Q: Do leaves of absence impact Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs)?
A: Please visit this page for a detailed answer to this question

Q: Do leaves of absence impact Dependent Care Assistance Programs (DCAP)/Dependent Care FSAs?
A: It Depends.  DCAPs or Dependent Care FSAs may only be used on expenses considered employment-related. This means the expenses are for the care of one or more qualifying individuals and are incurred to enable the employee (or the employee's spouse) to be gainfully employed. An individual can be considered gainfully employed and experience short, temporary absences from work, such as for vacation or illness. The IRS safe harbor treats an absence of up to two consecutive weeks as a short temporary absence. Therefore, DCAP funds can still be used during the first two weeks of a leave of absence. Expenses incurred during a leave of absence that exceeds two weeks cannot be reimbursed by a DCAP without falling outside the applicable safe harbor, absent special circumstances. 

Q: Can furloughed employees change their health FSA elections?
A: Please visit this page for a detailed answer to this question

Q: Can employers temporarily suspend health FSAs for furloughed employees?
A: Generally, No. If furloughed employees are still eligible for the health FSA, and are still being paid, it may create a nondiscrimination issue to exclude them.  However, if the furlough is an unpaid leave, employees may cease to be eligible since they are not being paid (see “Can furloughed employees change their health FSA elections?” above for additional information).  However, employers should make sure contributions are collected in accordance with the plan document. 

Q: Can employees change their elections for Dependent Care Assistance Programs (DCAP)/Dependent Care FSAs if their dependent care facilities close due to the virus?
A: Likely, Yes.  While there is no direct guidance on point, the rules regarding DCAPs or Dependent Care FSAs are pretty flexible in allowing election changes.  Examples in the regulations allow employees to make changes if they change dependent care providers or to reduce their election if their child starts school and dependent care expenses are reduced.  Based on these examples, it seems likely the IRS would allow an employee to reduce his/her DCAP/Dependent Care FSA election to $0 due to the closure of a day care facility if no alternative arrangements are available, or if the employee is no longer working. Note, however, that any election change must be permitted under the terms of the plan.

Q: Is there any additional flexibility for allowing election changes?
A: Yes. Under Notice 2020-29, the IRS is now allowing the more flexibility for election changes during calendar year 2020. Specifically, employees may:

1. enroll in, drop, or change the elected amount for a health flexible spending account (“FSA”); and
2. enroll in, drop, or change the elected amount for a dependent care FSA.

These changes only apply on a going-forward basis, meaning there are no retroactive changes. However, to the extent employers allowed these elections earlier this year, they can retroactively amend their plan to reflect what they have allowed.

First, employers are not required to allow any of the above changes. Second, employers may put limits on making these changes, such as requiring elections within a certain period of time after they are adopted or only allowing employees to elect more favorable employer coverage rather than any employer coverage. Also, employers may require that an election cannot be reduced below amounts already reimbursed.

Q: Is there any relief for the flexible spending account (FSA) forfeiture deadline?
A: Yes. Under Notice 2020-29 ,the IRS is allowing FSAs to reimburse expenses incurred through 2020 under health and dependent care FSAs. This only applies if an FSA had a grace period or plan year that ended in 2020. Therefore, calendar year FSAs with no grace period are not eligible for this relief.

Under this relief, an FSA with a grace period ending in 2020 or with a plan year ending in 2020 may reimburse expenses incurred through the end of 2020. For example, assume an employee is in a calendar year FSA with a grace period had $1,000 unused at the end of 2019. Prior to this guidance, that $1,000 could be used to reimburse expenses incurred through March 15, 2020. Now, it can be used for expenses incurred through December 31, 2020.

Note this change is not required. Additionally, if the health FSA is a general purpose FSA (as in, it is not compatible with a health savings account (“HSA”)), then extending this timeframe to incur expenses will make anyone covered under the plan ineligible to contribute to an HSA.

In addition, in Notice 2020-23, the IRS provided some relief. For FSA plan years that would end between April 1, 2020 and July 15, 2020, the plan can delay forfeiting unused amounts until July 15, 2020. It appears this means that expenses can be incurred during this time and reimbursed using funds for the plan year that ended during this period. Note that this only applies to FSAs that have plan years ending from April 1, 2020 through July 15, 2020.