In Notice 2020-29, the IRS gave plan sponsors additional flexibility to allow participants to make certain mid-year cafeteria plan election changes during calendar year 2020 without regard to the restrictions that typically apply, and to adopt an extended claims period for flexible spending accounts ("FSAs").  In Notice 2020-33, the IRS has increased the $500 carryover amount that applies to health FSAs for the 2020 plan year to $550.  Following is a summary of each Notice.

NOTICE 2020-29

A. Mid-Year Election Changes

Health Plan Election Changes

During calendar year 2020, a Section 125 cafeteria plan may be amended to allow a participant to make the following prospective changes with respect to an employer-sponsored group health plan (whether insured or self-funded):

  • Make a new election for coverage, if coverage was previously waived;
  • Revoke an election and make a new election to enroll in different employer-sponsored coverage (for example, moving from a low option to a high option, or from self-only coverage to family coverage); or
  • Revoke an election for coverage, if the employee attests in writing that he/she is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer.

Normally, under the Section 125 regulations, an election change must be made within a certain time period (for example, within 30 days after a special enrollment right occurs) and any changes must be on account of and correspond with a change in coverage that affects eligibility for the health plan.  Under Notice 2020-29, these restrictions would not apply to the health plan election changes outlined above, if the cafeteria plan is amended to permit them.  Election changes may be permitted regardless of whether the employee is affected by COVID-19.

Health FSA or Dependent Care FSA Election Changes

During calendar year 2020, a cafeteria plan may be amended to allow an eligible employee to revoke an election, make a new election, or increase or decrease a health FSA or dependent care FSA election on a prospective basis, again without regard to the restrictions that normally apply.  For instance, normally a participant may not make an election change to a health FSA as a result of a change in cost or coverage.  However, it appears that such changes would be allowed under Notice 2020-29.  For example, if a participant switches from a high option health plan to a low option health plan, he/she may be permitted to enroll in or increase his/her contribution to a health FSA.

An employer is permitted to limit mid-year elections to an amount at least equal to amounts already reimbursed.  For example, if an employee elected to contribute $1200 to a health FSA on January 1 and has been reimbursed for $900 as of June 30, the employee may not reduce his/her election to less than $900 on July 1.

General Guidelines that Apply to Mid-Year Changes

An employer could allow these changes at any time during calendar year 2020 or could offer a limited open enrollment period during which employees could change their elections, for instance, during a two-week period in June 2020.

As always, an employer is not required to permit these election changes, or could offer some but not all of them.  As an example, if an employer was concerned about adverse selection in its health plan, it could allow an employee to revoke coverage but not to enroll in new coverage.

B. Extended Claims Period for Health FSAs and Dependent Care FSAs

An employer may amend its cafeteria plan to permit participants to submit claims incurred through December 31, 2020 to unused balances at the end of a plan year or grace period ending in 2020.  This change is intended to give participants additional time to incur claims that may be submitted to FSA balances and is useful for non-calendar year plans.

Example:  Employee A has a balance in her health FSA of $2,000 on June 30, 2020.  If the cafeteria plan is amended to allow an extended period for incurring claims for the plan year ending June 30, 2020, Employee A may incur claims from July 1, 2020 through December 31, 2020 that may be reimbursed from her June 30, 2020 account balance.

Note that the extended claim period could make the participant ineligible to make HSA contributions, if the health FSA is not a limited purpose FSA.


In Notice 2020-33, the IRS has allowed the $500 carryover amount that is permitted to be adopted in a health FSA to be indexed as is the $2500 salary reduction limitation for health FSAs ($2,750 in 2020).  Under this change, the carryover amount will increase to $550 for the plan year beginning in 2020, if the cafeteria or health FSA plan is amended to permit the increase.

Plan Amendments

Plan amendments to incorporate any of the foregoing changes must be adopted by December 31, 2021, and may be effective as of January 1, 2020.  The plan must be operated in accordance with the changes and participants must be notified.

This post is a part of the All Things HR Blog's multi-part series on frequent issues and questions faced by employers during the COVID-19 crisis.

Read Part 1: Federal Agencies Relax Summary of Benefits and Coverage ("SBC") Disclosure Deadlines

Read Part 2: Temporary Expansion of Educational Assistance Programs to Cover Employees' Student Loan Debt

Read Part 3: Layoffs/Furloughs and Excise Taxes under the Affordable Care Act

Read Part 4: Reimbursement of Over-the-Counter Medications

Read Part 5: Suspending or Reducing 401(k) Safe Harbor Contributions

Read Part 6: Special Considerations for Mid-Year Changes to Cafeteria Plan Elections

Read Part 7: What Do Layoffs, Leaves, and Furloughs Mean for Retirement Plans?

Read Part 8: COBRA Complications

Originally published May 18, 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.