Cafeteria Plan Changes and COVID-19

This site contains affiliate links and we may receive commissions when you click our links and make purchases. But, please keep in mind, this does not impact any of our recommendations.

IRS notice 2020-29 provides some temporary updates regarding increased flexibility with cafeteria plan mid-year election changes and grace period rules in response to COVID-19.

Permitted Changes

Per this notice, employers may adopt one or more of the following changes for their existing 2020 plans.

  • Allow employees who initially declined group health plan coverage to elect it for the rest of the year.
  • Allow employees to change an existing election of group health plan coverage (including changing enrollment from self-only coverage to family coverage).
  • Permit employees to revoke previously elected group plan coverage if they enroll in other comprehensive coverage, such as a spouse’s employer’s group plan, or through the individual market. Note that there is a requirement here that the employee must attest, in writing, that they are enrolled, or will immediately enroll, in alternative health plan coverage. Notice 2020-29 does provide a sample, acceptable written attestation form.
  • Permit employees to revoke, make a new election, or increase or decrease their FSA election.
  • Allow employees to revoke, make a new election, or increase or decrease their dependent care assistance program election.
  • Extend the plan grace period that ended in 2020 (ie, 2019 plan year grace period that ended on March 15, 2020) to December 31, 2020.

While having the potential to provide some financial relief to employees, employers need to be sure adopting these cafeteria plan changes don’t result in failure to comply with nondiscrimination rules, cause adverse selection by employees, and/or lead to ACA penalties.

Any employer who decides to adopt any of these changes needs to put a plan amendment in place by December 31, 2021. They must also inform all employees that are eligible to participate in the plan of the changes.

High Deductible Health Plans (HDHP)

Notice 2020-29 also clarifies rules allowing first-dollar coverage of expenses related to testing and treatment for COVID-19 and first-dollar coverage of telehealth services for HDHPs. These changes are effective as of January 1, 2020 and apply to plan years beginning on or before December 31, 2021.