The Employee Benefits & Executive Compensation attorneys at Chamberlain Hrdlicka represent public companies, large and closely-held private companies, tax-exempt organizations, and the fiduciaries who oversee those entities' employee benefit plans. We understand incentives in the workplace, and we stand ready with an integrated approach to help you deal with them.
From qualified retirement plans, to executive compensation, to fiduciary advice, to health and welfare programs, to mergers and acquisitions, to ERISA litigation, our broad experience helps companies answer questions in these areas of the law. A background in tax, securities, and fiduciary matters is our foundation. A common theme runs through our work in these areas: we specialize in representing employers in protecting their interests and maximizing tax advantages. We understand the work that goes into creating and maintaining incentives in the workplace, and we have the technical skills to help keep a company's employee benefit plans operating at peak efficiency.
At Chamberlain Hrdlicka, we stand with company Boards of Directors, Compensation Committees, and the HR teams that serve those directors and committees, as they seek to provide a stable, productive environment for company executives and workers.
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The IRS recently came out with new guidance for relief from the Coronavirus disease – COVID-19 by way of cafeteria plans and specifically health flexible spending arrangements (“FSA”) and dependent care flexible spending arrangements or dependent care assistance programs (“DCAP”). These are simple employee benefit programs that most employers offer or should offer.
The tax benefits to employees are powerful if used properly and are a great way for human resources to help employees with their overall financial well-being. This type of program makes employees “sticky” to employers; meaning it makes employees more loyal and want to work for the employer long-term. Remember that employees lose their money in FSAs and DCAPs if they don’t use them in that year (usually plan year with a bit of time into the following year). Thus, these are real dollars that employers can show they are getting back into the pockets of the employees, without violating the tax law.
Notice 2021-15 sets out the guidance from the Internal Revenue Service (“IRS”). The purpose of Notice 2021-15 is to clarify the application of § 214 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the Act), recently enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub. L. 116-260, 134 Stat. 1182 (Dec. 27, 2020), which provides temporary special rules for FSAs and DCAPs under Internal Revenue Code (the “Code”) § 125. Code § 125 is the tax law that grants cafeteria plans great tax benefits for employers and employees.
Section 214 of the Act and Notice 2021-15 provide that the law should promote the following:
- Flexibility with respect to carryovers of unused amounts from the 2020 and 2021 plan years;
- Extend the permissible period for incurring claims for plan years ending in 2020 and 2021;
- Provide a special rule regarding post-termination reimbursements from health FSAs during plan years 2020 and 2021;
- Provide a special claims period and carryover rule for dependent care assistance programs when a dependent “ages out” during the COVID-19 public health emergency; and
- Allows certain mid-year election changes for health FSAs and dependent care assistance programs for plan years ending in 2021.
Notice 2021-15 also provides additional relief with respect to mid-year elections for plan years ending in 2021. Specifically, with respect to employer-sponsored health coverage, a Code § 125 cafeteria plan may permit employees who are eligible to make salary reduction contributions under the plan to take any of the following actions for plan years ending in 2021:
(1) make a new election on a prospective basis, if the employee initially declined to elect employer-sponsored health coverage;
(2) revoke an existing election and make a new election to enroll in different health coverage sponsored by the same employer on a prospective basis; and
(3) revoke an existing election on a prospective basis, provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer.
These changes, if implemented, will create more operational burdens for the employer. However, the benefit to employees will outweigh the burden and will build goodwill with employees. Additionally, this should not be too burdensome as vendors and technology have made this area of administration much easier for employers to deal with practically and from a compliance perspective. For example, don’t forget that your cafeteria plan may need to file a Form 5500 for either Code/IRS or Employee Retirement Income Security Act (“ERISA”)/Department of Labor (“DOL”) requirements.
Notice 2021-15 also provides relief with respect to the effective date of amendments to Code § 125 cafeteria plans and health reimbursement arrangements (“HRAs”) to implement the expansion of allowed expenses for health FSAs and HRAs by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. 116-136, 134 Stat. 281 (March 27, 2020) to include over-the-counter drugs without prescriptions and menstrual care products. Although you rarely see plan audits of cafeteria plans by the IRS or DOL, it is important to make sure to keep up with your plan documents. FSAs are usually subject to ERISA (but not DCAPs, adoptions assistance programs or premium only plans) and fiduciary duties. Please be sure to monitor the vendors to your plans (a fiduciary duty if a plan is subject to ERISA) and see what they say about plan amendments to your cafeteria plan.
Joshua Sutin helps clients unravel complex legal and business issues related to employee benefit plans, tax-exempt organizations, and business tax planning. He counsels both businesses and not-for-profit organizations on the ...