New COVID-19 Guidance for Section 125 Mid-year Election Change Rules
Wed May 13, 2020
On May 12, 2020, the IRS released Notice 2020-29, which provides temporary
flexibility for mid-year election changes under a Section 125 cafeteria plan
during calendar year 2020. The changes are designed to allow employers to
respond to changes in employee needs as a result of the COVID-19 pandemic.
This guidance relates to mid-year elections for self-insured and fully insured
employer-sponsored health coverage, health flexible spending arrangements
(health FSAs) and dependent care assistance programs (DCAPs).
Permitted Election Changes
For employer-sponsored health coverage, a Section 125 cafeteria plan may
permit an employee to prospectively:
Make a new election if the employee previously declined coverage;
Revoke an existing election and enroll in different health coverage
sponsored by the employer; or
Revoke an existing election, if the employee is or will be enrolled in
other health coverage.
Employees may also prospectively revoke an election, make a new election
or decrease or increase an existing election for a health FSA or DCAP. A plan
may permit any of the election changes described in the notice, regardless of
whether they satisfy existing mid-year election change rules.
An employer using this relief may determine the extent to which such
changes are permitted and applied. If these changes are permitted, the
employer must adopt a plan amendment by Dec. 31, 2021, and inform
employees of the change. The amendment may be retroactive to Jan. 1, 2020.
Changes to the plan may also implicate other applicable laws, such as
participant notification requirements under ERISA.
Please contact your benefits administrator for further information.