Cafeteria Plan Provisions of the Consolidated Appropriations Act, 2021
The Consolidated Appropriations Act, 2021 (the “CAA”) provides employers with the ability to adopt optional relief provisions for participants in cafeteria plans with healthcare and dependent care flexible spending accounts (“FSAs”). These provisions are aimed at preventing forfeiture of unused account balances at the end of the 2020 and 2021 plan years. The unused amounts have often arisen due to the COVID-19 pandemic triggering extended medical provider, school, and daycare closures, and remote work arrangements. Grace Period Extensions and Unlimited Carryover Amounts The CAA provides employers with two options for the use of leftover FSA amounts. First, an employer can extend the grace period to use these amounts in the following plan year from two months and fifteen days to twelve months after the end of the plan year. Accordingly, unused FSA amounts as of the end of the 2020 plan year may be used for qualifying medical and dependent care expenses through the end of the 2021 plan year, and unused FSA amounts as of the end of the 2021 plan year can be used for qualifying medical and dependent care expenses through the end of the 2022 plan year. It is important to note that participants cannot contribute to health savings accounts while healthcare FSA funds are available during a grace period. Thus,...