Posted: 19 Jun. 2020 5 min. read

IRS guidance permits additional flexibility for mid-year election changes in cafeteria plans

Posted by Robert Davis on June 19, 2020.

The Internal Revenue Service has issued Notice 2020-29 to give employers additional flexibility to allow employees to make mid-year election changes with respect to health coverage, health flexible spending arrangements (health FSAs), and dependent care FSAs during the 2020 calendar year. For FSAs with grace periods or plan years ending in 2020, the Notice also permits plans to let employees apply unused balances to expenses incurred during the remainder of 2020.

A few key points:

  • The Notice gives employers the option to offer more mid-year election change opportunities, but it does not require them to do so.
  • Employers that want to take advantage of all or part of the Notice probably will need to amend their plan documents to do so.
  • The permitted changes are prospective only.  Plans may not allow employees to make retroactive changes.
  • As of now, the special rules only apply in 2020.


At issue are IRC § 125 cafeteria plans, which employers offer so that employees can pay for certain benefits on a pre-tax basis. These include the employee’s share of group health insurance premiums and contributions to health and dependent care FSAs. The general rule is that participants must make their elections before the plan year (usually the calendar year) begins, and may not change those elections once the plan year has started. However, current Treasury Regulations (Treas. Reg. § 1.125-4) allow certain exceptions for changes to circumstances, such as the birth of a child, getting married or divorced, etc.

Over the last few months, many employees have experienced changes that have forced them to reconsider the elections they made last Fall for the 2020 plan year. For example, the sudden unavailability of childcare and summer camps means employees may not incur enough expenses to use the money they are putting into dependent care FSAs. Additionally, the temporary suspension of non-essential medical services potentially limits some employees’ abilities to use their health FSAs. However, the current regulations generally do not allow mid-year changes for these situations.

Summary of Notice

In general, Notice 2020-29 provides the following relief relating to mid-year election changes for the calendar year 2020:

  • With respect to employer-sponsored health coverage, employers can allow employees to make a prospective mid-year change to (a) add coverage if the employee initially declined to elect employer-sponsored health coverage; (b) change plan options; or (c) drop coverage if the employee attests in writing that s/he has enrolled or immediately will enroll, in other health coverage.
  • With respect to a health FSA, employers can allow employees to revoke an election, make a new election, or decrease or increase an existing election on a prospective basis.
  • With respect to a dependent care FSA, employers can allow employees to revoke an election, make a new election, or decrease or increase an existing election on a prospective basis.

Additional relief is provided for calendar year health and dependent care FSAs with grace periods that ended in 2020, and for non-calendar year health and dependent care FSAs for plan years ending in 2020. Specifically, the Notice permits employers to allow employees to apply any unused balances as of the end of the grace period or plan year to otherwise eligible expenses incurred through December 31, 2020. 

For example, assume a participant in a calendar year health FSA still had an unused balance of $100 when the plan’s grace period ended on March 15, 2020.  Under normal circumstances, the participant would forfeit that $100. Under the Notice, however, the employer now has the option of letting the employee use that $100 to pay for expenses incurred after March 15, but no later than December 31, 2020.


Robert Davis is a managing director at Deloitte Consulting LLP and leads the Washington Rewards Policy Center of Excellence.