Wondering whether you can allow employees to make mid-year benefits election changes based on the COVID-19 situation? The answer is yes – and no.
Dependent Care FSA Changes
We’ve heard from clients whose employees want to stop contributing to their dependent care FSAs while their child’s school or daycare is closed. Generally, this would be an allowable, qualified change, as long as it’s included in the cafeteria plan document (which it almost always is).
Employees also may want to begin, increase or redirect dependent care FSA funding to pay a private childcare provider while their kids are out of school due to mandatory closings. This would be allowed, too. Just make sure the private provider is not a family member under age 19, the child’s parent or the employee’s spouse. The provider also must supply a social security number and reasonable documentation of the expense, which can sometimes be an issue when a family member is providing the care.
Health Care FSA Changes
Many health care organizations are canceling elective surgeries and other procedures while they respond to the crisis. And that may leave your employees with over-funded health care FSAs. Under the current regulations, surgery or treatment cancellations don’t qualify as status changes, and employees are not able to stop or recover contributions. This is something that future legislation may address.
The Effects of Furloughs or Leaves
Section 125 allows employees to change their benefits elections midyear based on changes to their employment or hours worked. This includes what coverages they have and how much they contribute to their health and dependent care FSAs. Reduced hours, furloughs and leaves forced by the COVID-19 situation could thus qualify employees to alter their elections, consistent with the nature of the change in employment status.
A midyear change also could be permitted if a spouse or other dependent loses coverage due to a layoff or reduction in hours. Again, any change in elections must be consistent with the event itself.
This isn’t just a matter of whether employees should be allowed to change their benefits elections, however. The further issue is how long they are allowed to do so during an extended leave, layoff or furlough. Employers who want to continue providing health coverage during a short-term leave or furlough, for example, should check with their insurer (for fully insured plans), or their third-party administrator and stop-loss carrier (for self-insured plans). They may require employees to work a certain number of hours for eligibility or otherwise dictate how long they may be out before eligibility is lost. For fully insured plans, most carriers have relaxed their eligibility requirements. Check with your broker to see how your carriers are handling these issues.
Self-insured plans may want to modify their eligibility requirements for employees during a coronavirus-related absence, but doing so would require an amendment to the plan document.
Special Enrollment Windows
Some insurers are offering special enrollment windows and waivers in response to the crisis. SHRM has covered this topic more thoroughly, but we would concur: It’s critical to ensure these changes comply with Section 125 requirements. Also, consider whether you need to amend your plan documents to reflect any special exceptions.
As we continue responding to this crisis, we expect additional considerations to arise. We’re also seeing daily changes in guidance from the IRS, DOL and others. Keep an eye on this blog and our COVID-19 web page for future guidance and news.