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Notice 2020-29 and Uniform Coverage Rule

Christine Roberts

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This relates to health FSAs.  Notice 2020-29 allows employers to treat the dollar amount of year-to-date reimbursed claims as a floor, below which participants may not reduce deferrals.  However does the uniform coverage rule still apply to claims incurred before the change in coverage?  This would seem to result in rewarding participants who delay submitting requests for reimbursements?

Example 1 - Late Reimbursement Request

• For the 2020 plan year, Lucy elected to contribute $1,200 to a health FSA, or $100 per month. She has

contributed $600 for Jan-June 2020.

  • On May 1, Lucy incurs a claim for $1,200.

• On July 1st, Lucy reduces her 2020 election to $10 per month for the remainder of the plan year. She expects

to contribute $60 for July-Dec 2020 ($660 in total).

• The employer can limit Lucy’s ability to reduce her annual election if she had received more than $660 in

total reimbursements before July 1, under Notice 2020-29.

• But the uniform coverage rule in the section 125 regulations arguably still allows Lucy to submit her May-incurred claim for

$1,200 for reimbursement.


Example 2 - Prompt Reimbursement Request.

Same facts as above, but Lucy submits her claim for reimbursement in June 2020.  On July 1, Notice 2020-29 allows the employer to prevent Lucy from reducing her deferrals because her May claim was $1,200, her full deferral budget.

This discussion suggests scenario 1 can be avoided "by carefully defining the period of coverage for 2020."  I am not sure how that would work but would welcome comments.

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  • 4 months later...

We're supposed to have IRS guidance on the CAA FSA election change rules any day now.  This may be something they address.  I've seen the FSA TPAs take every different position on these, and I don't think there is any right answer at this point.

The CAA rules throw another curveball at the uniform coverage rule with the health FSA spend down option.  That seems to almost by necessity involve an exception to the uniform coverage rule.  The provision isn't practical unless the plan can limit the spend down to amounts contributed YTD (as with the dependent care FSA) prior to termination.  But again, something I expect to be addressed when the IRS issues its much-anticipated CAA FSA guidance.

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