IRS Relief Options For § 125 Cafeteria Plans (COVID-19 Alert)
Recent IRS Notice 2020-29 provides additional options to allow mid-year changes in participant cafeteria plan elections. The additional relief from prior cafeteria plan election rules is intended to help employees adapt to changes in their personal circumstances resulting from the COVID-19 pandemic.
The new election options are available only during 2020 and, like many other COVID-19 relief provisions, can be offered at the option of the sponsoring employer.
WHAT IS A CAFETERIA PLAN?
Cafeteria plans (or Section 125 plans) allow participating employees to elect to receive taxable cash compensation, or to divert a portion of such compensation to qualified benefits such a group health coverage on a pre-tax basis. Such qualified benefit elections must be made prior to the first day of the plan year and are irrevocable except in the case of certain "life events," changes in employment status, or significant cost or benefit changes in the employer's benefit plan.
IRS NOTICE 2020-29 RELIEF PROVISIONS
Notice 2020-29 permits employers to amend their cafeteria plans to allow these additional mid-year benefit election changes:
- Employees who previously declined to elect group health coverage can do so for the first time during the 2020 calendar year.
- Existing group health elections can be changed to elect different coverage offered by the same employer.
- Existing group health elections can be revoked if the employee provides the employer a written attestation that the employee has other comprehensive health coverage available through a spouse or a government program. The form for this attestation is included in Notice 2020-29 (here).
- Health flexible spending account (FSA) elections can be made for the first time, or they can be revoked or modified during 2020. Notice 2020-29 also allows employers to provide an extended filing deadline to permit FSA reimbursements (including dependent care expenses) though the end of 2020 for claims otherwise subject to deadlines that expired earlier in 2020.
EMPLOYERS' OPTIONS & RESPONSIBILITIES
Employers can choose not to change their cafeteria plans, or to offer some or all of these relief provisions by amending their cafeteria plan document and providing suitable notice of any new provisions to their employees. Such changes are generally effective only on a going forward basis although employers that previously allowed election changes consistent with the above can justify such changes made on or after January 1, 2020 with a conforming plan amendment.
WE CAN HELP
Golan Christie Taglia is available to assist with any questions or concerns that you may have about these cafeteria plan options, or any of the other benefit relief provisions available through the CARES Act as outlined in our prior benefit alerts. For additional details or to discuss your particular situation, please feel free to contact: