COVID-19 Updates
IRS Issues Letter Concerning FSA Carryovers and COVID-19 Relief
On June 25, 2021, the IRS released a letter regarding health FSA forfeitures in response to a congressman’s inquiries on behalf of a constituent. The letter reiterates IRS guidance regarding health FSA forfeitures, including recent temporary legislation due to the ongoing COVID-19 public health crisis.
Under the “use-or-lose” rule, health FSA contributions that are not used to reimburse expenses incurred during the plan year (or during a carryover or grace period, if applicable) will be forfeited, even if the reimbursements are less than the participant's contribution. To help reduce forfeitures, a plan can choose to include a carryover or grace period provision (one or the other, but not both). Carryovers are limited to $550 (indexed) that can be carried over into the next plan year and grace periods are limited to extending the period in which claims can be incurred up to two and a half months following the close of the plan year. In addition, an individual whose employment terminates can elect to continue health FSA participation through COBRA coverage.
The letter clarifies that due to temporary relief during plan years 2020 and 2021 (as provided by the CAA and IRS Notice 2021-15), an employer can choose to permit:
- A carryover of any unused amounts from the 2020 and 2021 plan years.
- A grace period (i.e., the period for incurring claims) extension up to 12 months for plan years ending in 2020 and 2021.
- A grace period (i.e., the period for incurring claims) extension up to 12 months for plan years ending in 2020 and 2021.
- Post-termination reimbursements from health FSAs (which would allow an individual to continue to be reimbursed from unused health FSA funds through the end of the plan year in which participation ceased).
The IRS reiterates that any of the above changes are optional for employers. For more detailed information regarding the temporary relief available, see our article from the March 4, 2021, edition of Compliance Corner, "IRS Provides Guidance on CAA Changes to FSAs and DCAPs."
As a reminder, if an employer chooses to implement any relief available, plan amendments are required by the last day of the first calendar year after the end of the plan year in which the amendment is effective.
Although the letter does not provide any new guidance, it serves as a good reminder of the health FSA general rules regarding forfeitures as well as the temporary relief available.
IRS Letter »
IRS Notice 2021-15 »
Health Care Reform Updates
Federal Updates
Retirement Update
Announcements
Reminder: It’s MLR Rebate Time Again!
The ACA requires insurers to submit an annual report to HHS accounting for plan costs. If the insurer does not meet the medical loss ratio standards, they must provide rebates to policyholders. Rebates must be distributed to employer plan sponsors between August 1, 2021, and September 30, 2021. Employers should keep in mind that if they receive a rebate, there are strict guidelines as to how the rebate may be used or distributed.
For more information, download a copy of "Medical Loss Ratio Rebates: A Guide for Employers.”
Reminder: COBRA Subsidy Period Ends on September 30, 2021
The American Rescue Plan Act (ARPA) COBRA premium assistance period runs from April 1, 2021, to September 30, 2021. The statute requires that plans provide a notice of expiration of the ARPA premium assistance (and available coverage options at that point) to all individuals who are receiving premium assistance during this time. The notice states that plans and issuers are required to provide individuals with a notice of expiration of periods of premium assistance explaining that the premium assistance for the individual will expire soon, the date of the expiration and that the individual may be eligible for coverage without any premium assistance through COBRA continuation coverage or coverage under a group health plan. Coverage may also be available through Medicaid or the Health Insurance Marketplace.
Distibution of the premium assistance notice is included in PPI's ARPA Subsidy Administration Service. COBRA clients who elected the Service can download the ARPA Update: Subsidy Ending September 30, for more information.
This notice must be provided 15 – 45 days before the individual’s premium assistance expires, so employers should be mindful of this requirement.
Reminder: Calendar Year SAR Must Be Distributed by September 30, 2021
Plans that are subject to ERISA and Form 5500 filing must distribute the Summary Annual Report (SAR) to participants within nine months of the end of the plan year; thus, a calendar year plan is generally required to distribute the SAR for the 2020 plan year by September 30, 2021. If the plan applied for an extension to the Form 5500 filing, the SAR is then due within two months following that filing.
The SAR is a summary of the plan’s information reported on the Form 5500. If a plan is not subject to Form 5500 filing, then it is exempt from the SAR notice requirement — this would include church plans, governmental plans, and unfunded or insured plans with fewer than 100 participants. Also, large, unfunded self-insured plans are exempt from the SAR requirement even though they are subject to the Form 5500 filing requirement.Model language is available for SAR preparation.
For more information on how ERISA applies to PPI clients, download the Whitepaper "ERISA As it Applies to PPI Clients"
FAQ
How does an individual qualify for the 11-month extension under COBRA for a total of 29 months maximum coverage period?
State Updates
California
This material was created by PPI Benefit Solutions to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The service of an appropriate professional should be sought regarding your individual situation. PPI does not offer tax or legal advice. "PPI®" is a service mark of Professional Pensions, Inc., a subsidiary of NFP Corp. (NFP). All rights reserved.