In May of 2020, the Internal Revenue Service (IRS) gave employers the option to make some changes to help employees with FSAs for the 2020 plan year through Notices 2020-29 and 2020-33. The new law addresses many of the same issues for the 2021 plan year, including relief from the "use it or lose it" rules for flexible spending account holders. The CAA allows employers that sponsor health and dependent care flexible spending accounts to make the following plan changes.

• Group plan sponsors may allow employees to carry over their entire balance of unused funds from 2020 to 2021 and 2021 to 2022. The carryover flexibility applies to health and dependent care FSAs. Without opting for this relief, dependent care assistance plans may not permit carryovers, and health FSAs must limit carryover balances to $550 for 2020 and 2021.

• Employer plans that choose a spending grace period, rather than allowing funds to carryover, may extend those periods up to 12 months for plan years ending in 2020 or 2021. Ordinarily, grace periods are not greater than 2½ months.

• Employers may let terminated employees who participate in a health FSA to spend down their account balances through the end of the plan year of their termination. This option is available for calendar years 2020 and 2021, and the extra time a terminated employee has to spend down their funds includes any extended grace period. Typically, a terminated employee would lose access to their health FSA funds when they lost group health plan eligibility. The temporary change allowed by the CAA means that if adopted, terminated participants will not need to elect COBRA and continue making health FSA contributions to access any remaining funds.

• Plan sponsors may permit prospective changes in election amounts for health and dependent care FSAs during the 2021 plan year, without a corresponding status change. A similar rule is already in place for plan years ending in 2020. Employers considering this option should be aware that allowing these changes for health FSAs could open up the possibility of overspending in the accounts.

• A group plan sponsor may temporarily extend the age of qualified dependent care beneficiaries from age 13 to 14 for both the 2020 plan year and for any unused funds that might be "carried over" or subject to an extended grace period, if the regular enrollment period was before January 31, 2020. This change could be helpful if a child had a 13^th birthday during the pandemic, essentially preventing their parent from claiming any unexpected child care expenses for that dependent. A parent could now count those costs as an eligible expense for reimbursement if their employer opts for this plan change.

Employers are not required to make any of these changes. If they choose to make some or all of them, a cafeteria plan amendment is required. However, employers have some time to update their Section 125 plan documents. The CAA gives them till the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective. In other words, a business with a calendar year plan that adopts changes for 2021 will need to execute a cafeteria plan amendment on or before December 31, 2022.