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Midyear Election Guidance Gives Employers Control

Posted on May 21, 2020

New guidance that permits employees to make midyear benefit changes gives employers a lot of discretion in implementing the options, according to an IRS official.

“If you’re covered by a plan and you think this now allows you to make a change, you’ve got to talk to your employer, because it’s only what the employer decides to adopt,” Kevin Knopf, senior technician reviewer (employee benefits health and welfare), IRS Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes), said May 20 during a webinar hosted by the American Bar Association Joint Committee on Employee Benefits. “Some employers, for whatever reason, may only adopt some of it, or they may limit the adoptions,” he said.

The IRS May 12 issued Notice 2020-29, 2020-22 IRB 1, which provides temporary relief from the cafeteria plan rules and permits employees to make “prospective election changes (including an initial election) during calendar year 2020 regarding employer-sponsored health coverage, a health [flexible spending arrangement], or a dependent care assistance program.”

The notice says that for unused amounts in an FSA with a plan year or grace period that ends in 2020, the employer can allow the FSA to be used to reimburse expenses through December 31.

However, Knopf said employers can elect a shorter period if they choose. “It’s however you want to amend your plan, and we’ve allowed you to expand it as much as you want, but that certainly doesn’t mean you have to expand it all the way,” he said.

Employers also don’t have to allow employees to spend 100 percent of what’s left over, Knopf added. “If you want to say they can only spend a certain amount of what’s left unused, that would be a possibility as well,” he said.

Dental and Vision

Knopf noted that an employee can drop health coverage under the notice only if they attest in writing that they will enroll in other, similar coverage. “You can’t just say ‘I don’t want coverage, I want money instead,’” he said.

In addition to changes to traditional health coverage, Knopf said the notice could cover prospective changes to dental and vision coverage, noting that the goal of the guidance is to expand coverage rather than reduce it.

“If they want to add dental and vision if they didn’t have that before, they could make those changes under [this notice],” Knopf said. “I think the way we’ve written it, if you wanted to drop [dental or vision coverage], I think you’d have to show you were getting [it] somewhere else.”

The notice does have some restrictions that aren’t immediately apparent, Knopf said. He said employers shouldn’t allow retroactive elections or cash-outs of previous salary reductions.

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