Q: Does the “Consolidated Appropriations Act, 2021” include any additional changes to Flexible Spending Accounts, “FSA”? If so, what are the changes and how do I implement the changes I want to adopt?

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A: The “Consolidated Appropriations Act, 2021” allows for several temporary changes to both the Flexible Medical and Dependent Care Spending Accounts for plan years 2020 and 2021. The temporary changes are as follows:

  • Allows the carryover of all unused funds for plan years ending in 2020 to the 2021 plan year; and for plan years ending in 2021 to 2022. This applies to both Dependent Care and Health Care Spending Accounts.
  • FSA’s with grace periods vs rollover may extend the grace period for up to 12 months.
  • Allows prospective changes to be made to elections through 2021 without a special enrollment event such as change in marital status, number of dependents and dependent care expenses.
  • If an employee terminates participation during calendar year 2020 or 2021, FSAs may also reimburse for otherwise eligible expenses incurred through the end of the year the termination occurred year (plus any grace period). This rule does not require the participants to make further contributions to access their unspent funds.
  • The Act permits reimbursements for dependent children until age 14 during the 2020 plan year. For the 2021 plan year, a dependent care FSA participant may receive reimbursements for expenses for a child until the child reaches age 14, but only if the participant had unused funds in their account at the end of the 2020 plan year.

Employers should work with their broker and FSA administrator to determine if they would like to adopt any of the temporary relief and determine when the FSA administrator’s system will be updated to implement the changes and amend the plan documents. Employers will need to communicate the changes with plan participants as soon as a decision is made.  If a sponsor plans to allow employees who terminate participation to continue to receive disbursements, they will also need to communicate this change with their COBRA administrator if applicable.

The Plan Document must be amended by the last day of the first calendar year following the plan year which the change is effective. For example, if the change is effective January 1, 2021, the amendment must be adopted by December 31, 2022.

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