Emergency (known as the Outbreak Period), which has yet to be announced.

The DOL and Treasury Department also worked with the DHHS to create EBSA Disaster Relief Notice 2020-01. This guidance extends deadlines for providing notices, disclosures, and documents that are due to plan participants and beneficiaries between March 1, 2020, and the end of the Outbreak Period. The relief applies to plan fiduciaries that act in good faith to provide this information as soon as administratively practicable. The EBSA notice also confirms that Form 5500 filing deadlines that occur between April 1, 2020, and July 14, 2020, must now be filed by July 15, 2020 (calendar-year plans are not affected).

On May 12, 2020, the IRS issued Notice 2020-29 and Notice 2020-33. Notice 2020-29 allows employees to make election changes relating to employer-sponsored group health coverage, health flexible savings accounts (FSAs), and dependent care FSAs mid-year with no special enrollment events. The notice also allows for health FSA and dependent care FSA participants to submit new claims for reimbursement up to December 31, 2020, from amounts that remained in accounts as of a plan year end or the end of the grace period that occurred at any time in 2020.

Notice 2020-33 increases the maximum $500 health FSA carryover amount to an amount that is equal to 20 percent of the maximum salary reduction contribution for the plan year. The increase takes effect immediately, making the maximum amount that can be carried forward for the 2020 plan year $550 (20 percent of $2,750).

 

How the Final Rule Affects Employee Welfare Benefit Plans

The most significant impact of the final rule involves providing certain individuals extended deadlines for performing certain acts. When calculating the new extended deadlines, the final rule disregards the Outbreak Period.

  • Filing a benefit claim: The final rule extends the deadline for filing claims for benefits under welfare benefit plans. Importantly, this relief will also include calendar-year health FSAs and health reimbursement accounts (HRAs) that had a runout period ending on March 1, 2020 or later. Although this provision will help individuals with existing claims, it does not allow them to incur new claims applicable to an old plan year.
    • Example: An employee terminated employment and lost health coverage on May 1, 2020. Because the plan has a 90 day-runout period for terminated participants, the employee would normally have until July 30, 2020, to submit claims for reimbursement of eligible expenses incurred before the employee terminated employment. The period between the date of termination and the end of the Outbreak Period is now disregarded. If March 2, 2021 is the end of the Outbreak Period, the 90-day runout period will start on March 3, 2021, and end on May 31, 2021.
  • Filing an appeal and requesting a review: The final rule extends the period to file an appeal of an adverse benefit determination. This period must be at least 60 days (for welfare benefit plans) or 180 days (for group health plans) following notification of the adverse benefit determination. The final rule also extends the four-month period for filing a request for external or internal review.
  • Special Enrollment Periods: Employees and their eligible dependents now have more time to enroll in a group health plan following a special enrollment event. Usually individuals must elect coverage during a 30-day period (or a 60-day period, depending on plan provisions) following a special enrollment event.
    • Example: An employee had a child on March 20, 2020. The employee would normally have 30 days to elect coverage for the child. The period between the birth and the end of the Outbreak Period is now disregarded. If October 10, 2020, is the end of the Outbreak Period, the 30-day period would start on October 11, 2020, and end on November 9, 2020.

 

How Notice 2020-29 Affects Employee Welfare Benefit Plans

IRS Notice 2020-29 gives plans additional deadline flexibility and eases restrictions associated with various plan requirements found in the Internal Revenue Code and associated Treasury Regulations. The extensions provided by the Notice are described below.

  • Modified rules on irrevocable elections: Notice 2020-29 eliminates certain restrictions that limit the ability of participants to revoke and make new plan elections after the start of the plan year. During the 2020 plan year, elections pertaining to employer health coverage, health FSAs, and dependent care FSAs can now be made at any time on a prospective basis. This relief is not automatic. An employer will be required to amend its plan to allow participants to take advantage of this relief.
    • Example: A participant elected to defer $1,200 into an FSA during open enrollment for a plan year that began on January 1, 2020. The participant is now permitted to change her election at any time and defer a different amount (e.g., $2,200) if she so chooses.
  • Extended the deadline for incurring claims: Plan participants in health FSAs and dependent care FSAs may now incur and submit new claims for reimbursement up to December 31, 2020, based on amounts that remained in their FSA as of the end of a plan year or the end of a grace period that occurred at any time in 2020. This relief is not automatic. An employer will be required to amend its plan to allow participants to take advantage of this relief.
    • Example:  An employee was a participant in a 2019 calendar year FSA with a grace period that ended on March 15, 2020. He had $1,200 remaining in his account as of that date. He had not incurred any claims that he could submit for reimbursement through March 15, 2020. On June 29, 2020, the participant received medical services in excess of $1,200. He can submit his claim and be reimbursed for that amount.

 

How the Final Rule Affects COBRA Coverage

The Consolidated Omnibus Budget Reconciliation Act (COBRA) helps employees going through a qualifying event (such as termination of employment) maintain health coverage, often at a lower cost than they might find in the marketplace. To assist those who have lost health insurance coverage because of the pandemic, the final rule extends several COBRA-related deadlines. When calculating the new extended deadlines, the final rule disregards the Outbreak Period.

Delayed COBRA Election Deadline

To assist those who have lost health insurance coverage through termination of employment or a reduction of hours, the final rule extends the deadline to elect COBRA coverage. Normally, the election period ends 60 days following the later of 1) the qualifying event or 2) the date the plan provides the COBRA election notice to the qualified beneficiary.

  • Example: An employee is terminated on April 10, 2020, and loses coverage on April 30, 2020. If the terminated employee receives the COBRA election notice on May 5, 2020, he would normally have until July 4, 2020, which is 60 days, to elect COBRA coverage. But the Outbreak Period is now disregarded. If November 14, 2020, is the end of the Outbreak Period, the 60-day election period would start on November 15, 2020, and end on January 13, 2021.

This provision also gives employees flexibility in determining whether to spend money to continue coverage based on the type of medical issues they have during the extended deadline. Some people may choose to not enroll in COBRA coverage unless some type of expensive medical event makes it necessary. Normally, they would have a shorter window to determine the necessity of enrollment.

While the extended deadline helps individuals, it also creates risk for insurers and employers who may see employees taking advantage of the deadlines to enroll only if they incur significant costs. Healthy employees who would normally elect coverage, pay the premiums, and incur limited costs, will not have incentive to enroll during the window and will not be able to help offset costs as they normally would.

Delayed COBRA Payments

The final rule extends the amount of time that a qualified beneficiary has to submit a COBRA premium payment before coverage under the plan will cease. To be considered timely, the payment deadline is normally 30 days after the due date (or 45 days for the initial payment). While it is possible for qualified beneficiaries to take advantage of this relief in order to minimize expenses and avoid paying their premiums during the Outbreak Period, it is important to note that once the Outbreak Period is over, qualified beneficiaries must fully pay all prior months’ premiums in order to retain coverage. This could be a substantial financial burden. But if a qualified beneficiary has a major medical event, it could be cheaper to make up the costs of numerous months of premiums than to pay for the medical expenses.

Delayed COBRA Notices

  • Extended qualified event notification deadline: The final rule extends the date by which a covered employee or qualified beneficiary must notify the plan administrator of the following qualifying events: divorce (or legal separation) or a dependent child ceasing to be a dependent child. The normal deadline is 60 days after the date of the qualifying event.
  • Extended disability notification deadline: Covered employees and qualified beneficiaries have more time to notify the plan administrator of a disability determination. The normal deadline is 60 days after the date of being determined to be disabled.
  • Extended COBRA rights notification deadline: Plan administrators have more time to notify qualified beneficiaries of their COBRA rights following a qualifying event. The normal deadline is 14 days following the qualifying event (or 44 days when the employer is the plan administrator). Although plan administrators are not required to provide the COBRA election notice during the Outbreak Period, they must provide COBRA coverage if a participant elects it. Plan administrators will likely want to provide timely notices to encourage qualified beneficiaries to elect and pay for COBRA coverage.

 

Previous Relief Affecting Employee Welfare Benefit Plans

In March 2020, the IRS released Notice 2020-18, postponing the due date for all Federal income tax returns normally due on April 15, 2020, to July 15, 2020. Although not mentioned, contribution deadlines were expected to be delayed as well. A few weeks later, these expectations were met when Notice 2020-23 officially extended multiple deadlines that fell on or after April 1, 2020, and before July 15, 2020, to July 15, 2020—including deadlines for

  • making 2019 HSA contributions;
  • completing a 60-day rollover;
  • providing Form 5498-SA to HSA owners and to the IRS;
  • forfeiting unused FSA benefits;
  • receiving cash for unused vacation days; and
  • electing benefits in a noncalendar-year cafeteria plan.

 

Watch for Future Guidance

The last few months have seen a flurry of new guidance. This trend may continue for the duration of the pandemic. In fact, at the time of this writing the House of Representatives had just introduced a fourth stimulus package. Ascensus will be closely monitoring all future guidance. Visit ascensus.com for the latest updates.

 

Click here for a printable version of this issue of the Washington Pulse.


More Details on IRS Guidance for Cafeteria Plan Flexibility

On Tuesday, the IRS issued two Notices (2020-29 and 2020-33) that provide additional flexibility to participants in cafeteria plans as a result of the coronavirus (COVID-19) pandemic. The following provides additional details on the contents of these Notices.

Permitted Election Changes

Cafeteria plan elections must be made prospectively in advance of the plan year and can only be changed in limited circumstances due to certain events, as detailed in Treasury Regulation (Treas. Reg.) 1.125-4. The IRS has recognized that the permitted election changes in Treas. Reg. 1.125-4 are not extensive enough to accommodate plan participants’ needs, given the unprecedented circumstances of the COVID-19 pandemic. IRS Notice 2020-29 permits additional, temporary flexibility to make prospective, mid-year election changes during the 2020 calendar year for health coverage, health flexible spending arrangements (FSAs), and dependent care assistance plans (DCAPs).

An employer will be permitted (but is not required) to amend its plan to allow for prospective election changes that would not have to satisfy the requirements of Treas. Reg. 1.125-4. The following election changes will be permitted.

  • Make a new election for employer-sponsored health coverage on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage
  • Revoke an existing election for employer-sponsored health coverage and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis (including changing enrollment from self-only coverage to family coverage)
  • Revoke an existing election for employer-sponsored health coverage on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer (note that the employer can rely on the employees’ attestation that they are enrolled or will enroll in other coverage, unless the employer has actual knowledge to the contrary; a sample attestation of other coverage is included in Notice 2020-29 for use in satisfying this requirement)
  • Revoke an election, make a new election, or decrease or increase an existing election regarding a health FSA on a prospective basis
  • Revoke an election, make a new election, or decrease or increase an existing election regarding a DCAP on a prospective basis

Employers can use discretion in amending for election changes and not be required to provide for all changes on an unlimited basis. But they will still need to comply with Internal Revenue Code nondiscrimination rules. Also, as long as they comply with existing rules, employers can design the plan election changes to prevent adverse selection.

Employers will have to provide all applicable notices to participants if they change the terms of the plan; this would include distributing a summary of material modifications (SMM) for ERISA plans.

If amounts have already been reimbursed from an FSA, employers can limit a participant’s ability to change an election amount so that the new election cannot be an amount below what has already been reimbursed.

This guidance can be applied retroactively to January 1, 2020, to plans that have already permitted election changes outside the scope of Treas. Reg. 1.125-4 and have been operating in accordance with the requirements of Notice 2020-29.

These permitted election changes are not mandatory, they are options. Employers that want to offer them must amend their plans to allow for the relief as permitted by Notice 2020-29. The amendment (which will apply only for the 2020 plan year) must be adopted on or before December 31, 2021, and may be effective retroactively to January 1, 2020. In the interim, a plan that permits these changes should operate in accordance with Notice 2020-29 and the employer must inform all eligible employees of the changes to the plan. Notice 2020-29 does not provide details on the required timing to notify participants; presumably participants should be informed as soon as practicable.

Extended Claims Period for Health FSAs and DCAPs

Because of unanticipated requirements to stay at home and associated business closures that came about early in the year, employees may have had difficulty using their FSA funds. For example, they may have been unable to see a doctor or no longer needed to use daycare. As a result, they are more likely now than under normal circumstances to have unused amounts remaining in their FSAs or DCAPs when their plan year or grace period ended.

Notice 2020-29 permits employees to submit new claims for reimbursement of the amounts that remained in their health FSAs or DCAPs as of the end of a plan year, or end of the grace period, as long as the end date was any time in 2020 (this will affect 2019 calendar year plans that had a grace period with an end date any time in 2020 but not 2019 calendar year plans with no grace period). Employees will be able to be reimbursed for expenses that are incurred through December 31, 2020, with the funds remaining in the account that would otherwise have been forfeited. Regardless, the dollars that are in health FSAs and DCAPs must still be used for the same purposes and cannot be applied to other expense types as a result of this guidance.

The extension of time for incurring claims is available to cafeteria plans that have a grace period and plans that provide for a carryover, as long as the end of the plan year or end of the grace period was in 2020.

For general-purpose health FSAs, this additional extension will cause individuals to be health savings account (HSA)-ineligible for the extent of the extended claim period. This is something that employees may not have anticipated, and will affect those who may have started to make HSA contributions, believing that their FSA was no longer covering them.

These extensions are not mandatory, they are options. Employers who want to offer them must amend their plans to allow for the extensions as permitted by Notice 2020-29. An amendment for the 2020 plan year (that will apply only for the 2020 plan year) must be adopted on or before December 31, 2021, and may be effective retroactively to January 1, 2020. In the interim, the plan should operate in accordance with Notice 2020-29, and the employer must inform all eligible employees of the changes to the plan.

HSA/HDHP Impact

The IRS has provided guidance in previous Notices that COVID-19 testing and treatment costs can be provided before satisfying a health plan deductible and not affect an individual’s eligibility to make HSA contributions. Notice 2020-29 clarified that the previously-released guidance applies to all costs for testing and treatment incurred on or after January 1, 2020. It also specified that the panel of diagnostic testing for influenza A and B, norovirus and other coronaviruses, respiratory syncytial virus (RSV), and any items or services required to be covered with zero cost sharing will be considered expenses for testing and treatment and will not affect HSA eligibility.

Telemedicine arrangements are generally viewed by the IRS as plans that provide coverage before a minimum annual deductible is met, and generally disqualify an individual from making HSA contributions. But recent legislation temporarily allows HSA-compatible high deductible health plans (HDHPs) to cover telehealth and other remote care services before satisfying a deductible. Notice 2020-29 confirms that HSA-eligible individuals who have received telehealth or other remote care services on or after February 15, 2020, that might otherwise have disqualified them, will be HSA-eligible for 2020.

Increased FSA Carryover Limit

IRS Notice 2020-33 increases the maximum $500 FSA carryover amount to an amount that is equal to 20 percent of the maximum salary reduction contribution for the plan year. The increase takes effect immediately, making the maximum amount that can be carried forward for the 2020 plan year $550 (20 percent of $2,750).

A plan that wants to adopt the provision will have to be amended. For the 2020 plan year, the amendment must be adopted on or before December 31, 2021, and may be effective retroactively to January 1, 2020, provided that the employer informs all individuals eligible to participate in the plan of the changes. In future years, amendments would have to be adopted at any time on or before the last day of the plan year.

ICHRA Relief

Notice 2020-33 also provides relief for the new individual coverage health reimbursement arrangements (ICHRAs). Plans that run on a calendar plan year may reimburse a substantiated premium for health insurance coverage that begins on January 1 of that plan year, even if the covered individual paid the premium for the coverage before the first day of the plan year. This relief is designed to ease administrative issues, given that premiums for insurance coverage would generally be due before the effective date of the coverage.


House Democrats Introduce Next Coronavirus Relief Bill

In an atmosphere more partisan than earlier coronavirus relief efforts, the Democratic caucus of the House of Representatives has released a bill to fund another round of assistance as the nation attempts to cope with the health and economic effects of the coronavirus (COVID-19) pandemic. This legislation, as yet unnumbered, is being referred to as the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act.

Three prior bills—which provided direct cash benefits to Americans, created a small business lending program to help employers retain employees and provided enhanced access to tax-favored retirement savings—were dealt with quickly by Congress and signed into law by President Trump. This round of relief has been predicted to provoke greater resistance among lawmakers who are averse to expanding the federal deficit. There is also expected to be less common ground in the House and Senate—and Democrat and Republican—priorities for additional relief.

The House-released bill contains provisions for the following.

  • Continued financial assistance to unemployed workers
  • Financial assistance to state, local, tribal, and territorial government entities
  • Waiver of 2019 required minimum distributions (RMDs)
  • Waiver of the 60-day and one-rollover-per-12-month rules for otherwise-required RMDs waived for 2019 and 2020
  • Amendments to the Emergency Family and Medical Leave Expansion Act
  • Relief for participants in health flexible spending arrangements (FSAs)
  • Codifying the ability of employers to deduct certain expenses covered by loans that are forgiven under the SBA Paycheck Protection Program
  • Providing money purchase pension plans the early distribution and loan relief that the CARES Act provided to other qualified retirement plans
  • A new retirement “composite plan,” with features that include those of 401(k) and defined benefit (DB) pension plan
  • Relief for multi-employer (collectively-bargained) DB pension plans
  • Amortization relief for single employer DB pension plans
  • Further funding relief (beyond that provided by the SECURE Act) to certain community newspaper DB plans
  • Aid to certain federal agencies affected by the pandemic, including the Departments of Homeland Security, Interior, Health and Human Services, Labor, Transportation, Housing and Urban Development, and Education
  • Enhanced Medicare and Medicaid benefits
  • Medical supply chain enhancement
  • Testing and reporting enhancement
  • National strategic stockpile for pandemic response
  • Bankruptcy protections for homeowners
  • Certain student loan relief and protections
  • Additional aid to veterans during the COVID-19 pandemic
  • Federal election early and by-mail voting procedure