In late April 2020, the Department of Labor (DOL) and the Internal Revenue Service (IRS) published deadline relief for employee benefit plans. See our prior article about the deadline extension relief for COBRA and HIPAA special enrollment: New Deadlines. The final rule included deadline relief for claims procedures for group health plans, disability, and other employee welfare benefit plans subject to ERISA. Below is a list of the affected claims deadlines that have been extended. The focus of this article is on the first two bullet items and how that impacts a health flexible spending account (HFSA). These extensions of time are required and are not optional.
- The deadline which individuals may file a benefit claim under the plan’s claims procedures
- The deadline which claimants may file an appeal of a benefits denial under the plan’s claims procedures
- The deadline which claimants may request external review after receiving a benefit denial or final internal benefit denial
- The deadline which a claimant may file information to perfect a request for external review after finding that the request was not complete
The DOL/IRS guidance now requires HFSA plan sponsors to temporarily extend the claims deadline where the claims deadline ended on or after March 1, 2020. The deadline relief is based on the end of the “Outbreak Period,” which is defined as the period from March 1, 2020 until 60 days after the announced end of the COVID-19 National Emergency (the end is unknown at this time). If a claims deadline for any of the four bullet points above expires on or after March 1, 2020, participants in the affected plans will have additional time to file an appeal, and request and perfect external reviews. Because the end of the National Emergency has not been announced, the extended deadlines for claims determinations and submissions are not known at this time.
An HFSA is a benefit that is subject to ERISA. Dependent care flexible spending accounts are not subject to ERISA, so the extended deadline rules for dependent care are not affected by this final rule.
The cafeteria plan’s legal plan document provides deadlines for HFSA participants to submit claims after they incur eligible expenses. Participants must submit claims by these deadlines or any balance remaining in their HFSA will be forfeited. The period after the end of the plan year to submit claims is called the “run-out” period. During this period, HFSA participants may submit claims to be reimbursed for eligible expenses incurred during the prior plan year or during any applicable grace period. Also, some HFSA plans allow participants up to 2½ months after the end of the plan year to “incur” eligible expenses and to submit claims, the “grace period.” Other plans allow HFSA participants to carry over up to $500** into the next plan year if they have not spent their entire HFSA account balance as of the end of the plan year, the “carryover.” Employers and service providers will need to take any grace period and carryovers into account with these deadline extensions.
Employers and plan administrators must disregard for purposes of the HFSA run-out period, the Outbreak Period. If the run-out period expired on or after March 1, 2020, an employer must extend their HFSA run-out periods and participants may continue to submit claims for eligible HFSA expenses incurred during the 2019 plan year or any applicable grace period. Only the ability for the HFSA participants to submit claims for the prior plan year has been extended. The ability for HFSA participants to “incur” expenses in 2020 has not been extended.
For most plans with a calendar year plan year, the 2019 calendar year run-out period has already expired and more than likely the run-out period ended on or after March 1, 2020. These plans are impacted.
An important note – the period of time before the beginning of the Outbreak Period (March 1, 2020) may be counted at the end of the Outbreak Period towards the deadlines. For example, if the plan contains a run-out period of 90 days after the end of the 2019 plan year, as of March 1, 2020, the plan had incurred 60 days already in the run-out period. At the end of the Outbreak Period, the deadline to submit claims will be 30 days after the end of the Outbreak Period because employers can count the 60 days before March 1, 2020 toward the 90 day deadline.
HFSA participants also have additional time after the end of the future run-out period to appeal a denied claim. The normal deadline to appeal is 180 days after the end of the run-out period. Now participants will have 180 days after the end of the extended run-out period.
The result of this extension allows participants with an HFSA balance at the end of the original run-out period to submit claims they previously failed to submit timely and reduce any potential forfeitures in their 2019 HFSA accounts. Employers should refrain from forfeiting HFSA balances until after the 180-day appeal period following the extended run-out period.
Important Note
Terminated HFSA participants – terminated HFSA participants have the same rights as active employees to this extension of time to file HFSA claims. Affected terminated participants should be notified. Also, if terminated employees are required to submit HFSA claims sooner than the end of the plan year, e.g., 60 – 90 days after their termination of employment, these individuals will be eligible to have the extended claims deadline in 2020 if their claims submission deadline falls on or after March 1, 2020.
Below is information on specific plan designs and how the claims submission deadlines will be extended.
CALENDAR YEAR PLANS
- HFSA plans with no carryover or grace period – if the original run-out period expired on or after March 1, 2020, HFSA participants may submit claims on or before the extended run-out period for expenses they incurred during the 2019 plan year. Once the National Emergency has been announced, the plan may count 60 days (January 1, 2020 through February 29, 2020) at the end of the Outbreak Period to determine the extended run-out period.
- HFSA plans with a carryover – if the original run-out period expired on or after March 1, 2020, HFSA participants may submit claims on or before the extended run-out period for expenses they incurred during the 2019 plan year. Once the National Emergency has been announced, the plan may count 60 days (January 1, 2020 through February 29, 2020) at the end of the Outbreak Period to determine the extended run-out period. Once the extended run-out period expires, the carryover amount for the 2020 plan year will be determined.
- HFSA plans with a grace period – if the original run-out period expired on or after March 1, 2020, HFSA participants may submit claims on or before the extended run-out period, for expenses they incurred during the 2019 plan year and during the 2020 grace period. Once the National Emergency has been announced, the plan may count 60 days (January 1, 2020 through February 29, 2020) at the end of the Outbreak Period to determine the extended run-out period.
OFF-CALENDAR YEAR PLANS
These plans will have similar deadlines but different because of the plan years or run-out periods that may fall in two calendar years. For this reason, we want to provide additional administrative guidance. If a 2019 – 2020 plan year does not end before the end of the Outbreak Period, the extended deadlines would not apply to the plan. For example, an employer who maintains a cafeteria plan that operates from October 1, 2019 – September 30, 2020, if the Outbreak Period ends before September 30, 2020, the HFSAs will not be subject to the extended deadlines.
- HFSA plans with no carryover or grace period – if the original run-out period expires on or after March 1, 2020, HFSA participants may submit claims on or before the extended run-out period, for expenses they incurred during the prior plan year beginning in 2018 or 2019. Once the National Emergency has been announced, the plan may count the number of days from the end of the prior plan year to March 1, 2020, only if applicable.
- HFSA plans with a carryover – if the original run-out period expires on or after March 1, 2020, HFSA participants may submit claims on or before the extended run-out period, for expenses they incurred during the plan year beginning in 2018 or 2019. Once the end of the National Emergency has been announced, the plan may count the number of days from the end of the prior plan year to March 1, 2020, only if applicable. Once the extended run-out period expires, the carryover amount for the next plan year will be determined.
- HFSA plans with a grace period – if the original run-out period expires on or after March 1, 2020, HFSA participants may submit claims on or before the extended run-out period, for expenses they incurred during the plan year beginning in 2018 or 2019 and during the grace period for the plan year. Once the National Emergency has been announced, the plan may count the number of days from the end of the prior plan year to March 1, 2020, only if applicable.
Employers and their service providers must make changes to their run-out periods where applicable and provide notification to affected HFSA participants. Additional notification will need to be provided in the future when the end of the National Emergency is announced.
If you have any questions, please contact your TRI-AD Client Service Manager.
**Note: For plans that allow the carryover, a recent IRS Notice 2020-33 increases the maximum amount of the carryover so that the amount is tied to the maximum HFSA annual salary reduction and is indexed with the cost of living. Please see our blog for more information: IRS Notices.
TRI-AD and our Associates’ suggestions or recommendations shall not constitute legal advice. No content on our website can be construed as tax or legal advice and TRI-AD may not be considered your legal counsel or tax advisor. Clients are encouraged to consult with their tax advisor and/or attorney to determine their legal rights, responsibilities, and liabilities. This includes the interpretation of any statute or regulation, federal, state or local; and/or its application to the clients’ business activities.