New! IRS Notice - Regarding FSA and Rollovers

Wednesday May 20th, 2020

The IRS has released Notice 2020-29 and Notice 2020-33 , which have major implications for cafeteria plans.

To summarize:

Carryover increase. The carryover amount for FSAs has increased from $500 to $550 to account for inflation. Employers must adopt a plan amendment by Dec. 31, 2020, and this can be retroactive to the 2020 plan year. FlexChecks, Inc. will charge the standard $100 to make this amendment to your plan if you choose to adopt this amendment.
Dependent Care (DCA) and Medical Rollover (FSA) Balances. A participant may use all of their available funds from their 2019-2020 account up until Dec. 31, 2020. FlexChecks, Inc. will charge the standard $100 to make this amendment to your plan if you choose to adopt this amendment.

What the change for available balances means for your flexible benefit participants if you choose to amend your plan to include the extended time period for DCA and FSA: :

The participant can use their 2019-2020 DCA funds for dependent care with Dates of Service from June 1, 2019 - December 31, 2020.
The participant can use their 2019-2020 FSA funds for eligible expenses with Dates of Service from June 1, 2019 - December 31, 2020.
Based on the maximum amount you allow for their Rollover, they can still rollover funds to continue using from January 1, 2021 - May 31, 2021.
The remaining balances from their 2019-2020 plan accounts will not affect the maximum amount allowed for the new plan year they are enrolling in now. They can still enroll for the maximum amount allowed.

Here is an example for Dependent Care:

- The 2019-2020 DCA account has $2,000 available today.

- Daycare starts again for their child in September 2020.

- The participant can use the $2,000 for expenses with Dates of Service from June 1, 2019 - December 2020.

- If the participant only uses, for example, $1,800 by December 31, 2020, they will forfeit the remaining $200.

Here is an example for the Rollover:

- The 2019-2020 FSA account has $2,000 available today.

- The participant is allowed to rollover $550

- The participant can use their total $2,000 up until December 31, 2020, as long as the date of service falls within June 1, 2019 - December 31, 2020.

- Or, the participant can use $1,450 up until December 31, 2020, and Rollover $550 to use for the remainder of the 2020-2021 Plan.

- If the participant only uses, for example, $1,250 by December 31, 2020, they will Rollover $550 and forfeit the remaining $200.

Finally, per the IRS, the employer is responsible for notifying your employees of any changes you make to your plan. Should you choose to adopt either of these plan amendments, please notify your employees as soon as possible.

I hope these make sense to you. Please email or call our office at (616) 791-7900 with any questions regarding the changes the IRS has made.