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IRS Clarifies FSA Relief and Provides Flexibility for Health Plan Elections

Under the Taxpayer Certainty and Disaster Relief Tax Act of 2020 (the Act), additional provisions pertaining to Flexible (FSA) and Dependent Care Spending Accounts was included. The provision under the Act has resulted in much confusion among employers as the original guidance was rather vague and mixed messages were received from various resources. On February 18, the IRS released Notice 2021-15 (the Notice) to clarify the application of FSA relief provided for under the Act.

Given the clarifications that have been issued and because employers have the flexibility in implementing the provisions, consideration needs to be given to which provisions, if any, an employer plan wishes to incorporate. Prior to making a decision, employers should evaluate their own administrative capabilities and limitations if they self-administer their plans, or verify with their Third-Party Administrator as to the processes of incorporating the new provisions, should they wish to do so.

Finally, if an employer chooses to incorporate any of these provisions, it must adopt appropriate plan amendments no later than the last day of the calendar year beginning after the end of the plan year to which the change relates. For example, for a change made to a 2021 calendar year plan, an amendment must be adopted no later than December 31, 2022. For ERISA plans, these amendments will trigger the requirement to distribute a Summary of Material Modification or an updated Summary Plan Description to participants.

Read the Benefits Bulletin.

Contact your Cowden representative for more information on this or other compliance issues.