On May 12, 2020, the IRS released guidance (Notice 2020-29 and Notice 2020-33 “Notices”) allowing temporary changes to Section 125 cafeteria plans. In general, the Notices provide for increased flexibility with respect to 2020 mid-year elections related to employer-sponsored health coverage, Health FSAs (HFSAs) and dependent care FSAs (DCAPs). They also provide increased flexibility with respect to grace periods to apply certain unused amounts in HFSAs and DCAPs to be applied expenses incurred through December 31, 2020.

Generally, the cafeteria plan rules state that a participant may not make election changes unless they have a valid change in status, like the birth of a child. Now, under the Notices, a cafeteria plan may allow 2020 mid-year election changes for any reason. The Notices permit plan participants to:

With respect to employer-sponsored health coverage:

  • make a new election on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage;
  • revoke an existing election and prospectively make a new election to enroll in different health coverage offered by the same employer; and
  • revoke an existing election on a prospective basis, provided that the employee states in writing that the employee is enrolled, or immediately will enroll, in other health coverage not offered by the employer. This could be another group health plan, Medicaid, Medicare, or individual health coverage. The Notices provide a model attestation participants may use.

With respect to a HFSAs or DCAPS:

Election Periods

  • revoke an election, make a new election, or decrease or increase an existing election on a prospective basis. Note that the Notice allows employers to limit a reduction in contribution to no less than amounts already reimbursed in 2020.

Grace Periods

  • The Notices allow for an extension of the incurring of expenses and the filing of claims for plans that already use a grace period that ends in 2020. As an example, if a calendar year plan for 2019 has a grace period where participants could have incurred eligible expenses through March 15, 2020, the plan may opt to extend the grace period until December 31, 2020. This would allow expenses incurred at any time in 2020 to be applied to any remaining 2019 plan balances.


For FSAs that use the carryover period that ends during 2020, the plan may also allow the employee to extend the submission (and incurring) of claims to the end of 2020.

Also, the Notices provide for the indexing feature for the $500 carryover. Starting for plan years that begin on or after January 1, 2020, a plan that adopts or has the carryover provision can allow for up to $550 from the plan year that begins during 2020 into the 2021 plan year.

The provisions above are not mandatory and for now only apply in 2020. To take advantage of the new options however, plan sponsors must amend their plans. Amendments must be adopted by December 31, 2021 though sponsors can start to implement them in practice at any time.

With respect to Individual Coverage HRAs (“ICHRAs”):

ICHRAs became available January 1, 2020. (see our previous article). Notice 2019-33 addresses an operational issue that impacts the new ICHRA plans that an employer can adopt to enable employees not eligible for the employer’s group health plan to purchase individual health coverage pre-tax.

The Notice makes clear that participant payments made before coverage actually begins or for a new participant who joins the ICHRA mid-month can be reimbursed tax free from the ICHRA.

We will continue to review this new guidance and provide updates when available. If you have any questions about amending your plan or otherwise have questions, please contact your Nyhart consultant.