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IRS Eases Restrictions on Midyear Employee Health Plan Changes

In response to recent events, the Internal Revenue Service has issued guidance on relaxed restrictions for midyear employee health plan changes, giving employers the choice to open certain plan choices.

The new guidance applies to “cafeteria plans” under Section 125 of the Internal Revenue Code – that is, employer-sponsored health coverage, health flexible spending arrangements (FSAs) and dependent care assistance programs selected by employees from a variety of options.

FSA Eligibility Changes

Under the rule change, employers may allow employees to make changes that would normally be prohibited at the midyear point. These include:

  • making a new election for employer-sponsored health coverage that was previously declined
  • revoking an existing health plan to make a new election (including changing from single to family coverage)
  • revoking, changing or making new elections regarding health FSAs and dependent care FSAs
  • extension of grace periods for use of FSA funds from the 2019 plan year through Dec. 31, 2020

The easing of restrictions aims to help mitigate some of the effects of the COVID-19 pandemic – for example, loss of income or closing of dependent care providers.

Several items remain at the employer’s discretion, including:

  • which mid-year changes are allowed
  • the effective date of the changes within the 2020 calendar year
  • employees’ overall ability to make these changes

You can read the full text of the IRS guidance here. In the meantime, please continue to follow the Paycom blog for legislative updates.