New Pre-Tax Reimbursement Rules Require Employer Attention
Should Employers Implement the New Pre-Tax Reimbursement Rules?
In response to COVID-19, significant pre-tax reimbursement rule changes have been implemented in the benefits landscape. How should employers respond?
Mid-Year Elections for Health and Dependent Care FSA
New Pre-Tax Reimbursement Rules:
- Employees may adjust their annual election (increase or decrease) or allow new elections (or revoke an existing) for plans that begin in 2020.
- Adjustment cannot be less than what has already been contributed (i.e. if a participant already contributed $1,000 to their FSA, they may decrease their election to that amount; they cannot decrease the election to less than $1,000 and get a refund).
Old Reimbursement Rules:
FSA participants could only change their elections due to specific “qualified” life events: change in marital status, addition or loss of a dependent, change in employment status or becoming eligible for Medicare or Medicaid.
For Dependent Care FSAs additional eligible events include changes to care costs, coverage and care provider closings, change in employment status, reduction in hours, or loss of a job.
New Eligible Expenses for HSA, HRA, Health FSA
- Over-the-Counter Medications (OTC) medicine that used to require a prescription no longer do.
- Menstrual care products are now an eligible pre-tax expense.
- It can be retroactively applied 1/1/2020.
Claim Incurral Extension for Health FSA
Employers may allow employees to use unused contributions from their 2019 FSA to pay for expenses incurred through December 31, 2020. This applies for any cafeteria plan that has a grace period (FSE Extension) or plan year ending in 2020.
- Important: Choosing to adopt the claim incurred extension will cause an employee to be ineligible for an HSA through at least December 31, 2020.
Claim Submission Extension for FSA and HRA
Claim submission run-out is an extended period of time after the plan year ends that allows participants to file for expenses incurred in the previous plan year. Run out periods can vary by plan.
- Participants now have until 60 days after the “Outbreak Period” is over to file for claim reimbursement.
- “Outbreak Period” is the official end of the National Emergency plus 60 days. For all run-out periods that end on or after March 1, 2020, plans must allow any days that were remaining in the original run-out (after March 1) plus the “Outbreak Period” before the claim submission period can close.
- Example 1: Calendar year plan affected by COVID-19
Jane makes a purchase on December 31, 2019, with her FSA but did not submit a claim right away. Her employer’s plan year ends December 31, 2019, with a run-out period ending March 31st. Assuming the Outbreak Period ends July 1, 2020, Jane has until August 1, 2020, to file her claim for reimbursement.
- Example 2: Non-calendar year plan affected by COVID-19
Jane makes a purchase on March 1, 2020, with her FSA but did not submit a claim right away. Her employer’s plan ends March 31, 2020, with a run-out period ending May 31st. Assuming the Outbreak Period ends July 1, 2020, Jane has until August 31, 2020, to file her claim for reimbursement.
- Example 3: Run out period NOT affected by COVID-19
Jane makes a purchase on March 1, 2020, with her FSA but does not submit a claim right away. Her employer’s plan ends on December 31, 2020, with a run-out period ending March 31st. Assuming the Outbreak Period ends July 1, 2020, Jane has until March 31, 2021, to file her claim for reimbursement.
Claim Submission Extension for FSA and HRA
Beginning with 2020 plan years, participants may now carry over a maximum of $550 to the next year. Going forward, this amount will be indexed at 20 percent of the maximum annual elections in increments of $50.
- Important: Employers are not required to adopt these changes. However, if any or all changes are implemented plan documents must be amended by December 31, 2021.
Important considerations for employers
- None of these changes are automatic.
- Employers must properly communicate these changes, and the potential benefit options/outcomes, to their employees.
- Employers must adjust benefit plan documents to these implement changes.
Employers should contact their benefit plan administrator to discuss these choices and the delivery options to employees.
If you are in a PEO, you will not have the flexibility to make your own decision for your employees. You will be subject to the PEO’s decision.
If we are the administrator for your benefit plan, please contact us to discuss your implementation options.
If we are not administering your benefits, let us help you make sense of these new rules.
Our 20+ years of experience can help you simplify your life and save your business money.
Get in touch with us for more information!