As the COVID-19 pandemic changes daily, this may result in changes to rules surrounding your pretax benefit plans administered by HRC Total Solutions (HRCTS). Our goal at HRCTS is to provide helpful information on these changes to allow Employers and Participants a better understanding of how their Plans are affected.

 

Health FSA & Limited Purpose FSA Accounts (FSA/LPFSA):

Can participants change their Health FSA or Limited Purpose FSA election due to COVID-19 Pandemic?

  • Answer: Employers may allow participants to make prospective election changes during the 2020 calendar year regarding employer-sponsored health coverage & healthcare FSAs, regardless of whether the reason for the change of election satisfies the existing cafeteria plan regulations (in Treas. Reg. § 1.125-4). Notice 2020-29 permits employers to limit the period during which participants may request mid-year election changes.

How does the Cares Act, signed into Law on March 27, 2020 by President Trump affect these Plans?

  • Answer: The Cares Act enhanced the Health FSA Accounts by allowing Over the Counter (OTC) medications/drugs and Menstrual Care Products to be eligible FSA expenses retroactive to January 1, 2020. Prior to this new law, OTC medications/drugs required the participant to obtain a prescription (Rx) or Letter of Medical Necessity (LMN) from their Provider in order to use their pretax FSA contributions towards these expenses. Please note, if your Limited Purpose FSA is considered a Post-Deductible FSA, these rules will apply to your Plan also.

Has there been any new rules surrounding extending Runout Periods on these Plans?

  • Answer: The rules under EBSA Disaster Relief Notice 2020-01 require you to give participants additional time after the COVID-19 national emergency is declared over to submit Healthcare FSA claims for any plan year that has a run-out period ending during the relevant timeframe (March 1, 2020 until 60 days after the end of the COVID-19 national emergency). Dependent Care FSAs are not subject to this rule.

Has there been any new rules surrounding extending the timeframe participants have to incur expenses for their current FSA/LPFSA Plan Year?

  • Answer: An employer may permit employees to apply unused healthcare and dependent care FSA amounts remaining as of the end of a 2 ½ Month grace period, if ending in 2020, or for any FSA/DCA plan year ending in 2020 (i.e., an off calendar year plan) to pay or reimburse eligible expenses incurred through December 31, 2020. Please follow this link to the DOL Website for more detail.

If an employee is Laid-off from work, how are these Plans affected?

  • Answer: There have not been any new rulings on how these Plans are affected due to the COVID-19 Pandemic. That said, you would approach a layoff like you would normally by terminating the participant from the Plans and offering them under COBRA if the participant is eligible to be offered these Plans under COBRA. As a reminder, a terminated employee is only eligible to be offered the Health FSA or Limited Purpose FSA under COBRA if they have underspent their account. (Meaning they have contributed more to their Health FSA/LPFSA vs what was reimbursed from the Plan)

If an employee is on a Furlough/unpaid Temporary Leave of Absence, how are these Plans affected?

  • Answer: This scenario would require the Employer to suspend the Plan for the participant, which including suspending the debit card, during this unpaid leave. Participants would then catch up on their missed contributions upon return to work and they can then submit for reimbursement for any eligible expenses incurred while on their unpaid leave.

Healthcare FSA Rollover Amount Increased:

  • Answer: Notice 2020-33 provides a permanent increase to the maximum carryover amount for healthcare FSAs from $500 to $550 for plans starting in 2020. It is expected that this rollover amount will increase each calendar year just like the maximum election may increase year to year by the IRS. Please note, an Employer is not required to adopt the increased rollover amount and may maintain their current rollover maximum.

Dependent Care FSA Accounts (DCA):

Can participants change their Dependent Care FSA election due to COVID-19 Pandemic?

  • Answer: Employers may allow participants to make prospective Dependent Care FSA election changes during the 2020 calendar year, regardless of whether the reason for the change of election satisfies the existing cafeteria plan regulations (in Treas. Reg. § 1.125-4). Notice 2020-29 permits employers to limit the period during which participants may request mid-year election changes.

If an employee is Laid-off from work, how are these Plans affected?

  • Answer: There have not been any new rulings on how these Plans are affected due to the COVID-19 Pandemic. That said, you would approach a layoff like you would normally by terminating the participant from the Plans. The participant would have a 90-day Runout period to submit claims incurred prior to termination and within the Plan year allowing them to reduce or exhaust their DCA account balance vs forfeiting unused funds.

If an employee is on a Furlough/unpaid Temporary Leave of Absence, how are these Plans affected?

  • Answer: This scenario would require the Employer to suspend the Plan for the participant, which including suspending the debit card, during this unpaid leave. Participants would then catch up on their missed contributions upon return to work and they can then submit for reimbursement for any eligible expenses incurred while on their unpaid leave. Please note, the IRS typically doesn’t allow DCA expenses incurred while the member is not “gainfully employed” so they would not normally be able to submit for expenses incurred while on leave upon return to work. At this time, HRCTS is taking the stance that any eligible DCA expenses incurred while on leave will be eligible for reimbursement as the IRS most likely will not penalize anyone for reimbursement of any fees to a participant has to pay in order to “HOLD” their dependents spot in their Daycare Program.

Amendments to your Plan Documents:

  • If you adopt any of the following allowable changes to your S125 Cafeteria Plan/FSA/DCA, you will be required to amend your Plan Documents.
  1. Allowing the additional Mid Year Election Changes due to COVID-19
  2. Extended Date to Incur Expenses through 12/31/2020
  3. Increase your Healthcare FSA Carryover from $500 to $550 for your 2020-2021 Plan Year

Commuter Transit & Parking Accounts (TRN/PKG):

Can participants change their Commuter Plan election due to COVID-19 Pandemic?

  • Answer: The good news on this Plan is that the IRS does not require a participant to experience a Qualifying Life Event in order for a change of election or to all the member to terminate their participation in the Plan. Keep in mind, participants may want to simply decrease their election to $0 while not needing the benefit if they have a current balance to avoid forfeiting any unused funds. Upon return to work, they can increase their election and use up any balance they have in their account on eligible expenses.

Health Savings Accounts (HSA):

Has the length of time to submit 2019 HSA Contributions been extended due to the COVID-19 Pandemic?

  • Answer: The IRS has confirmed that 2019 HSA Contributions may be accepted up to the Tax Return filing deadline of July 15, 2020.

Can participants change their contribution amount at any time?

  • Answer: Yes, participant can request to change their election by contacting their Employer directly. The Employer will then be required to notify their Payroll Administrator of the changes in order to stop or update any future pretax deductions from the participants’ payroll. The Employer would then be responsible to notify HRCTS of any changes through their HRCTS Employer Portal.

What if employees are terminated from Employment and elect the HSA Compatible Medical Plan under COBRA, can they still contribute to their HSA administered by HRCTS?

  • Answer: Yes, any HRCTS HSA participant can submit contributions to their account through their HRCTS Online Portal or the HRCTS Mobile App. These would be post-tax contributions, but the participant would capture any tax savings when they file their personal Tax returns.

Are Employers required to continue contributing to HSA Plans for employees who are laid off?

  • Answer: No, Employer HSA Contributions are not COBRA eligible and do not have to be continued after an employee is terminated from the Plan. Keep in mind, the HSA is portable, and the participant can continue to use their funds towards out of pocket expenses incurred after termination.

Can Employers amend their HSA Employer Contribution Schedule due to the COVID-19 Pandemic?

  • Answer: An employer must use the same contribution method for all employees who were comparable participating employees for any month during the calendar year. That said, an Employer can make a change to the amount they contribute as long as they are making comparable contributions each month for all employees eligible any given month.

An Example is as follows:

Beginning on January 1, employer Eastco contributes $50 per month on the first day of each month to the HSA of each employee who is an HSA-eligible individual on that date. Eastco does not contribute to the HSAs of former employees. In mid-March of the same year, employee Xena, an HSA-eligible individual, terminates employment after Eastco has contributed $150 to her HSA. After Xena terminates employment, Eastco does not contribute additional amounts to her HSA. In mid-April of the same year, Eastco hires employee Yolanda, an HSA-eligible individual, and contributes $50 to her HSA in May and $50 in June. Effective in July of the same year, Eastco stops contributing to the HSAs of all employees, and makes no contributions to the HSAs of any employee for the months of July through December. In August, Eastco hires employee Zoltan, an HSA-eligible individual. Eastco does not contribute to Zoltan's HSA. After Zoltan is hired, Eastco does not hire additional employees. As of the end of the calendar year. Eastco has made the following HSA contributions to its employees' HSAs: $150 to Xena's HSA, $100 to Yolanda's HSA, $0 to Zoltan's HSA, and $300 to the HSA of each employee who was an HSA-eligible employee and employed by Eastco from January through June. Eastco's HSA contributions satisfy the comparability rules. *

 

HRCTS will be working diligently to update our Clients and Partners with any new changes that affect these Plans if/when any new rulings are released by the IRS. If you have any specific questions on your Plans, please contact your Dedicated Account Manager at HRCTS, email clientrelationsdepartment@hrcts.com or call our Employer Customer Service Team using 603-647-1147 Ext 2.

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