COVID-19 Relief Bill of 2021 Includes Provisions for Flexible Spending Accounts

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On Sunday, December 27, 2020, the White House signed into law the Consolidated Appropriations Act of 2021, a massive bill to fund the government that includes several provisions related to Cafeteria Plans, specifically flexible spending accounts (FSAs).

The bill provides temporary provisions that permit employers to offer increased flexibility surrounding rollover of funds from health care FSA and dependent care FSA plans to give members an opportunity to spend down funds or change their elections. Employers have until the last day of the calendar year following the plan year in which the amendment is effective to make amendments to their plan documents. For example, calendar year 2020 plan amendments must be adopted on or before December 31, 2021.

Below is a summary of the provisions in the bill that are currently proposed to health care and dependent care FSAs. Employers may choose to implement these provisions, but they are not required to do so. These are intended to offset financial and health hardships resulting from the continuation of the pandemic.

Provisions for Health Care FSAs

Health care FSAs offer account owners the ability to set aside pre-tax funds to pay for out-of-pocket medical expenses during the plan year. FSA funds that are not used by the end of the plan year are forfeited unless employers permit rollover of unused funds and/or a grace period to spend unused funds or submit reimbursements for up to two and a half months past the plan termination date.

Because of the COVID-19 pandemic, medical spending was down in 2020, and the Centers for Disease Control and Prevention (CDC) reported in June that four in 10 Americans delayed or avoided medical care last year. To offset the financial and health issues caused by the COVID-19 crisis, the following provisions for health care FSAs are available to employers who want to support employees with increased flexibility to use funds or amend their plans:

Rollover Extension

Unused FSA funds from plan years ending in 2020 and 2021 may be rolled over into the next plan year, giving members more time to spend those funds that would otherwise be forfeited.

Grace Period Extension

For plan years ending in 2020 or 2021, the grace period may be extended up to 12 months after the end of plan year to allow members more time to submit reimbursements and spend down funds.

Election Amount Changes

Plans ending in 2021 may allow election amount changes for any reason.

Terminated Participants

Allow participants who cease participation in a 2020 or 2021 FSA plan to receive reimbursements from unused contributions through the end of the plan year in which their participation ended—including through the grace period (if applicable).

Provisions for Dependent Care FSAs

Dependent care FSAs allow members to allocate pre-tax funds to pay for dependent care for children or elder adults in their care. This can include day care, preschool, nursery school, day camp, babysitting, before/after school care, and elder care/supervision.

For parents and guardians in 2020, managing child care became increasingly difficult. Many schools moved to provide all-virtual or hybrid learning that required kids to be home, and many day care centers completely closed. Elder care also became an issue, with some at-home elder care services closing, or families opting to take elder relatives out of nursing homes or assisted-living centers for safety concerns.

To offset the challenges of caring for dependents, employers can offer a dependent care assistance program, or dependent care FSA, to support employees. Provisions to dependent care FSAs in the latest bill include:

Rollover Extension

Unused funds from plan years ending in 2020 and 2021 may be carried over into the next plan year.

Grace Period Extension

For plan years ending in 2020 or 2021, the grace period may be extended up to 12 months after the end of plan year.

Election Amount Changes

Plans ending in 2021 may allow election amount changes for any reason.

Maximum Age Increased

For a plan year that had an election period ending on or before January 31, 2020, participants may claim expenses for dependents who turned 13 during the applicable plan year and any extension to that plan year.

Employers and brokers should be aware of these provisions in the latest COVID-19 Relief Bill for 2021. If you have questions or concerns, please contact your account representative about how ConnectYourCare will support these changes. We also advise employers to speak with their tax or benefits counsel about the legislation. For more information about COVID-19 legislative updates and news, visit our Coronavirus (COVID-19) Resources for Employers and Partners page.