The latest guidance from the Internal Revenue Service allows employer-sponsors of

Section 125 cafeteria plans to permit mid-year changes to group health insurance, health
FSA, and dependent care FSA elections. Plans may also extend grace periods on FSAs to
cover eligible expenses through December 31, 2020. Learn how this new Section 125
COVID-19 relief can impact your Section 125 group health plan.

The IRS continues to provide Section 125 COVID-19 relief to taxpayers by allowing
employers to amend cafeteria plans to better meet families’ health coverage needs during
the pandemic.

Section 125 COVID-19 relief to employers

Notice 2020-29 addresses requests from employer-sponsors of Section 125 cafeteria plans
for relief needed to respond to their employees’ changing needs as a result of the COVID-19
pandemic. It allows employers to amend terms of a plan to allow mid-year elections for
group health insurance, health FSAs, and dependent care FSAs.

Usually, Section 125 plan elections are made at the start of a plan year and cannot be
changed for the duration of the year unless an employee or eligible dependent experiences
a qualifying life event that opens a special enrollment period for them.

In 2020, the whole country is experiencing a shared qualifying life event as the coronavirus
emergency wreaks havoc on our health and finances. That is why the Departments of the
Treasury, Health & Human Services, and Labor (the Departments) are granting employer-
sponsors of group health plans and flexible spending arrangements relief to change the
terms of their plans for a Section 125 COVID-19 limited special enrollment for all
employees.
Plan year vs. calendar year
Section 125 COVID-19 relief applies to elections made for the 2020 calendar year. Plans
with a non-calendar year will allow mid-year elections through December 31, 2020. For
example, if your plan year runs from April 1, 2020, through March 31, 2021, it will allow
mid-year changes to elections through December 31, 2020, only.

Employer options
Employers may add all, some, or none of the Section 125 COVID-19 relief options to their
group plans. All changes made by an employee’s mid-year elections are made on a
prospective basis, effective from the date of the mid-year election to the end of the 2020
calendar year.

Plan amendment required

An amended plan document is required to support changes to the terms of a cafeteria
plan's tax-saving benefits. As additional relief to employers in this emergency, Core
Documents offers a COVID-19 election change plan document amendment package for just
$49 when ordered online, a 25% savings over the usual cost to amend a plan.

Plus, for the first time ever, Core Documents is offering a plan amendment for any Section
125 plan document, whether it was produced by us or not. Click here to order.

For more on COVID-19 relief in group health plans, read:

Coronavirus “CARES Act” restores OTC coverage for FSAs, HRAs, HSAs

Coronavirus health emergency: HDHPs can cover testing with HSA

Employee mid-year elections

Many employers have contacted the Departments, wanting to allow employees to make
changes to current plan year elections in light of the many changes in their lives resulting
from the COVID-19 pandemic. The new Section 125 COVID-19 guidance in Notice 2020-29
grants those requests.

There are various reasons employees will be thankful for the chance to make mid-year
election changes for 2020. One is the expanded coverage of COVID-19 testing that was not
available in group health plans at the first of the year.
A mid-year election can also be helpful to employees who did not elect to participate in a
company’s health FSA at the start of the year, or who want to increase contributions now.
Recent changes to these plans add coverage of menstrual products and of over-the-counter
medications without a prescription, expanding their usefulness and potential tax savings.

A big change for a lot of families is dependent care needs. Essential employees putting in
extra hours or faced with school closures may want to increase their DCAP FSA
contributions for maximum tax savings, while those working from home may want to
reduce their contribution to avoid a use-it-or-lose-it situation at the end of the year.

How it works
Employees eligible for coverage in an employer’s plan may, on a prospective basis:

 Elect to enroll in group health coverage the employee previously declined for the
year;
 Change an election of group health coverage from one type or amount to another
type or amount provided by the same employer;
 Cancel an existing election of group health coverage if the employee attests in
writing that the employee is or will immediately be enrolled in qualifying health
coverage not provided by this employer;
 Make a new election, change an election to increase or decrease the contribution, or
revoke an election to participate in a health FSA or dependent care FSA. This
provision includes limited purpose FSAs designed to work with a Health Savings
Account.

Employer limits

The guidance allows employers to set certain limits on mid-year elections.

Unlimited election changes

Employers are not required to allow unlimited election changes through December 31,
2020, but may set a limit of how many changes are permitted and to what extent (see
Adverse selection, below).

Adverse selection

Plans amended to include Section 125 COVID-19 relief provisions are still subject to
nondiscrimination rules. To avoid adverse selection as a result of mid-year elections,
employers can set a requirement that elections must "increase or improve" existing
coverage.
For example, an employee may elect to change from a less expensive in-network only plan
to a higher option plan that covers both in- and out-of-network providers, but may not elect
to change from a higher option plan to one with only basic coverage options.

Contribution limits

An employer may stipulate that mid-year elections to change FSA contributions be set at no
less than the amount already reimbursed to the employee through the plan.

For example: During open enrollment, on November 20, 2019, employee Mark Foster
makes an election to contribute $1,200 to his health FSA during the course of the plan year.
In February 2020, Mark slips on the ice and injures his back, and uses his health FSA debit
card to pay amounts totaling the full $1,200. (The full amount is available on January 1,
2020, because health FSAs are subject to the uniform coverage rule).

In May 2020, Mark's employer adds the Core COVID-19 plan amendment to its Section 125
cafeteria plan with the health FSA designed so that employees cannot make a mid-year
election that is less than amounts already paid. Since Mark has already used the full amount
of his original election, he may increase but not decrease it with a mid-year election.

On the other hand, employee Brenda Jones made an open enrollment election of $5,200 for
her dependent care FSA (which is not subject to the uniform coverage rule) to cover
expenses for her kindergartner to attend daycare before- and after-school.

Since April 1, 2020, Brenda has worked from home and her daughter's school is closed,
both due to the COVID-19 emergency. Brenda does not need daycare for her daughter for at
least 16 weeks of 2020. To avoid the possibility of losing $1,600 in unused funds at the
end of the year, Brenda makes a mid-year election to reduce her DCAP FSA contribution.

Expanded FSA grace period

Usually, a cafeteria plan may offer either a grace period of 2.5 months for employees to
apply unused FSA funds from the previous year to eligible expenses in the new year or up
to a $500 rollover into the next plan year.

Section 125 COVID-19 guidance permits an employer-sponsored FSA to extend this grace
period to cover eligible expenses incurred throughout the entire 2020 calendar year.

How it works

This change may be applied to an employer’s health FSA, dependent care FSA, or both, to
pay eligible expenses incurred by the employee between January 1, 2020, and December
31, 2020.
For example: Mary Harper's employer offers a health FSA that provides for a $500 annual
rollover of unused funds. Since Mary had an unused balance of $1,200 in her health FSA on
December 31, 2019, she lost $700 of that balance on January 1, 2020.

Effective June 1, 2020, Mary's employer adds a Core COVID-19 plan amendment to their
Section 125 cafeteria plan that includes the extended grace period for FSAs. Mary now has
the entire $1,200 restored to her health FSA balance to cover eligible expenses incurred
from January 1, 2020, to December 31, 2020.

More Health FSA News for 2020

In accordance with Presidential Executive Order 13877, “Improving Price and Quality
Transparency in American Healthcare to Put Patients First,” the IRS issued guidance in
Notice 2020-33 to increase the maximum health FSA carryover from $500 to $550 for the
current calendar year for carryover into the 2021 calendar year, and to index the maximum
carryover amount for all years that follow.

To make this rule effective for the carryover into 2021, employers must amend a plan
document in effect on December 31, 2020. For details, see Health FSA roll-over indexed to
inflation in 2021 plan years — IRS 2020-33 .

Section 125 COVID-19 amendment

The sooner an employer amends a Section 125 plan document for these changes, the
sooner employees can make mid-year elections to their plan options. Fortunately, adding
the COVID-19 amendment doesn't have to be a difficult or expensive task.

For as little as $99, employers wanting to add any or all of the Section 125 COVID-19 relief
options can have a Core COVID-19 plan amendment package at their inbox the same
business day.
Help employees during the COVID-19 emergency by allowing mid-year group health
plan elections

$99 one-time fee ordered online

$129 one-time fee ordered via fax or email

As we navigate the COVID-19 pandemic together, employers have asked for relief under
current Section 125 cafeteria plan rules that will permit changes to help employees with
the changes stay-at-home mandates, school closures, and the disease itself may bring into
their lives.

The Core COVID-19 plan amendment makes it simple and affordable for employers to apply
the relief available through IRS Notice 2020-29. Adding this amendment to an existing
Section 125 plan document means employees can make mid-year elections to change
health insurance options and FSA contributions that better fit their lives for the duration of
the emergency.

And, for the first time ever, Core Documents is offering a plan amendment to employers
whose current plan document was made by us and to those whose were not.

Just click an ordering option to get started:

Our secure encrypted online ordering system accepts:

No annual fee — Core Documents does not require an annual renewal fee to maintain your
plan document package. A plan document only needs to be updated when there are
changes in the plan or in the law that make it necessary. We will notify you when there are
sufficient changes in the Code to require amending and restating your Plan and ask that
you keep us informed when there is a change to your plan. You can amend and update
your plan document anytime, at a discounted fee and only when necessary, which is the
most cost-effective way to maintain it.

Fast Service — most orders placed by 3 PM are returned via email the same day, Monday
through Friday. Weekend orders are sent out Monday morning. Plan document packages
are processed in the order received. During our busiest months (December, January, and
February), the rush order fee (see order form) marks your document to be processed
immediately.

Refund Policy: Goods and services provided by Core Documents, Inc. are non-refundable
upon receipt. Orders canceled prior to shipping are subject to a fee to cover the cost of
goods and services provided during the review, draft, and preparation of your order.

[caption id="attachment_12603" align="alignnone" width="300"]

Click image to download the Core COVID-19

brochure with forms.[caption]

The Trusted Source of Affordable Benefit Plan Documents for over 20 Years.

Core Documents is the country's leading provider of cost-effective, tax-saving benefit plan
documents for Section 125 Cafeteria plans and Health Reimbursement Arrangements.

The Trusted Source since 1997, thousands of satisfied agents and employer groups
nationwide rely upon Core Documents for free plan design consulting services, plan
document updates, ERISA Wrap SPDs, and administration services.

Resource Link:-

https://www.coredocuments.com/section-125-covid-19-relief-irs-guidance-allows-
mid-year-elections-in-2020/