Many employers are having to make difficult decisions regarding staffing during the national pandemic due to COVID-19. Employers are faced with staff leave of absence situations including layoffs, furloughs, and reduction in hours. This leads to questions regarding what changes employees are able to make to their benefits as a result.
It might be helpful to define the differences between leave of absences, reduction in hours, layoffs, and furloughs.
If an employee is on leave (including temporary layoff or furlough) or has a reduction in hours and loses eligibility for their benefits, they should be removed from the benefit and offered COBRA, where applicable. Due to the loss of eligibility, participants would not be able to make changes as they would no longer be enrolled on the plans.
During the pandemic, many insurers and administrators are allowing employers to keep employees on their plans, even if they do not currently meet the defined eligibility of the plan. Likewise, employers can update their leave of absence policies to address the pandemic and can extend eligibility for benefits for those on leave due to the pandemic. (Any leave policies that extend eligibility should be reviewed with an insurer and/or stop loss carrier to be sure that they will honor the policy.)
If a participant does not lose eligibility, generally they are not able to make changes to their cafeteria plan elections. It is important to understand that insurance carriers may permit individuals to add or drop coverage that may not be a permissible event under the cafeteria plan rules. So, what cafeteria plan election changes can participants make as a result of COVID-19? We will explore the more frequently asked questions below:
Can I change my cafeteria plan elections because of COVID-19 or financial hardships?
At this time, there has been no relief or relaxation of the Section 125 permitted election change rules. The Section 125 permitted election change rules do not permit changes based upon financial hardship alone.
Can I change my insurance plan (medical, dental, vision, etc.) elections as a result of COVID-19?
No. The pandemic itself is not an allowed permitted election change event.
At this time, there has been no formal relief from cafeteria plan rules in response to the COVID-19 pandemic. That means that in order to change your pre-tax insurance premium deductions at a time other than the plan renewal – there must be a permitted election change event as defined in the regulations. Otherwise, elections made in advance of the start of the plan year are irrevocable.
For insurance coverage, permitted election change events include changes to family status that effect eligibility or changes to cost or coverage. A description of all events can be found in the Section 125 Plan Document and Summary Plan Description.
What if our insurance carrier is offering a special enrollment period?
If coverage is significantly improved based on changes to the plan the carrier makes midyear, this could qualify as a permitted election change event. The IRS guidance on what types of carrier-initiated coverage changes qualify as permitted election changes are understandably vague when applied to this type of unprecedented situation, so we know some employers will choose to allow changes to pre-tax insurance coverage based on the change of coverage provision due to COVID-19 testing mandates, while others may not interpret the regulation that broadly and will choose not to allow the change. In that case, someone adding coverage would need to pay premiums after-tax.
Can I change my Health FSA as a result of COVID-19?
No. The pandemic itself is not an allowed permitted election change event. In addition, if a participant or a dependent tests positive to COVID-19, they cannot change their Health Care FSA election for that reason alone. You can change your Health Care FSA election only if there is a change in family status or job status that effects the employee’s eligibility. You are unable to change the Health Care FSA based upon unplanned medical expenses (including the change to over-the-counter (OTC) medication prescription drug requirements and addition of menstrual care products as medical care); Employees with unexpected health costs due to COVID-19 should consult their specific health insurance carrier as many costs may be covered.
If a participant’s spouse faces a reduction in hours, leave of absence, or layoff due to COVID-19 AND loses benefits eligibility, a participant would be able to prospectively add or increase their Health Care FSA election as long as the request is made timely (usually 30 days from the event). They would not be able to revoke or reduce their election. If the spouse experiences one of these job changes but remains benefits eligible, the participant would not be able to make any changes.
Can I change my Dependent Care FSA as a result of COVID-19?
While the pandemic itself is not a reason to make a change, there is a lot more flexibility with these plans which would result in a permitted election change.
Many schools and some businesses have closed either voluntarily or due to government orders during this time. If childcare is not available, provided by a different provider because the original provider is not available, or no longer needed at all because the participant or spouse is unexpectedly working remotely for a stretch of time, a participant’s Dependent Care FSA election could be changed. Changes in providers and changes in costs for daycare ARE permitted election change events that allow participants to make corresponding prospective changes to their Dependent Care FSA elections as long as the request is made timely (usually within 30 days from the event). When schools reopen and daycare needs change again, any new change of daycare providers or the cost of daycare would be another permitted election change event allowing participants to make a corresponding prospective change to their Dependent Care FSA election at that time.
If a participant’s spouse faces a leave of absence or layoff due to COVID-19, a participant would be able to revoke or decrease their Dependent Care FSA election due to the fact that the dependent’s daycare expenses would no longer be eligible for reimbursement.
Please remember that if a participant is on a leave of absence and is not actively working, but remains eligible for the Dependent Care FSA, they would not be eligible for reimbursement of claims during the leave. In order for a dependent care expense to be eligible under the plan, it must be for a “work related” expense, unless the individual or spouse is a full-time student or incapable for self-care.
I have a qualifying election change event, how long do I have to change my election?
Keep in mind that any permitted election changes must be made timely, which for most plans is 30 days from the qualifying event. Please refer to the employer plan documents and summary plan description (SPD) for specific timelines.
Can I change my transportation plan accounts (parking and transit) as a result of COVID-19?
Participants under transportation plans are generally able to change their elections each month. A participant may not be able to change their monthly election made prior to being advised to stay at home, however, these funds will remain in their account and can be used once they return to work.
Any participants with a recurring election, who is no longer commuting, may wish to cancel the recurring election. Again, once they return to work and utilize any balance in their account, they may wish to restart the recurring election.