New COVID-19 Guidance for Section 125 Mid-year Election Change Rules

Wed May 13, 2020

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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.

Employer Requirements
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.